Vectren 2012 Annual Report Download - page 55

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53
Impact of Recently Issued Accounting Guidance
Other Comprehensive Income (OCI)
In 2011, the FASB issued new accounting guidance regarding the presentation of comprehensive income within financial
statements. The new guidance requires entities to report components of comprehensive income in either (1) a continuous
statement of comprehensive income or (2) two separate but consecutive statements. Under the two-statement approach, the
first statement would include components of net income, which is consistent with the income statement format used today, and
the second statement would include components of OCI. The guidance does not change the items that must be reported in
OCI. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011
and retrospective application is required. The Company adopted this guidance, as amended for condensed quarterly reporting,
for the quarterly reporting period ended March 31, 2012 by reporting comprehensive income as required.
Goodwill Testing
In September 2011, the FASB issued new accounting guidance regarding testing goodwill for impairment. The new guidance
allows the Company an option to first assess qualitative factors to determine whether it is necessary to perform the two-step
quantitative goodwill impairment test. Using the new guidance, the Company no longer would be required to calculate the fair
value of a reporting unit unless the Company determines, based on that qualitative assessment, that it is more likely than not
that its fair value is less than its carrying amount. The Company considered this option during its quarterly reporting period
ended March 31, 2012 and concluded the continuation of the use of a quantitative approach is appropriate.
Fair Value Measurement and Disclosure
In May 2011, the FASB issued accounting guidance to improve the comparability of fair value measurements presented and
disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards
(IFRS). The amendments are not intended to change the application of the current fair value requirements, but to clarify the
application of existing requirements. The guidance does change particular principles or requirements for measuring fair value or
disclosing information about fair value measurements. To improve consistency, language has been changed to ensure that U.S.
GAAP and IFRS fair value measurement and disclosure requirements are described in the same way. The Company adopted
this guidance for its quarterly reporting period ended March 31, 2012. The adoption of this guidance did not have a material
impact on our financial position, results of operations or cash flows.
Critical Accounting Policies
Management is required to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated
financial statements and the related disclosures that conform to accounting principles generally accepted in the United
States. The footnotes to the consolidated financial statements describe the significant accounting policies and methods used in
their preparation. Certain estimates are subjective and use variables that require judgment. These include the estimates to
perform goodwill and other asset impairments tests and to determine pension and postretirement benefit obligations. The
Company makes other estimates related to the effects of regulation that are critical to the Company’s financial results but that
are less likely to be impacted by near term changes. Other estimates that significantly affect the Company’s results, but are not
necessarily critical to operations, include depreciating utility and nonutility plant, valuing reclamation liabilities, and estimating
uncollectible accounts, unbilled revenues, deferred income taxes, and coal reserves, among others. Actual results could differ
from these estimates.
Impairment Review of Investments and Long-Lived Assets
The Company has both debt and equity investments in unconsolidated entities. When events occur that may cause an
investment to be impaired, the Company performs both a qualitative and quantitative review of that investment and when
necessary performs an impairment analysis. An impairment analysis of notes receivable usually involves the comparison of the
investment’s estimated free cash flows to the stated terms of the note, or in certain cases for notes that are collateral dependent,
a comparison of the collateral’s fair value, to the carrying amount of the note. An impairment analysis of equity investments