Vectren 2012 Annual Report Download - page 56

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54
involves comparison of the investment’s estimated fair value to its carrying amount and an assessment of whether any decline in
fair value is “other than temporary.” Fair value is estimated using market comparisons, appraisals, and/or discounted cash flow
analysis.
Property, plant and equipment along with other long-lived assets are reviewed as facts and circumstances indicate that the
carrying amount may be impaired. This impairment review involves the comparison of an asset’s (or group of assets’) carrying
value to the estimated future cash flows the asset (or asset group) is expected to generate over a remaining life. If this
evaluation were to conclude that the carrying value is impaired, an impairment charge would be recorded based on the
difference between the carrying amount and its fair value (less costs to sell for assets to be disposed of by sale).
Calculating free cash flows and fair value using the above methods is subjective and requires judgment concerning growth
assumptions, longevity of cash flows, and discount rates (for fair value calculations), among others.
Over the year’s presented, the Company has recorded charges associated with legacy commercial real estate and other
investments using the methods described above.
Related to the Company owned coal mines, an undiscounted cash flow analysis was performed during 2012 supporting the
carrying amount of each coal mine. However, should market conditions worsen, impairments affecting these and other assets
could result and actual realized values could differ from the current carrying values.
Goodwill & Intangible Assets
The Company performs an annual impairment analysis of its goodwill, most of which resides in the Gas Utility Services
operating segment, at the beginning of each year, and more frequently if events or circumstances indicate that an impairment
loss may have been incurred. Impairment tests are performed at the reporting unit level. The Company has determined its Gas
Utility Services operating segment as identified in Note 21 to the consolidated financial statements to be the level at which
impairment is tested as its components are similar. Nonutility Group impairment testing for its Infrastructure Services and
Energy Services segments are also performed at the operating segment level. An impairment test requires fair value to be
estimated. The Company used a discounted cash flow model and other market based information to estimate the fair value of
its Gas Utility Services operating segment, and that estimated fair value was compared to its carrying amount, including
goodwill. Goodwill related to the Nonutility Group is also tested using market comparable data, if readily available, or a
discounted cash flow model. The estimated fair value has been substantially in excess of the carrying amount in each of the last
three years and therefore resulted in no impairment.
Estimating fair value using a discounted cash flow model is subjective and requires significant judgment in applying a discount
rate, growth assumptions, company expense allocations, and longevity of cash flows. A 100 basis point increase in the discount
rate utilized to calculate the Gas Utility Services segment’s fair value also would have resulted in no impairment charge.
The Company also annually tests non-amortizing intangible assets for impairment and amortizing intangible assets are tested on
an event and circumstance basis. During the last three years, these tests yielded no impairment charges.
Pension & Other Postretirement Obligations
The Company estimates the expected return on plan assets, discount rate, rate of compensation increase, and future health
care costs, among other inputs, and obtains actuarial estimates to assess the future potential liability and funding requirements
of the Company's pension and postretirement plans. The Company used the following weighted average assumptions to
develop 2012 periodic benefit cost: a discount rate of approximately 4.8 percent, an expected return on plan assets of 7.75
percent, a rate of compensation increase of 3.5 percent, and an inflation assumption of 2.75 percent. Due to low interest rates,
the discount rate is 70 basis points lower from the assumption used in 2011. The rate of return and inflation rates were also
lowered 25 basis points. To estimate 2013 costs, the discount rate, expected return on plan assets, rate of compensation
increase, and inflation assumption were approximately 4.0 percent, 7.75 percent, 3.5 percent, and 2.75 percent respectively,
reflecting the further reductions in interest rates. Management currently estimates a pension and postretirement cost of