CenterPoint Energy 2012 Annual Report Download - page 89

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67
(c) Asset Retirement Obligations
A reconciliation of the changes in the asset retirement obligation (ARO) liability is as follows (in millions):
December 31,
2011 2012
Beginning balance ....................................................................................................................... $ 84 $ 156
Accretion expense ....................................................................................................................... 5 7
Revisions in estimates of cash flows........................................................................................... 67 1
Ending balance ............................................................................................................................ $ 156 $ 164
The increase of $67 million in the ARO from the revision of estimate in 2011 is primarily attributable to an increase in the
disposal costs used in the cash flow assumptions. There were no material additions or settlements during the years ended
December 31, 2011 and 2012.
(4) Goodwill
Goodwill by reportable business segment as of December 31, 2011 and changes in the carrying amount of goodwill as of
December 31, 2012 are as follows (in millions):
December 31,
2011 Impairment
Charge Acquisition December 31,
2012
Natural Gas Distribution...................................................... $ 746 $ — $ — $ 746
Interstate Pipelines............................................................... 579 — — 579
Competitive Natural Gas Sales and Services ...................... 335 252 — 83
Field Services ...................................................................... 25 — 24 49
Other Operations ................................................................. 11 — — 11
Total................................................................................... $ 1,696 $ 252 $ 24 $ 1,468
CenterPoint Energy performs its goodwill impairment tests at least annually and evaluates goodwill when events or changes
in circumstances indicate that its carrying value may not be recoverable. The impairment evaluation for goodwill is performed by
using a two-step process. In the first step, the fair value of each reporting unit is compared with the carrying amount of the reporting
unit, including goodwill. The estimated fair value of the reporting unit is generally determined on the basis of discounted cash
flows. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, then a second step
must be completed in order to determine the amount of the goodwill impairment that should be recorded. In the second step, the
implied fair value of the reporting unit’s goodwill is determined by allocating the reporting unit’s fair value to all of its assets and
liabilities other than goodwill (including any unrecognized intangible assets) in a manner similar to a purchase price allocation.
The resulting implied fair value of the goodwill that results from the application of this second step is then compared to the carrying
amount of the goodwill and an impairment charge is recorded for the difference.
CenterPoint Energy performed its annual impairment test in the third quarter of 2012 and determined that a non-cash goodwill
impairment charge in the amount of $252 million was required for the Competitive Natural Gas Sales and Services reportable
segment. CenterPoint Energy also determined that no impairment charge was required for any other reportable segment. Other
intangibles were not material as of December 31, 2011 and 2012.
CenterPoint Energy estimated the value of the Competitive Natural Gas Sales and Services reporting unit using an income
approach. Under this approach, the fair value of the reporting unit is determined by using the present value of future expected cash
flows, which are based on management projections of revenue growth, gross margin, and overall market conditions. These estimated
future cash flows are then discounted using a rate that approximates the weighted average cost of capital of a market participant.
The Competitive Natural Gas Sales and Services reporting unit fair value analysis resulted in an implied fair value of goodwill
of $83 million for this reporting unit, and as a result, a non-cash impairment charge in the amount of $252 million was recorded
in the third quarter of 2012. The adverse wholesale market conditions facing CenterPoint Energy's energy services business,