CenterPoint Energy 2013 Annual Report Download - page 87

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Impairment of Long-Lived Assets, Including Identifiable Intangibles, Goodwill and Equity Method Investments
We review the carrying value of our long-lived assets, including identifiable intangibles, goodwill and equity method
investments whenever events or changes in circumstances indicate that such carrying values may not be recoverable, and at least
annually for goodwill as required by accounting guidance for goodwill and other intangible assets. A loss in value of an equity
method investment is recognized when the decline is deemed to be other than temporary. Unforeseen events and changes in market
conditions could have a material effect on the value of long-lived assets, including intangibles, goodwill and equity method
investments due to changes in estimates of future cash flows, interest rate and regulatory matters and could result in an impairment
charge. We recorded goodwill impairment of $-0-, $252 million and $-0- during 2013, 2012 and 2011. We did not record material
impairments to long-lived assets, including intangibles, or equity method investments during 2013, 2012, and 2011.
We performed our annual goodwill impairment test in the third quarter of 2013 and determined, based on the results of the
first step, using the income approach, no impairment charge was required for any reporting unit. Our reporting units approximate
our reportable segments.
Fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties and may
be estimated using a number of techniques, including quoted market prices or valuations by third parties, present value techniques
based on estimates of cash flows, or multiples of earnings or revenue performance measures. The fair value of the asset could be
different using different estimates and assumptions in these valuation techniques.
The determination of fair value requires significant assumptions by management which are subjective and forward-looking
in nature. To assist in making these assumptions, we utilized a third-party valuation specialist in both determining and testing key
assumptions used in the valuation of each of our reporting units. We based our assumptions on projected financial information
that we believe is reasonable; however, actual results may differ materially from those projections. These projected cash flows
factor in planned growth initiatives, and for our Natural Gas Distribution reporting unit, the regulatory environment. The fair
value of our Natural Gas Distribution and Energy Services reporting units exceeded the carrying value by approximately $2.3
billion and $259 million, respectively, or approximately 80% and 50%, excess fair value over the carrying values for each reporting
unit, respectively. A key assumption in the income approach was the weighted average cost of capital of 5.1% and 6.0% applied
in the valuation for Natural Gas Distributions and Energy Services, respectively.
Although there was not a goodwill asset impairment in our 2013 annual test, an interim impairment test could be triggered
by the following: actual earnings results that are materially lower than expected, significant adverse changes in the operating
environment, an increase in the discount rate, changes in other key assumptions which require judgment and are forward looking
in nature, or if our market capitalization falls below book value for an extended period of time. No impairment triggers were
identified subsequent to our 2013 annual test.
Unbilled Energy Revenues
Revenues related to electricity delivery and natural gas sales and services are generally recognized upon delivery to customers.
However, the determination of deliveries to individual customers is based on the reading of their meters, which is performed on
a systematic basis throughout the month either electronically through AMS meter communications or manual readings. At the end
of each month, deliveries to non-AMS customers since the date of the last meter reading are estimated and the corresponding
unbilled revenue is estimated. Information regarding deliveries to AMS customers after the last billing is obtained from actual
AMS meter usage data. Unbilled electricity delivery revenue is estimated each month based on actual AMS meter data, daily
supply volumes and applicable rates. Unbilled natural gas sales are estimated based on estimated purchased gas volumes, estimated
lost and unaccounted for gas and tariffed rates in effect. As additional information becomes available, or actual amounts are
determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting
estimates.