XML 109 R29.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
 12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS:
GOODWILL - Goodwill represents future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration paid or transferred over the fair value of identifiable net assets acquired. Goodwill is not amortized, but instead is subject to impairment testing on an annual basis, and between annual tests whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount.

The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year beginning with a qualitative assessment at the reporting unit level. The reporting unit level is identified by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available, whether segment management regularly reviews the operating results of those components and whether the economic and regulatory characteristics are similar. Factors utilized in the qualitative analysis performed on goodwill in our reporting units include, among other things, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, company specific operating results and other relevant entity-specific events affecting individual reporting units.

If sufficient qualitative factors exist, goodwill impairment is determined using a two-step process. Step one identifies potential impairment by comparing the fair value of a reporting unit to the book value, including goodwill. The Company estimates the fair value of a reporting unit using a discounted cash flow analysis.  Management also considers other methods, which includes a market multiples analysis. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions include, but are not limited to, forecasts of future operating results, discount and growth rates, capital expenditures, tax rates, and projected terminal values. Changes in estimates or the application of alternative assumptions could produce significantly different results. If the fair value exceeds book value, goodwill of the reporting unit is not considered impaired. If the book value exceeds fair value, step two is undertaken, which compares the implied fair value of the reporting unit's goodwill to the book value of the reporting unit goodwill. If the book value of goodwill exceeds the implied fair value, an impairment charge is recognized for the excess.

Total goodwill of $702.1 million and $734.6 million was recorded on the consolidated balance sheets as of December 31, 2019 and 2018, respectively. As of December 31, 2019, $700.2 million was included in the ETG Utility Operations segment and $1.9 million was included in the Corporate & Services segment. In addition, goodwill values reclassified to Assets Held for Sale included $0.1 million in the ELK Utility Operations segment (see Note 1).

As of December 31, 2018, $730.9 million was included in the ETG Utility Operations segment, $3.6 million was included in the On-Site Energy Production segment, and $0.1 million was included in the ELK Utility Operations segment.
SJG does not have any goodwill.

In 2019, as a result of the agreement to sell MTF & ACB (see Note 1), the Company recorded a $3.6 million impairment charge on goodwill due to the purchase price being less than the total carrying value. This impairment charge was taken at the On-Site Energy Production segment and recorded to Impairment Charges on the consolidated statements of income.

The Company performed the remainder of its 2019 and 2018 annual goodwill impairment assessments and concluded that the fair value of all other reporting units containing goodwill exceeded their respective carrying values. The Company concluded based on the results of the annual testing performed that there were no additional goodwill impairments identified for the years ended December 31, 2019 and 2018.

In connection with the 2017 annual goodwill impairment assessment, the Company performed a qualitative assessment over its business units and noted that as a result of the continuing cash flow losses incurred at the LFGTE's business unit, the two-step impairment test was necessary during 2017. Based on the results of the goodwill impairment test, the Company determined that the carrying value of the LFGTE's reporting unit was higher than the fair value, and accordingly, the Company recognized a pre-tax impairment charge of $1.3 million during the year ended December 31, 2017, recorded in Impairment Charges on the consolidated statements of income and included in the Company's On-Site Energy Production segment.

The following table summarizes the changes in goodwill for the years ended December 31, 2019 and 2018, respectively (in thousands):

20192018
Beginning Balance, January 1 $734,607  $3,578  
Goodwill from AEP Acquisition1,843  —  
Goodwill from ETG and ELK Acquisition —  756,247  
ETG and ELK Acquisition-related Working Capital Settlement(15,600) —  
ETG and ELK Fair Value Adjustments During Measurement Period (15,143) (25,218) 
Impairment Charge(3,637) —  
Ending Balance, December 31$702,070  $734,607  

IDENTIFIABLE INTANGIBLE ASSETS - The primary identifiable intangible assets of the Company are customer relationships, including those obtained in the acquisition of AEP (see Note 20), along with the AMA (see Note 1). The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Considerations may include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company's long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives (finite-lived intangible assets) are amortized, primarily on a straight-line basis, over their useful lives, generally ranging from 2 to 20 years.

In 2019, as a result of the agreement to sell MTF & ACB (see Note 1), the Company recorded a $4.8 million impairment charge on identifiable intangible assets due to the purchase price being less than the total carrying value. This impairment charge was taken at the On-Site Energy Production segment and recorded to Impairment Charges on the consolidated statements of income. No impairment charges were taken on identifiable intangible assets in 2018. In 2017, SJI recorded a $2.2 million impairment charge specific to the LFGTE intangible assets related to customer relationships, which was primarily driven by revised assumptions for decreased electric production and increased operating expenses, and was recorded in Impairment Charges on the consolidated statements of income, and in the Company's On-Site Energy Production segment.
SJI's identifiable intangible assets were as follows (in thousands):
As of December 31, 2019
Gross CostAccumulated AmortizationIdentifiable Intangible Assets, Net
Identifiable intangible assets subject to amortization:
     Customer Relationships$2,400  $(53) $2,347  
     AMA (See Note 1)19,200  (7,680) 11,520  
Total$21,600  $(7,733) $13,867  

As of December 31, 2018
Gross CostAccumulated AmortizationIdentifiable Intangible Assets, Net
Identifiable intangible assets subject to amortization:
     Customer Relationships$14,400  $(2,880) $11,520  
     AMA (See Note 1)19,200  (2,560) 16,640  
Total$33,600  $(5,440) $28,160  

The net identifiable intangible asset balances shown in the table above are included in Other Noncurrent Assets on the consolidated balance sheets as of December 31, 2019 and 2018, respectively. The decrease in the net identifiable intangible asset balance from the prior year is due to the impairment charges discussed above, customer relationships being reclassified to Assets Held for Sale as part of the agreement to sell MTF/ACB (see Note 1), and amortization recorded in 2019, partially offset by customer relationships recorded in connection with the AEP acquisition during the third quarter of 2019 (see Note 20).

Total SJI amortization expense related to identifiable intangible assets was $6.1 million, $3.5 million, and $1.0 million for the years ended December 31, 2019, 2018, and 2017, respectively.

As of December 31, 2019, SJI's estimated amortization expense related to identifiable intangible assets for each of the five succeeding fiscal years is as follows (in thousands):

Year ended December 31, SJI
2020$5,280  
20215,280  
20221,440  
2023160  
2024160  

The decreases in estimated amortization expense in the table above are due to the AMA ceasing in March 2022 (see Note 1).

SJG does not have any identifiable intangible assets.