GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2020

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 quantitatively. Potential impairment is identified 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, an impairment charge is recognized for the excess up until the amount of goodwill allocated to the reporting unit.

As a result of the COVID-19 pandemic and the resulting macroeconomic market conditions, the Company determined it necessary to perform a quantitative goodwill impairment analysis on the goodwill at the ETG reporting unit as of March 31, 2020. There were no impairments recorded as a result of this interim impairment test. During the second quarter of 2020, management did not identify any qualitative factors indicating that it was more likely than not that the fair value of the ETG reporting unit was less than its carrying amount. Should economic conditions deteriorate in future periods or remain depressed for a prolonged period of time, estimates of future cash flows and market valuation assumptions may not be sufficient to support the carrying value, requiring impairment charges in the future.

Total goodwill of $702.1 million was recorded on the condensed consolidated balance sheets as of both June 30, 2020 and December 31, 2019. As of both June 30, 2020 and 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.

IDENTIFIABLE INTANGIBLE ASSETS - The primary identifiable intangible assets of the Company are customer relationships obtained in the acquisition of AEP (see Note 17), 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.

SJI's identifiable intangible assets were as follows (in thousands):

	As of June 30, 2020
	Gross Cost		Accumulated Amortization		Identifiable Intangible Assets, Net
Identifiable intangible assets subject to amortization:
Customer Relationships	$	2,400	$	(133)	$	2,267
AMA	19,200		(10,240)		8,960
Total	$	21,600	$	(10,373)	$	11,227

	As of December 31, 2019
	Gross Cost		Accumulated Amortization		Identifiable Intangible Assets, Net
Identifiable intangible assets subject to amortization:
Customer Relationships	$	2,400	$	(53)	$	2,347
AMA	19,200		(7,680)		11,520
Total	$	21,600	$	(7,733)	$	13,867

The net identifiable intangible asset balances shown in the table above are included in Other Noncurrent Assets on the condensed consolidated balance sheets.

Total SJI amortization expense related to identifiable intangible assets was $1.3 million and $1.5 million for the three months ended June 30, 2020 and 2019, respectively, and $2.6 million and $3.0 million for the six months ended June 30, 2020 and 2019, respectively. No impairment charges were recorded on identifiable intangible assets during the three and six months ended June 30, 2020 or 2019.

As of June 30, 2020, 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 (remaining six months)	2,640
2021	5,280
2022	1,440
2023	160
2024	160

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