Acquisition

On April 1, 2016, CES, a wholly-owned subsidiary of CERC, closed the previously announced agreement to acquire the retail energy services business and natural gas wholesale assets of Continuum for $98 million. The purchase price was allocated to identifiable assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. As additional information becomes available, the preliminary purchase price allocation may be revised during the remainder of the measurement period (which will not exceed 12 months from the acquisition date). Any such revisions or changes are not expected to be material.

The following table summarizes the total preliminary purchase price allocation and the fair value amounts recognized for the assets acquired and liabilities assumed related to the acquisition:



	(in millions)
Total purchase price consideration	$	98
Receivables	$	75
Derivative assets	38
Property and equipment	1
Identifiable intangibles	36
Total assets acquired	150
Accounts payable	49
Derivative liabilities	24
Total liabilities assumed	73
Identifiable net assets acquired	77
Goodwill	21
Net assets acquired	$	98

The goodwill of $21 million resulting from the acquisition reflects the excess of the purchase price over the fair value of the net identifiable assets acquired. The goodwill recorded as part of the acquisition primarily reflects the value of the complementary operational and geographic footprints provided, along with the scale, geographic reach and expanded capabilities.

Identifiable intangible assets were recorded at estimated fair value as determined by management based on available information, which includes a preliminary valuation prepared by an independent third party. The significant assumptions used in arriving at the estimated identifiable intangible asset values included management’s estimates of future cash flows, the discount rate which is based on the weighted average cost of capital for comparable publicly traded guideline companies and projected customer attrition rates. The useful lives for the identifiable intangible assets were determined using methods that approximate the pattern of economic benefit provided by the utilization of the assets.

The estimated fair value of the identifiable intangible assets and related useful lives as included in the preliminary purchase price allocation include:



	Estimate Fair Value		Estimate Useful Life
	(in millions)		(in years)
Customer relationships	$	32	15
Covenants not to compete	4		4
Total identifiable intangibles	$	36

Amortization expense related to the above identifiable intangible assets was $1 million for the three and six months ended June 30, 2016 and is expected to be $2 million for 2016.

Revenues of $108 million and operating income of less than $1 million attributable to the acquisition are included in CERC’s Condensed Consolidated Statements of Income for the three and six months ended June 30, 2016.

As Continuum was a non-public company that did not prepare interim financial information, the historical financial information for the businesses and assets acquired was impracticable to obtain. As a result, pro forma results of the acquired businesses and assets are not presented.