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Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2012

10. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table summarizes the changes in the carrying amount of goodwill, by segment for the years ended December 31, 2012 and 2011.


			US -		US -		Andes -		MCAC -		EMEA -		Asia -		Corporate
			Generation		Utilities		Generation		Generation		Generation		Generation		and Other		Total

Balance as of December 31, 2010
	Goodwill		$	106	$	-	$	899	$	16	$	180	$	80	$	133	$	1,414
	Accumulated impairment losses			(21)		-		-		-		(122)		-		-		(143)
		Net balance		85		-		899		16		58		80		133		1,271

	Impairment losses			-		-		-		-		-		(17)		-		(17)
	Goodwill acquired during the year			-		2,576		-		-		-		-		-		2,576
	Foreign currency translation
		and other		(10)		-		-		-		-		-		-		(10)

Balance as of December 31, 2011
	Goodwill			96		2,576		899		16		180		80		133		3,980
	Accumulated impairment losses			(21)		-		-		-		(122)		(17)		-		(160)
		Net balance		75		2,576		899		16		58		63		133		3,820

	Impairment losses			-		(1,817)		-		-		-		-		-		(1,817)
	Goodwill associated with the
		sale of a business		-		-		-		-		-		-⁽¹⁾		-		-
	Foreign currency translation
		and other		(9)		-		-		-		-		5		-		(4)

Balance as of December 31, 2012
	Goodwill			87		2,576		899		16		180		68		133		3,959
	Accumulated impairment losses			(21)		(1,817)		-		-		(122)		-		-		(1,960)
		Net balance	$	66	$	759	$	899	$	16	$	58	$	68	$	133	$	1,999

____________________________

Both the gross carrying amount and the accumulated impairment losses of the Asia generation segment have been reduced by $17 million with no impact on the net carrying amount for the segment. This relates to Chigen, which had fully impaired goodwill of $17 million and was sold during the year.

DPL―In connection with its acquisition of DPL, the Company recognized goodwill of approximately $2.6 billion, which was allocated between the two reporting units identified during the purchase price allocation: The Dayton Power and Light Company (“DP&L”, DPL's regulated utility in Ohio) and certain related entities, and DPL Energy Resources, Inc. (“DPLER”, DPL's wholly-owned competitive retail electric service provider). Of the total goodwill, approximately $2.4 billion was allocated to DP&L and the remainder was allocated to DPLER.

On October 5, 2012, DP&L filed for approval an Electric Security Plan (“ESP”) with the Public Utility Commission of Ohio (“PUCO”). The plan was re-filed on December 31, 2012 to correct for certain projected costs. Within the ESP filing, DP&L agreed to request a separation of its generation assets from its transmission and distribution assets in recognition that a restructuring of DP&L operations will be necessary, in compliance with Ohio law. Also, during 2012, North American natural gas prices fell significantly from the previous year exerting downward pressure on wholesale electricity prices in the Ohio power market. Falling power prices compressed wholesale margins at DP&L. Furthermore, these lower power prices have led to increased customer switching from DP&L to other competitive retail electric service (“CRES”) providers, including DPLER, who are offering retail prices lower than DP&L's current standard service offer. Also, several municipalities in DP&L's service territory have passed ordinances allowing them to become government aggregators and some municipalities have contracted with CRES providers to provide generation service to the customers located within the municipal boundaries, further contributing to the switching trend. CRES providers have also become more active in DP&L's service territory. In September 2012, management revised its cash flow forecasts based on these new developments and forecasted lower profitability and operating cash flows than previously prepared forecasts. These new developments have reduced DP&L's forecasted profitability, operating cash flows, liquidity and may impact DPL and DP&L's ability to access the capital markets and maintain their current credit ratings in the future. Collectively, in the third quarter of 2012, these events were considered an interim impairment indicator for goodwill at the DP&L reporting unit. There were no interim impairment indicators identified for the goodwill at DPLER.

The Company performed an interim impairment test for the $2.4 billion of goodwill at the DP&L reporting unit level. In the preliminary Step 1 of the goodwill impairment test, the fair value of the reporting unit was determined under the income approach using a discounted cash flow valuation model. The material assumptions included within the discounted cash flow valuation model were customer switching and aggregation trends, capacity price curves, energy price curves, amount of the non-bypassable charge, commodity price curves, dispatching, transition period for the conversion to a wholesale competitive bidding structure, amount of the standard service offer charge, valuation of regulatory assets and liabilities, discount rates and deferred income taxes. The reporting unit failed the preliminary Step 1 and a preliminary Step 2 of the goodwill impairment test was performed. Further refinements to these assumptions were performed in the fourth quarter of 2012 as part of the finalization of Step 1 and Step 2 tests. During the year ended December 31, 2012, the Company recognized goodwill impairment expense of $1.82 billion at the DP&L reporting unit. DPL is reported in the US Utilities segment. The goodwill associated with the DPL acquisition is not deductible for tax purposes. Accordingly, there is no cash tax or financial statement tax benefit related to the impairment. The pretax impairment impacted the Company's effective tax rate for the year ended December 31, 2012, which was 225%.

Chigen—During the third quarter of 2011, the Company identified higher coal prices and the resulting reduced operating margins in China as an impairment indicator for the goodwill at Chigen, our wholly-owned subsidiary that holds equity interests in Chinese ventures and reported in the Asia Generation segment. A significant downward revision of cash flow forecasts indicated that the fair value of Chigen reporting unit was lower than its carrying amount. As of September 30, 2011, Chigen had goodwill of $17 million. The Company performed an interim impairment evaluation of Chigen's goodwill and determined that goodwill had no implied fair value. As a result, the entire carrying amount of $17 million was recognized as goodwill impairment in the third quarter of 2011.

Deepwater―During the third quarter of 2010, Deepwater, our petcoke-fired merchant generation facility in Texas, reported in the US Generation segment, incurred a goodwill impairment of $18 million. The Company determined the adverse market conditions as an impairment indicator, performed the two-step goodwill impairment test and recognized the entire $18 million carrying amount of goodwill as goodwill impairment in the third quarter of 2010.

Intangible Assets

The following tables summarize the balances comprising other intangible assets in the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011:

		December 31, 2012						December 31, 2011
		Gross		Accumulated		Net		Gross		Accumulated		Net
		Balance		Amortization		Balance		Balance		Amortization		Balance

			(in millions)					(in millions)
Subject to Amortization
Project development rights⁽¹⁾		$	102	$	(1)	$	101	$	109	$	(1)	$	108
Sales concessions			194		(101)		93		199		(95)		104
Contractual payment rights⁽²⁾			72		(23)		49		69		(13)		56
Management rights			40		(14)		26		39		(13)		26
Emission allowances			4		-		4		14		-		14
Electric security plan			87		(87)		-		87		(9)		78
Contracts			44		(20)		24		44		(17)		27
Customer contracts and relationships			66		(26)		40		66		(7)		59
Other⁽³⁾			15		(4)		11		18		(9)		9
	Subtotal		624		(276)		348		645		(164)		481
Indefinite-Lived Intangible Assets
Land use rights			50		-		50		52		-		52
Water rights			18		-		18		5		-		5
Trademark/Trade name			6		-		6		5		-		5
Other			7		-		7		2		-		2
	Subtotal		81		-		81		64		-		64
Total		$	705	$	(276)	$	429	$	709	$	(164)	$	545

_____________________________

Represent development rights, including but not limited to, land control, various permits and right to acquire equity interests in development projects resulting from asset acquisitions by our wind operations in Poland and the U.K.
Represent legal rights to receive system reliability payments from the regulator.
Includes renewable energy credits, land use rights and various other intangible assets none of which is individually significant.

The following table summarizes, by category, intangible assets acquired during the years ended December 31, 2012 and 2011:

December 31, 2012

Subject to

Amortization/

Weighted Average

Amortization

Amount

Indefinite-Lived

Amortization Period

Method

(in millions)

(in years)

Renewable energy certificates

Subject to amortization

Various

As utilized

Water rights

Indefinite-lived

N/A

Other

Indefinite-lived

N/A

Total

December 31, 2011

Subject to

Amortization/

Weighted Average

Amortization

Amount

Indefinite-Lived

Amortization Period

Method

(in millions)

(in years)

Electric security plan^{(1) (2)}

Subject to amortization

Straight line

Customer relationships^{(1) (3)}

Subject to amortization

Other

Customer contracts^{(1) (4)}

Subject to amortization

Other

Trademark/Trade name^{(1) (5)}

Indefinite-lived

N/A

Other

Subject to amortization

Various

As utilized

Total

156

Represents intangible assets arising from the acquisition of DPL. See Note 24―Acquisitions and Dispositions for further information.
Electric Security Plan is a rate plan for the supply and pricing of electric generation service applicable to Ohio's electric utilities under state law. It provides a level of price stability to consumers of electricity as compared to market-based electricity prices. The plan was recognized as an intangible asset since the prices under the plan are higher than market prices charged by competitive retailers or CRES.
Customer relationships represent the value assigned to customer information possessed by DPL in the purchase price allocation, where DPL has regular contact with the customer, and the customer has the ability to make direct contact with DPL. See Note 24―Acquisitions and Dispositions for further information.
The amortization method used reflects the pattern in which the economic benefits of the intangible asset are consumed.
Trademark/trade name represents the value assigned to trade name of DPLER, DPL's subsidiary engaged in competitive retail business in Ohio.

The following table summarizes the estimated amortization expense, by intangible asset category, for 2013 through 2017:

	Estimated amortization expense
	2013		2014		2015		2016		2017

		(in millions)
Customer relationships & contracts	$	11	$	5	$	4	$	3	$	3
Sales concessions		8		8		8		8		8
Contractual payment rights		9		9		9		3		3
All other		4		3		3		3		2
Total	$	32	$	25	$	24	$	17	$	16

Intangible asset amortization expense was $119 million, $36 million and $14 million for the years ended December 31, 2012, 2011 and 2010, respectively.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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