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| 1 | ANADARKO PETROLEUM CORP | 5. Impairments For the three and nine months ended September 30, 2009, the Company recognized impairments of $5 million and $74 million, respectively, related to certain transportation contracts included in intangible assets, due to changes in price differentials at specific locations, and also recognized impairments of zero and $5 million, respectively, related to long-lived assets due to the current economic and commodity price environment. These assets were impaired to fair value. The transportation contract impairments relate to the Marketing segment and the long-lived asset impairments relate to the Oil and Gas Exploration and Production segment. The $74 million impairment of transportation contracts reduced the net book value of these contracts to $8 million. Fair value was determined using a discounted cash flow approach, incorporating market-based inputs. The Company determined that this represented a Level 2 fair value measurement. Amortization expense for transportation contracts for the nine months ended September 30, 2009 was $13 million. |
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| 2 | CARDINAL HEALTH INC | 3. IMPAIRMENTS AND LOSS ON SALE OF ASSETS Asset impairments and losses from the sale of assets are classified within impairments and loss on sale of assets within the condensed consolidated statements of earnings. In the first quarter of fiscal 2010, the Company recognized a $22.5 million impairment loss related to the write-down of SpecialtyScripts, LLC (“SpecialtyScripts”), a business within the Pharmaceutical segment, to expected fair value less costs to sell. See Note 4 for further information regarding the anticipated sale of SpecialtyScripts. |
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| 3 | CONOCOPHILLIPS |
Expropriated Assets In April 2008, Burlington Resources, Inc., a wholly owned subsidiary of ConocoPhillips, initiated arbitration before the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) against The Republic of Ecuador and PetroEcuador as a result of their newly-enacted Windfall Profits Tax Law and government-mandated renegotiation of our production sharing contracts. Despite a restraining order issued by the ICSID, Ecuador confiscated Burlington and its co-venturer’s crude oil production and sold the illegally seized crude oil. As a result, our assets in Ecuador were effectively expropriated. Accordingly, in the second quarter of 2009, we recorded a noncash charge of $51 million before- and after-tax related to the full impairment of our exploration and production investments in Ecuador. In the third quarter of 2009, Ecuador took over operations in Block 7 and 21, formalizing the complete expropriation of our assets.
Other Impairments In the third quarter of 2009, long-lived assets held for sale in the R&M segment with a carrying amount of $140 million were written down to their fair value of $92 million, less cost to sell of $5 million, resulting in a before-tax impairment of $53 million. The fair value is a Level 3 measurement in the fair value hierarchy based on a binding negotiated price with a third party, adjusted for the fair value of certain liabilities retained, and subject to management approval. |
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| 4 | Kimco Realty Corporation | 2. Impairments On a continuous basis, management assesses whether there are any indicators, including property operating performance and general market conditions, that the value of the Company’s assets (including any related amortizable intangible assets or liabilities) may be impaired. To the extent impairment has occurred, the carrying value of the asset would be adjusted to an amount to reflect the estimated fair value of the asset. During the first half of 2009, economic conditions had continued to experience volatility resulting in further declines in equity and real estate markets. Increases in capitalization rates, discount rates, vacancies and the deterioration of real estate fundamentals, impacting net operating income and leasing contributed to further declines in real estate markets in general. As a result of the volatility and declining market conditions described above, as well as the Company’s strategy in relation to certain of its non-retail assets, the Company recognized non-cash impairment charges during June 2009, aggregating approximately $176.5 million. Details of these non-cash impairment charges are as follows (in thousands):
Additionally, during the third quarter 2009, various joint ventures recognized non-cash impairment charges aggregating approximately $13.4 million relating to 13 operating properties. The Company’s share of these charges were approximately $2.0 million and are included in Equity in income of joint ventures, net on the Company’s Condensed Consolidated Statements of Operations. During the nine months ended September 30, 2008, the Company recognized a non-cash impairment charge of $9.7 million due to the decline in value of certain marketable equity security investments that were deemed to be other-than-temporary. The Company will continue to assess declines in value of its assets on an on-going basis. Based on these assessments, the Company may determine that one or more of its assets may be impaired due to a decline in value and would therefore write-down its cost basis accordingly (see Notes 3, 5, 6, 7, 8, 9 and 12). |
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| 5 | MIRANT CORP | C. Impairments on Assets Held and Used Bowline Generating Facility Background During the second quarter of 2009, the NYISO issued its annual peak load and energy forecast in its Load and Capacity Data report (the “Gold Book”). The Gold Book reports projected supply and demand for the New York control area for the next ten years. The Gold Book reflected a significant decrease in future demand as a result of current economic conditions and the expected future effects of demand-side management programs in New York. The reduction in future demand as a result of demand-side management programs is being driven primarily by an energy efficiency program being instituted within the State of New York that will seek to achieve a 15% reduction from 2007 energy volumes by 2015. The decrease in the projected future demand resulted in a decrease in the Company’s forecast of the capacity revenue that its 1,139 MW Bowline generating facility will earn in future periods. In addition to the change in the forecasted capacity revenue, Mirant Bowline also received its property tax assessment during the second quarter of 2009. The assessment significantly exceeds the estimated fair value of the generating facility. Based on the Company’s current five-year forecast incorporating these developments, Mirant Bowline is projected to operate at a net loss for the current year and to continue to have operating losses for the next several years because of the excessive level of taxation imposed on the Bowline generating facility combined with the forecasted decrease in capacity revenues. Therefore, the Company determined that the Bowline generating facility should be evaluated for impairment in the second quarter of 2009. Asset Grouping For purposes of impairment testing, a long-lived asset or assets must be grouped at the lowest level of identifiable cash flows. The Company included its Hudson Valley Gas subsidiary in the impairment analysis as the sole function of the pipeline operated by Hudson Valley Gas is to supply gas to the Bowline generating facility. Assumptions and Results The Company developed estimates related to the future costs of the facility, including future property tax payments. Additionally, the Company developed capacity and energy revenue forecasts based on supply and demand assumptions from the NYISO’s Gold Book and proprietary fundamental modeling. The Company also assumed it would monetize excess emissions allowances by selling them. The cash flows for the Bowline generating facility were projected through its estimated remaining useful life of 2027. The sum of the probability weighted undiscounted cash flows for the Bowline generating facility exceeded the carrying value as of June 30, 2009. There were no additional events in the third quarter that required the Company to update its previous impairment analysis. As a result, the Company did not record an impairment charge for the nine months ended September 30, 2009. The carrying value of the Bowline generating facility represented approximately 4% of the Company’s total property, plant and equipment, net at September 30, 2009. Potrero Generating Facility Background In the third quarter of 2009, Mirant Potrero executed a settlement agreement with the City of San Francisco in which it agreed to shut down the Potrero generating facility when it is no longer needed for reliability, as determined by the CAISO. That settlement agreement must be approved by an ordinance adopted by the City of San Francisco before it becomes effective, which approval Mirant Potrero expects to occur in the fourth quarter of 2009. There are several projects underway in the San Francisco area to increase reliability for the region that once completed are expected to reduce and possibly eliminate the need for the Potrero generating facility to operate for reliability reasons. Mirant Potrero agreed in the settlement agreement to submit to the CAISO a notice of intent to shut down the facility as of December 31, 2010. The CAISO will make the final determination on when each of the units at the Potrero generating facility is no longer needed for reliability and may be shut down. As a result of the settlement agreement, the Company evaluated the Potrero generating facility for impairment during the third quarter. See Note L for further discussion of the settlement agreement with the City of San Francisco.
Asset Grouping For purposes of impairment testing, a long-lived asset or assets must be grouped at the lowest level of identifiable cash flows. All of the units at Mirant Potrero are viewed as a single asset group. Additionally, the asset group includes intangible assets recorded at Mirant California for trading and development rights related to Mirant Potrero. Assumptions and Results The Company evaluated the Potrero generating facility for impairment during the third quarter of 2009. The Company’s assessment of Mirant Potrero under the accounting guidance related to the impairment of a long-lived asset involved developing scenarios for the future expected operations of the Potrero generating facility. One such scenario assumed the complete shutdown of the Potrero generating facility in December 2010 in accordance with the timeline proposed in the settlement agreement. The Company also considered additional scenarios that assumed the CAISO would not allow complete shutdown of the facility in December 2010 as expected reliability projects in the City of San Francisco were not completed. The Company determined that the tangible assets for the Potrero generating facility were not impaired because the weighted average sum of the undiscounted cash flows exceeded the carrying value of the tangible assets in the third quarter of 2009. The carrying value of the Potrero generating facility represented approximately 1% of the Company’s total property, plant and equipment, net at September 30, 2009. As a result of certain terms included in the settlement agreement, the Company separately evaluated the trading and development rights associated with the Potrero generating facility for impairment and determined that both of these intangible assets were fully impaired as of September 30, 2009. Accordingly, the Company recognized an impairment loss of $9 million on the unaudited condensed consolidated statement of operations to write off the carrying value of the intangible assets related to the Potrero generating facility. This impairment loss is included in the results of the Company’s California segment for the three and nine months ended September 30, 2009. Contra Costa Generating Facility Background On September 2, 2009, Mirant Delta entered into an extension of its existing PPA with PG&E for Contra Costa units 6 and 7 from November 2011 through April 2013. At the end of the extension, and subject to any necessary regulatory approval, Mirant Delta has agreed to retire Contra Costa units 6 and 7, which began operations in 1964, in furtherance of state and federal policies to retire aging power plants that utilize once-through cooling technology. The agreement to retire these units did not significantly affect the remaining useful life of the Contra Costa generating facility. The Mirant Delta PPA extension is subject to approval by the CPUC. Assumptions and Results The Company evaluated the intangible asset of trading rights related to its Contra Costa generating facility for impairment during the third quarter of 2009 as a result of the shutdown provisions in the extension of the tolling agreement. Since the Contra Costa generating facility is under contract with PG&E through its expected shutdown date of April 2013, the Company determined the intangible asset was fully impaired as of September 30, 2009. The Company recorded an impairment loss of $5 million on the unaudited condensed consolidated statement of operations to write off the carrying value of the trading rights related to the Contra Costa generating facility. This impairment loss is included in the results of the Company’s California segment for the three and nine months ended September 30, 2009.
The following table sets forth by level within the fair value hierarchy the Company’s intangible assets that were accounted for at fair value on a non-recurring basis. All of the Company’s intangible assets that were measured at fair value as a result of an impairment during the current period were categorized in Level 3 as of September 30, 2009 (in millions):
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| 6 | PIONEER NATURAL RESOURCES CO | NOTE M. Impairment of Oil and Gas Properties Oil and gas properties assessments. During the first quarter of 2009 and the third quarter of 2008, the downward adjustments to economically recoverable resource potential in the Company’s Uinta/Piceance area associated with declines in commodity prices and well performance led to the impairment of the net assets in that area. The Company’s estimates of the undiscounted future cash flows attributed to the assets indicated that their carrying amounts were not expected to be recovered. Consequently, the Company recorded noncash charges during the first quarter of 2009 and the third quarter of 2008 of $21.1 million and $89.8 million, respectively, to reduce the carrying value of the Uinta/Piceance area oil and gas properties. The impairment charges reduced the oil and gas properties’ carrying values to their estimated fair values on those dates, represented by the estimated discounted future cash flows attributable to the assets, which were derived from Level 3 fair value inputs. The Company’s primary assumptions of the estimated future cash flows attributable to oil and gas properties are based on (i) proved reserves and risk-adjusted probable and possible reserves and (ii) management’s commodity price outlook.
Goodwill assessments. The Company’s goodwill is attributable to a business combination that was completed in 2004 and is entirely attributable to United States reporting unit. In accordance with ASC 350 (formerly SFAS 142), the Company assesses its goodwill for impairment annually, during the third quarter using a July 1 assessment date, and whenever facts or circumstances indicate that the carrying value of its goodwill may be impaired. The Company’s assessments of goodwill during the third quarters of 2009 and 2008 indicated that it was not impaired. As a result of declines in commodity prices and a significant decline in the Company’s market capitalization during the second half of 2008, the Company assessed whether the carrying value of the United States reporting unit’s goodwill was impaired at December 31, 2008, March 31, 2009 and June 30, 2009 and concluded that it was not impaired based on those assessments. During 2009, commodity prices and the Company’s market capitalization increased, providing an indicator that the carrying value of goodwill is not impaired. The Company’s assessments of goodwill for impairment include estimates of the fair value of its United States reporting unit and comparisons of those fair value estimates with the United States reporting unit’s carrying value. The Company’s estimates of the fair value of its United States reporting unit entail estimating the fair values of the reporting unit’s assets and liabilities. The primary component of those assets and liabilities is comprised of the reporting unit’s oil and gas properties, whose estimated values were based on the estimated discounted future net cash flows expected to be recovered from the properties. The Company’s primary assumptions in preparing the estimated discounted future net cash flows expected to be recovered from the properties are based on (i) proved reserves and risk-adjusted probable reserves, (ii) management’s price outlook, including assumptions as to inflation of costs and expenses, (iii) the estimated discount rate that would be used by purchasers to assess the fair value of the assets and liabilities attributable to the United States reporting unit and (iv) future income tax expense attributable to the net cash flows. Due to the significant decline in the Company’s market capitalization during the second half of 2008, the Company expanded its assessment of goodwill impairment to consider the fair value of the United States reporting unit as determined using both the previously described discounted future net cash flow approach and a market approach. The Company assessed market capitalization over the 30-day and 60-day periods prior to July 1, 2009, June 30, 2009, March 31, 2009 and December 31, 2008 and performed sensitivity valuations of the United States reporting unit’s net assets based on varying valuation combinations of future discounted cash flow assumptions (including assessing future cash flows from proved properties only), market capitalization, control premiums, price inflation assumptions and discount rate assumptions. The Company will assess its goodwill for impairment when facts and circumstances indicate that it may be impaired, but no less often than annually, and such assessments may be affected by (i) additional United States reserve adjustments, both positive and negative, (ii) results of drilling activities, (iii) changes in management’s outlook on commodity prices and costs and expenses, (iv) changes in the Company’s market capitalization, (v) changes in the Company’s weighted average cost of capital and (vi) changes in income taxes. |
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| 7 | SANDRIDGE ENERGY INC | 5. Impairment Under the full cost method of accounting, the net book value of natural gas and crude oil properties, less related deferred income taxes, may not exceed a calculated “ceiling.” The ceiling limitation is the discounted estimated after-tax future net revenue from proved natural gas and crude oil properties, excluding future cash outflows associated with settling asset retirement obligations included in the net book value of natural gas and crude oil properties, plus the cost of properties not subject to amortization. In calculating future net revenues, prices and costs used are those as of the end of the appropriate period. These prices are not changed except where different prices are fixed and determinable from applicable contracts for the remaining term of those contracts. The Company has entered into various commodity derivative contracts; however, these derivative contracts are not accounted for as cash flow hedges. Accordingly, the effect of these derivative contracts has not been considered in calculating the full cost ceiling limitation as of September 30, 2009. The net book value, less related deferred tax liabilities, is compared to the ceiling limitation on both a quarterly and annual basis. Any excess of the net book value, less related deferred taxes, is written off as an expense. An expense recorded in one period may not be reversed in a subsequent period even though higher natural gas and crude oil prices may have increased the ceiling limitation in the subsequent period. During the first quarter of 2009, the Company reduced the carrying value of its natural gas and crude oil properties by $1,304.4 million due to the full cost ceiling limitation. As the full cost ceiling exceeded the net capitalized costs at June 30, 2009 and September 30, 2009, there was no such reduction of the Company’s carrying value of its natural gas and crude oil properties during the second or third quarter of 2009. |
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| 8 | WEYERHAEUSER CO | NOTE 8: REAL ESTATE ASSET IMPAIRMENTS AND OTHER RELATED CHARGES We review homebuilding long-lived assets and investments within our Real Estate segment for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets are stated at cost unless events or circumstances trigger an impairment review. If a triggering event occurs and the asset’s carrying amount is not recoverable, we record an impairment loss, which is the difference between the asset’s book value and fair value. The determination of fair value is based on appraisals and market pricing of comparable assets when that information is available, or the discounted value of estimated future net cash flows from these assets. During 2008 and 2009, unfavorable market conditions caused us to re-evaluate our strategy to develop certain projects, reduce sales prices, and increase customer incentives. The recoverability of our investments was reassessed, which triggered impairment charges. Asset impairments are recorded as adjustments to the cost basis of inventory and investments.
Total Real Estate Impairment and Other Related Charges
The write-off of pre-acquisition costs primarily relates to forfeited deposits on options to purchase land. The charge for third quarter 2009 includes the forfeiture of a deposit on one project that was planned for development of approximately 385 residential lots. As of September 30, 2009, we control approximately 64,000 lots under option. Impairments of investments and other related charges relate to loans and investments in unconsolidated entities. In addition to the Real Estate charges included above, Forest Products has recorded charges for the impairment of interest that previously was capitalized on Real Estate assets of $1 million and $19 million in third quarters 2009 and 2008, respectively, and $2 million and $47 million during the year-to-date periods ended September 30, 2009, and September 28, 2008, respectively. These charges are classified as Forest Products charges for asset impairments in the accompanying Consolidated Statement of Earnings. Given the current economic environment, approximately one-third of our 118 real estate projects had triggering events in third quarter 2009 that required the project to be reviewed for recoverability. Of the projects that were reviewed, 12 were impaired. Additional fair value information related to the Real Estate assets that were impaired in third quarter 2009 is provided in the following table:
The significant unobservable inputs (Level 3) reported above are discounted future cash flows of the projects. We use present value techniques based on discounting the estimated cash flows at a rate commensurate with the inherent risks associated with the assets and related estimated cash flow streams. Discount rates applied to the estimated future cash flows of our homebuilding assets in third quarter 2009 ranged from 12 percent to 21 percent. See “Critical Accounting Policies” in Management’s Discussion and Analysis for additional information regarding our evaluation of real estate impairments. |
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