GOODWILL AND INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2011

9. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The changes in the carrying amount of goodwill by segment are as follows at the dates indicated (in thousands):


	Pipelines & Terminals		International Operations		Natural Gas Storage			Energy Services		Development & Logistics		Total
December 31, 2010	$	248,250	$	—	$	169,560		$	1,132	$	13,182	$	432,124
Acquisition		—		490,536		—			—		—		490,536
Impairment charge		—		—		(169,560	)		—		—		(169,560	)

December 31, 2011	$	248,250	$	490,536	$	—		$	1,132	$	13,182	$	753,100

During 2011, we concluded the continued downward performance in operating income and Adjusted EBITDA (as defined in Note 25) in the Natural Gas Storage segment due to decreases in contracted storage prices relating to low volatility in natural gas prices and compressed seasonal spreads was an impairment indicator; therefore, we performed an interim goodwill impairment test. The estimate of the fair value of the Natural Gas Storage reporting unit was determined using a combination of an expected present value of future cash flows and a market multiple valuation method. Due to the current market conditions, we weighted 100% to the expected present value of future cash flows method.

Our Natural Gas Storage reporting unit failed the first step of the goodwill impairment test; therefore, we performed the second step. As a result of our step two analysis, we concluded goodwill in the Natural Gas Storage segment was fully impaired and recorded a non-cash goodwill impairment charge of $169.6 million in the third quarter of 2011. We considered the goodwill impairment an indicator of impairment related to the long-lived assets associated with the Natural Gas Storage reporting unit. Accordingly, we evaluated these assets for impairment and concluded that no impairment of the long-lived asset existed.

For our annual goodwill impairment test as of January 1, 2012, we performed a qualitative assessment to determine whether the fair value of the Pipelines & Terminals reporting unit was more likely than not less than the carrying amount based on economic conditions and industry and market considerations. We determined the fair value of the reporting unit exceeded the carrying amount; therefore, the two-step impairment test was not required. For the other reporting units, we calculated the fair value of each of the remaining reporting units. Based on such calculations, each reporting unit’s fair value was in excess of its carrying value. We did not record any goodwill impairments for the years ended December 31, 2010 and 2009.

Intangible Assets

Intangible assets consist of the following at the dates indicated (in thousands):


	December 31,
	2011			2010
Customer relationships		$229,300			$38,300
Accumulated amortization		(18,839	)		(8,600	)

Net carrying amount		210,461			29,700

Customer contracts		28,683			19,743
Accumulated amortization		(8,576	)		(5,376	)

Net carrying amount		20,107			14,367

Total intangible assets		$230,568			$44,067

We anticipate the customer relationships with the BORCO facility will extend well beyond the existing contractual terms with a recovery period of approximately 20 years after taking into consideration the following: i) the expected useful life of the relationships approximates the useful life of the storage tanks used to serve these customers; ii) the facility is the fourth largest marine crude oil and petroleum products storage terminal in the world and the largest in the Caribbean, strategically positioned to facilitate international logistics and provides full terminalling services to customers; iii) the facility currently has a long term agreement with the Bahamian government to lease 330 acres of seabed on which our jetties are located through 2057; and iv) historically low customer attrition related to this facility. We believe amortizing the customer relationships on a straight-line basis is appropriate as it approximates the deprecation method applied to the storage tanks.

For the years ended December 31, 2011, 2010 and 2009, amortization expense related to intangible assets was $13.4 million, $4.5 million and $3.5 million, respectively. Amortization expense related to intangible assets is expected to be approximately $14.6 million for 2012, $14.6 million for 2013, $14.4 million for 2014, $13.4 million for 2015 and $11.7 million for 2016.

- 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.

+ References+ Details