Franchise Operating Rights & Goodwill

12 Months Ended

Dec. 31, 2019

Franchise Operating Rights & Goodwill

Franchise Operating Rights & Goodwill

7. Franchise Operating Rights & Goodwill

Changes in the carrying amounts of the Company’s franchise operating rights and goodwill during 2019 and 2018 are set forth below:

	January 1,				December 31,
	2019		Impairment		2019
	(in millions)
Franchise operating rights	$	809.2	$	(9.7)	$	799.5
Goodwill		408.8		—		408.8
	$	1,218.0	$	(9.7)	$	1,208.3

	January 1,				December 31,
	2018		Impairment		2018
	(in millions)
Franchise operating rights	$	952.4	$	(143.2)	$	809.2
Goodwill		481.9		(73.1)		408.8
	$	1,434.3	$	(216.3)	$	1,218.0

Franchise Operating Rights

The Company evaluates the recoverability of its franchise operating rights at least annually on October 1, or more frequently whenever events or substantive changes in circumstances indicate that the assets might be impaired. Franchise operating rights are evaluated for impairment by comparing the carrying value of the intangible asset to its estimated fair value, utilizing both quantitative and qualitative methods, at the reporting unit level. Reporting units identified generally represent the markets in which the Company operates. Qualitative analysis is performed for franchise assets in the event the previous analysis indicates that there is a significant margin between the estimated fair value of franchise operating rights and the carrying value of those rights, and that it is more likely than not that the estimated fair value equals or exceeds its carrying value.

For franchise operating rights that were evaluated using quantitative analysis, the Company calculates the estimated fair value of franchise operating rights using the multi-period excess earnings method, an income approach, which calculates the estimated fair value of an intangible asset by discounting its future cash flows. The estimated fair value is determined based on discrete discounted future cash flows attributable to each franchise operating right intangible asset using assumptions consistent with internal forecasts. Assumptions key in estimating fair value under this method include, but are not limited to, revenue and subscriber growth rates (less anticipated customer churn), operating expenditures, capital expenditures (including any build out), market share achieved or market multiples, contributory asset charge rates, tax rates and a discount rate. The discount rate used in the model represents a weighted average cost of capital and the perceived risk associated with an intangible asset such as the Company’s franchise operating rights. If the fair value of the franchise operating right asset was less than its carrying value, the Company recognizes an impairment charge for the difference between the fair value and the carrying value of the asset.

As a result of the analysis performed on October 1, 2019, the estimated fair value of two reporting units was determined to be below the carrying value, which resulted in the recognition of non-cash impairment losses of $4.2 million and $5.5 million in the Newnan, GA and Dothan, AL reporting units, respectively.

The Company recognized non-cash impairment losses of $9.7 million, $143.2 million, and $14.1 million for the years ended December 31, 2019, 2018, and 2017 respectively. The primary driver of the impairment charges in the years presented was a decline in estimated fair market value of the price of indefinite-lived intangible assets in certain reporting units, as indicated by the decline in the Company’s common stock.  The impairment charges do not have an impact on the Company’s intent and/or ability to renew or extend existing franchise operating rights.

Goodwill

The Company evaluates goodwill for impairment at least annually on October 1, at the reporting unit level utilizing both quantitative and qualitative methods. Qualitative analysis is performed for goodwill in the event the previous analysis indicates that there is a significant margin between estimated fair value and carrying value of goodwill, and that it is more likely than not that the estimated fair value exceeds the carrying value. Any excess of the carrying value of goodwill over the estimated fair value of goodwill is expensed as an impairment loss.

For the 2017 and 2018 quantitative evaluations of goodwill, the Company utilized both an income approach as well as a market approach. The income approach utilized a discounted cash flow analysis to estimate the fair value of the Company, while the market approach utilized multiples derived from actual precedent transactions of similar businesses, the market value of the Company and market valuations of guideline public companies. As part of the 2018 analysis, the Company recognized a change in reporting units as a result of significant changes in personnel, reporting and operating structure which occurred throughout 2018. As a result of this change, the Company completed an assessment of any potential impairment for all reporting units immediately prior to and after the reporting unit change and determined no impairment existed.

For the 2019 evaluation of goodwill, the Company determined the estimated fair value utilizing a market approach that incorporated the approximate market capitalization as of the annual testing date, increased by the quoted market price of the Company’s debt and adjusted for a control premium. The change in approach is attributed to the change to a single reporting unit in the 2018 quantitative evaluation. As a result of the analysis performed on October 1, 2019, the estimated fair value of goodwill exceeded the carrying value and as such, no impairment existed.

The Company recognized non-cash impairment losses of nil, $73.1 million and $133.3 million for the years ended December 31, 2019, 2018, and 2017, respectively. The primary driver of the impairment charge in 2018 was a decline estimated fair market value of in the price of goodwill in certain reporting units, as indicated by the decline in the Company’s common stock. The Company recognized the 2018 impairment charge as a result of the identification of a triggering event in the first quarter of 2018. The Company has accumulated impairment losses of $206.4 million for both years ended December 31, 2019 and 2018.