Franchise Operating Rights & Goodwill

12 Months Ended

Dec. 31, 2022

Franchise Operating Rights & Goodwill

Franchise Operating Rights & Goodwill

6. Franchise Operating Rights & Goodwill

Changes in the carrying amounts of the Company’s franchise operating rights and goodwill during 2022 and 2021 are set forth below:

	January 1,				December 31,
	2022		Impairment		2022
	(in millions)
Franchise operating rights	$	620.1	$	(35.0)	$	585.1
Goodwill		225.1		—		225.1
	$	845.2	$	(35.0)	$	810.2

	January 1,				December 31,
	2021		Impairment		2021
	(in millions)
Franchise operating rights	$	620.1	$	—	$	620.1
Goodwill		225.1		—		225.1
	$	845.2	$	—	$	845.2

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 lowest level of identifiable cash flows, which 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 annual analysis performed on October 1, 2022, the estimated fair value of two franchise operating right assets were determined to be below the carrying value, which resulted in the recognition of non-cash impairment losses of $6.5 million and $28.5 million for the Panama City, FL and Huntsville, AL markets, respectively.

The Company recognized non-cash impairment losses of $35.0 million, nil and $14.0 million for the years ended December 31, 2022, 2021, and 2020, respectively. The primary driver of the impairment charge in the years presented was a decline in estimated fair market value of indefinite-lived intangible assets in certain markets. The decline is primarily due to the increase in the discount rate combined with the decline in the Company’s common stock price. 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. In the event that a quantitative analysis is performed, any excess of the carrying value of goodwill over the estimated fair value of goodwill is expensed as an impairment loss.

The Company determines the estimated fair value utilizing a market approach that incorporates 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.

Based on the analysis performed for the current year and prior two years, the estimated fair value of goodwill exceeded the carrying value, as such, no impairment charge was recognized during these periods.

The Company had accumulated goodwill impairment losses of $193.9 million for both the years ended December 31, 2022 and 2021.