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Franchising Operating Rights and Goodwill
6 Months Ended
Jun. 30, 2023
Franchising Operating Rights and Goodwill  
Franchising Operating Rights and Goodwill

Note 5. Franchising Operating Rights and Goodwill

Changes in the carrying amounts of the Company’s franchise operating rights and goodwill during the three and six months ended June 30, 2023 are set forth below:

January 1,

June 30,

    

2023

    

Impairment

    

2023

(in millions)

Franchise operating rights

$

585.1

$

(128.1)

$

457.0

Goodwill

 

225.1

 

 

225.1

$

810.2

$

(128.1)

$

682.1

Due to the decline in the Company’s stock price, which represented a triggering event during the three months ended June 30, 2023, the Company performed an interim impairment analysis of its franchise operating rights and goodwill.

Franchise Operating Rights

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 the interim impairment analysis, all franchise operating rights 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 interim impairment analysis, the estimated fair value of certain franchise operating right assets was determined to be below the carrying value, which resulted in the recognition of non-cash impairment losses in the following markets:

Impairment

(in millions)

Huntsville, AL

$

60.0

Augusta, GA

24.4

Panama City, FL

13.5

Montgomery, AL

13.0

Newnan, GA

9.5

Valley, AL

4.0

Columbus, GA

3.7

Total

$

128.1

The primary driver of the impairment charge was a decline in the estimated fair market value of indefinite-lived intangible assets in certain markets. The decline is primarily due to declining cash flows, which results in an 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

For the interim impairment analysis, the Company quantitatively evaluated goodwill at the consolidated reporting unit level. The Company determined the estimated fair value utilizing a market approach that incorporated the approximate market capitalization as of the interim testing date, increased by the quoted market price of the Company’s debt and adjusted for a control premium.

Based on the interim analysis, the estimated fair value of goodwill exceeded the carrying value, as such, no impairment charge related to goodwill was recognized during the three and six months ended June 30, 2023.