Franchising Operating Rights and Goodwill

9 Months Ended

Sep. 30, 2024

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 nine months ended September 30, 2024 and 2023 are set forth below:

	Three months ended				Nine months ended
	September 30,				September 30,
	2024		2023		2024		2023
	(in millions)
Franchise Operating Rights
Balance at beginning of period	$	278.3	$	457.0	$	278.3	$	585.1
Impairment charge		—		(131.7)		—		(259.8)
Balance at end of period	$	278.3	$	325.3	$	278.3	$	325.3
Goodwill
Balance at beginning of period	$	225.1	$	225.1	$	225.1	$	225.1
Impairment charge		—		—		—		—
Balance at end of period	$	225.1	$	225.1	$	225.1	$	225.1

Due to the decline in the Company’s projected cash flows, combined with a reduction in stock price, which represented a triggering event during the three months ended September 30, 2023, the Company performed an interim impairment analysis of its franchise operating rights and goodwill.  The Company did not identify a triggering event for the three and nine months ended September 30, 2024 and as such, an interim impairment analysis was not necessary.  During the three months ended June 30, 2023, the Company had a triggering event that resulted in an interim impairment analysis of the franchise operating rights and goodwill which resulted in the recognition of non-cash impairment losses.  

Franchise Operating Rights

Franchise operating rights are evaluated for impairment annually 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 any 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 is 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 performed during the three months ended September 30, 2023, 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.  The Company also performed an interim impairment analysis for the three months ended June 30, 2023, which resulted in the recognition of non-cash impairment losses.

The table below outlines the impairment charges recognized in each market for the periods presented:

	Three months ended				Nine months ended
	September 30,				September 30,
	2024		2023		2024		2023
	(in millions)
Columbus, GA	$	—	$	35.4	$	—	$	39.1
Huntsville, AL		—		21.5		—		81.5
Augusta, GA		—		20.5		—		44.9
Montgomery, AL		—		20.0		—		33.0
Charleston, SC		—		12.5		—		12.5
Panama City, FL		—		9.5		—		23.0
Valley, AL		—		6.5		—		10.5
Knoxville, TN		—		5.8		—		5.8
Newnan, GA		—		—		—		9.5
Total	$	—	$	131.7	$	—	$	259.8

The primary driver of the impairment charges 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 used to estimate fair value, 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, for the three months ended September 30, 2023, the estimated fair value of goodwill exceeded the carrying value, as such, no impairment charge related to goodwill was recognized during the three and nine months ended September 30, 2023.  There were no triggering events identified during the three and nine months ended September 30, 2024 resulting in no need to perform an interim impairment analysis.