Goodwill, Regulatory Authorizations and Other Intangible Assets

12 Months Ended

Dec. 31, 2012

Goodwill, Regulatory Authorizations and Other Intangible Assets

Goodwill, Regulatory Authorizations and Other Intangible Assets

Note 9. Goodwill, Regulatory Authorizations and Other Intangible Assets

Goodwill

The excess of the cost of an acquired business over the fair values of net tangible and identifiable intangible assets at the time of the acquisition is recorded as goodwill. Goodwill is assigned to reporting units of our operating segments and is subject to our annual impairment testing and more frequently when events or changes in circumstances indicate the fair value of a reporting unit may be less than its carrying amount. Changes in the carrying amount of our goodwill by reportable segment, for the years ended December 31, 2012 and 2011, are as follows:

	EchoStar Technologies			Hughes			Consolidated Total
	(In thousands)
Balance as of December 31, 2010	$	6,457		$	—		$	6,457
Troppus acquisition	10,363			—			10,363
Hughes acquisition	—			516,198			516,198
Balance as of December 31, 2011	16,820			516,198			533,018
Deferred tax adjustment	—			(12,025		)	(12,025		)
Contribution to DISH Digital	(6,457		)	—			(6,457		)
Impairment	(6,612		)	—			(6,612		)
Balance as of December 31, 2012	$	3,751		$	504,173		$	507,924

As of December 31, 2012, the majority of our goodwill was derived from the Hughes Acquisition. In connection with our final purchase price allocation of the Hughes Acquisition, we made adjustments to increase the deferred tax assets and deferred tax liabilities in the aggregate by $12 million with a corresponding adjustment to goodwill in the first quarter of 2012. During the second quarter of 2012, we performed step one of our annual two-step test of impairment of Hughes goodwill. Step one involves a comparison of the estimated fair value of each reporting unit with its carrying amount, including goodwill. We estimated the fair value of the reporting units using discounted cash flow techniques, which included significant assumptions about prospective financial information, terminal value, and discount rates. Based on this quantitative test, we determined that the estimated fair values of the Hughes reporting units were in excess of the corresponding carrying amounts, including goodwill. Accordingly, we concluded that Hughes goodwill was not impaired and it was not necessary to perform step two of the two-step goodwill impairment test.

In connection with the formation of DISH Digital in July 2012, we contributed the net assets and business of Move Networks, Inc., a reporting unit of our EchoStar Technologies segment that we acquired in 2010, to DISH Digital. Goodwill of $6 million assigned to this reporting unit was reclassified to our investment in DISH Digital. See Note 19 for additional information about our investment in the DISH Digital.

During the fourth quarter of 2012, we performed our annual impairment test of goodwill assigned to the Troppus reporting unit of our EchoStar Technologies segment. Based on an updated business plan and the application of probability-weighted discounted cash flow techniques to estimate the fair value of the reporting unit, we determined that the goodwill was impaired and recognized a $7 million impairment loss to adjust the carrying amount of the goodwill to its implied fair value of $4 million. Our fair value estimate included significant unobservable inputs and is categorized within Level 3 of the fair value hierarchy.

Regulatory Authorizations

Regulatory authorizations consisted of the following:

	As of December 31,
	2012		2011
	(In thousands)
Indefinite lives	$	491,657	$	469,810
Finite lives	71,055		—
Total regulatory authorizations	$	562,712	$	469,810

The majority of our regulatory authorizations have indefinite useful lives as these authorizations can be renewed based on standard procedures and minimal costs. In May 2012, we acquired the right to use the 45 degree west longitude orbital location from ANATEL, the Brazilian communications regulatory authority (the “Brazil authorization”). The Brazil authorization will be amortized on a straight-line basis over the remainder of its 15-year license term when it is placed into service.

Other Intangible Assets

Our intangible assets, which are subject to amortization, consisted of the following:

	Weighted	As of December 31,
	Average	2012							2011
	Useful life			Accumulated			Carrying				Accumulated			Carrying
	(in Years)	Cost		Amortization			Amount		Cost		Amortization			Amount
		(In thousands)
Customer relationships	8	$	293,932	$	(113,906	)	$	180,026	$	295,327	$	(77,560	)	$	217,767
Contract-based	10	255,366		(178,138		)	77,228		255,366		(145,406		)	109,960
Technology-based	7	126,387		(66,338		)	60,049		153,185		(49,307		)	103,878
Trademark portfolio	20	29,700		(2,351		)	27,349		32,191		(1,364		)	30,827
Favorable leases	4	4,707		(1,863		)	2,844		4,707		(687		)	4,020
Total other intangible assets		$	710,092	$	(362,596	)	$	347,496	$	740,776	$	(274,324	)	$	466,452

Customer relationships are amortized predominantly in relation to the estimated discounted cash flows over the life of the intangible. Other intangible assets are amortized on a straight-line basis over the periods the assets are expected to contribute to our cash flows. For the years ended December 31, 2012, 2011 and 2010, amortization expense was $92 million, $107 million and $31 million, respectively.

Future Amortization

As of December 31, 2012, our estimated future amortization of intangible assets was as follows:

	Amount (1)
	(In thousands)
For the Years Ending December 31,
2013	$	69,010
2014	77,599
2015	62,875
2016	42,276
2017	37,154
Thereafter	58,582
Total	$	347,496

(1) Amount does not include estimated amortization on the Brazil authorization as it is not yet placed into service.

Impairments of Intangible Assets

In connection with our annual impairment test of our indefinite-lived intangible assets in the fourth quarter of 2012, we determined that certain terrestrial wireless spectrum assets had nominal value. As a result, we recognized a $4 million of impairment loss to reduce the carrying amount of the assets to their estimated fair value of approximately zero. The impairment losses recognized in the fourth quarter of 2012 were based primarily on fair value estimates using probability-weighted discounted cash flow techniques and limited market data. Our fair value estimates included significant unobservable inputs and are categorized within Level 3 of the fair value hierarchy.

In addition, in connection with the Hughes Acquisition, we acquired contractual rights to receive $44 million in cash discounts on future launch services (“Credits”) and assigned an estimated fair value of $22 million to the Credits on the acquisition date, which was recorded in “Other noncurrent assets, net.” In November 2012, we entered into an agreement for alternative launch services and determined that the potential to realize value from the Credits was less than previously estimated. Based on an updated fair value estimate using unobservable inputs that considered factors such as the viability of the launch services provider and marketability of the Credits, we recognized a $22 million impairment loss to reduce the carrying amount of the Credits to their estimated fair value of approximately zero as of December 31, 2012.

- 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.

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