Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2022

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Note 4:    Goodwill and Other Intangible Assets

Goodwill is evaluated for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that could more likely than not reduce the fair value of a reporting unit below its carrying value.

During the second quarter of 2022, the Company completed a quantitative impairment analysis for goodwill related to its Legacy and Digital reporting units due to its financial performance. Based on this analysis, the Company concluded the fair value of its Legacy and Digital reporting units exceeded its carrying value and as such, no impairment charge was recorded.

As part of the Company’s impairment analysis, the determination of the fair value of the Company’s reporting units requires the Company to make significant estimates and assumptions including the business and financial performance of the Company’s reporting units, as well as how such performance may be impacted by COVID-19. These estimates and assumptions primarily include, but are not limited to: the selection of appropriate peer group companies, control premiums appropriate for acquisitions in the industries in which the Company competes, discount rates, terminal growth rates, forecasts of revenue, operating income, depreciation, amortization and capital expenditures, including considering the impact of COVID-19. Certain events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately affect the estimated fair values of the Company’s reporting units include such items as: (i) a decrease in expected future new release movie titles resulting from the prolonged effects of the COVID-19 pandemic (ii) an increase in competition across streaming platforms resulting in fewer titles available at Redbox or fewer rental transactions and (iii) the inability to achieve cost savings or growth initiative targets within an expected timeframe.

Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions, including the impact of COVID- 19, could have a significant impact on either the fair value of the reporting units, the amount of any goodwill impairment charges, or both. These estimates can be affected by a number of factors including, but not limited to, the impact of COVID-19, its severity, duration and its impact on global economies, general economic conditions as well as the Company’s profitability. The Company will continue to monitor these potential impacts, including the impact of COVID-19 and economic, industry and market trends and the impact these may have on its Legacy and Digital reporting units.

The following table summarizes the changes in goodwill by reportable segment:

	Legacy		Digital
Dollars in thousands	Business		Business		Total
Balance as of December 31, 2020	$	144,014	$	3,509	$	147,523
Balance as of December 31, 2021	$	144,014	$	3,509	$	147,523
Balance as of June 30, 2022	$	144,014	$	3,509	$	147,523

The following table summarizes the carrying amounts and accumulated amortization of intangible assets:

	June 30, 2022							December 31, 2021
		Gross				Net		Gross				Net
	Estimated	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
Dollars in thousands	Useful Life	Amount		Amortization		Amount		Amount		Amortization		Amount
Intangible assets subject to amortization:
Contracts with retailers	7 years	$	370,000	$	(304,516)	$	65,484	$	370,000	$	(278,087)	$	91,913
Trade name	7 years		60,000		(49,381)		10,619		60,000		(45,095)		14,905
Contactable customer list	7 years		40,000		(32,921)		7,079		40,000		(30,063)		9,937
Developed technology	7 years		30,000		(24,690)		5,310		30,000		(22,548)		7,452
Total intangible assets subject to amortization		$	500,000	$	(411,508)	$	88,492	$	500,000	$	(375,793)	$	124,207

The Company recognized amortization expense of $17.9 million for each of the three months ended June 30, 2022 and 2021. The Company recognized amortization expense of $35.7 million for each of the six months ended June 30, 2022 and 2021.

There was no impairment of goodwill and other intangible assets for the three and six months ended June 30, 2022 and 2021.