NOTE 7: GOODWILL, OTHER INTANGIBLE ASSETS AND INTANGIBLE LIABILITIES

Goodwill and other intangible assets consisted of the following (in thousands):



	December 31, 2017							December 31, 2016
	Gross Amount		Accumulated Amortization			Net Amount		Gross Amount		Accumulated Amortization			Net Amount
Other intangible assets subject to amortization
Affiliate relationships (useful life of 16 years)	$	212,000	$	(66,250	)	$	145,750	$	212,000	$	(53,000	)	$	159,000
Advertiser relationships (useful life of 8 years)	168,000		(105,000		)	63,000		168,000		(84,000		)	84,000
Network affiliation agreements (useful life of 5 to 16 years)	362,000		(175,337		)	186,663		362,000		(133,725		)	228,275
Retransmission consent agreements (useful life of 7 to 12 years)	830,100		(377,033		)	453,067		830,100		(286,994		)	543,106
Other (useful life of 5 to 15 years)	16,650		(6,565		)	10,085		15,448		(4,695		)	10,753
Total	$	1,588,750	$	(730,185	)	858,565		$	1,587,548	$	(562,414	)	1,025,134
Other intangible assets not subject to amortization
FCC licenses						740,300							779,200
Trade name						14,800							14,800
Total other intangible assets, net						1,613,665							1,819,134
Goodwill						3,228,988							3,227,930
Total goodwill and other intangible assets						$	4,842,653						$	5,047,064

The changes in the carrying amounts of intangible assets, which are in the Company’s Television and Entertainment segment, during the years ended December 31, 2017 and December 31, 2016 were as follows (in thousands):



Other intangible assets subject to amortization
Balance as of December 31, 2015	$	1,192,602
Amortization (1)(2)	(167,717		)
Balance sheet reclassifications (3)	9
Foreign currency translation adjustment	240
Balance as of December 31, 2016	$	1,025,134
Amortization (1)(2)	(167,560		)
Balance sheet reclassifications (3)	86
Foreign currency translation adjustment	905
Balance as of December 31, 2017	$	858,565

Other intangible assets not subject to amortization
Balance as of December 31, 2015	$	797,400
Impairment charge	(3,400		)
Balance as of December 31, 2016	$	794,000
Reclassification to assets held for sale (4)	(38,900		)
Balance as of December 31, 2017	$	755,100

Goodwill
Gross balance as of December 31, 2015	$	3,609,224
Accumulated impairment losses as of December 31, 2015	(381,000		)
Balance as of December 31, 2015	3,228,224
Foreign currency translation adjustment	(294		)
Balance as of December 31, 2016	$	3,227,930
Foreign currency translation adjustment	1,058
Balance as of December 31, 2017	$	3,228,988
Total goodwill and other intangible assets as of December 31, 2017	$	4,842,653


(1)	Beginning in the fourth quarter of 2016, the Television and Entertainment reportable segment includes the operations of Covers, including the goodwill and other intangible assets subject to amortization allocated in accordance with ASC Topic 350 guidance, which was previously included in the Digital and Data reportable segment.


(2)	Amortization of intangible assets includes $1 million related to lease contract intangible assets and is recorded in cost of sales or SG&A expense, if applicable, in the Consolidated Statements of Operations.


(3)	Represents net reclassifications which are reflected as a decrease to broadcast rights assets in the Consolidated Balance Sheets at December 31, 2017 and December 31, 2016.


(4)	See Note 6 for additional information regarding FCC licenses reclassified to assets held for sale.

The Company recorded contract intangible liabilities totaling $227 million in connection with the adoption of fresh-start reporting on the Effective Date. Of this amount, approximately $226 million was related to contracts for broadcast rights programming not yet available for broadcast. In addition, the Company recorded $9 million of intangible liabilities related to contracts for broadcast rights programming in connection with the acquisition of all of the issued and outstanding equity interests in Local TV on December 27, 2013 (the “Local TV Acquisition”). These intangible liabilities are reclassified as a reduction of broadcast rights assets in the Consolidated Balance Sheet as the programming becomes available for broadcast and subsequently amortized as a reduction of programming expenses in the Consolidated Statements of Operations in accordance with the Company’s methodology for amortizing the related broadcast rights. As of December 31, 2016, the remaining contract intangible liabilities for broadcast rights programming not yet available for broadcast have been reclassified as a reduction of broadcast rights assets or amortized as a reduction of programming expense and the balance was reduced to zero.

During the year ended December 31, 2016, the net changes in the carrying amounts of intangible liabilities, which are in the Company’s Television and Entertainment segment, included $12 million of amortization expense and $2 million of balance sheet reclassifications reflected as a reduction in broadcast rights assets in the Company’s Consolidated Balance Sheet. During the year ended December 31, 2017, the net changes in the carrying amounts of intangible liabilities were immaterial and the balance was reduced to zero.

The Company amortizes its intangible assets subject to amortization on a straight-line basis over their respective useful lives. The remaining intangible assets subject to amortization as of December 31, 2017, excluding lease contract intangible assets, have a weighted-average remaining useful life of approximately seven years. Amortization expense relating to these amortizable intangible assets is expected to be approximately $167 million in 2018, $140 million in 2019, $134 million in 2020, $103 million in 2021 and $84 million in 2022.

Impairment of Goodwill and Other Indefinite-lived Intangible Assets—As disclosed in Note 1, the Company reviews goodwill and other indefinite-lived intangible assets for impairment annually, or more frequently if events or changes in circumstances indicate that an asset may be impaired, in accordance with ASC Topic 350.

There were no goodwill impairment charges recorded in 2017 or 2016.

In the fourth quarter of 2015, the Company conducted its annual goodwill impairment test in accordance with guidance effective in 2015 utilizing the two-step impairment test in accordance with ASC Topic 350. As a result of the impairment review, the Company recorded a non-cash impairment charge of $381 million to write down its cable reporting unit goodwill (a reporting unit within the Television and Entertainment reportable segment).

During 2015, the Company accelerated the pace of the transformation of the Company’s national general entertainment cable network, WGN America, from a superstation to a cable network. This transformation led to a strategic shift in the operations of WGN America with a renewed focus on increased household distribution and high quality syndicated and original programming that resulted in higher carriage fee revenues and higher programming and other costs. The performance of the new programming did not meet expectations resulting in lower than expected advertising revenues, lower margins and lower current and expected future cash flows than those used to originally record the goodwill in connection with the adoption of fresh-start reporting by the Company in December 2012.

In connection with the 2015 goodwill impairment test, the fair value of the cable reporting unit was determined with consideration of both the income and the market valuation approaches. Under the income approach, the fair value is based on projected future discounted cash flows, which requires management’s assumptions of projected revenues and related growth rates, operating margins, cash payments for broadcast rights, discount rates and terminal growth rates. The Company projected cash flows for 10 years and then applied a terminal growth rate. Key assumptions included a 10.5% discount rate and a terminal growth rate of 2% for its owned cable operations. The Company’s investment in TV Food Network included in the cable reporting unit was valued using the market approach to estimate its fair value by comparison to trading multiples of similar cable networks.

As a result of the 2015 assessment, it was determined that the carrying value of the cable reporting unit exceeded the estimated fair value. Accordingly, a second step of the goodwill impairment test (“Step 2”) was performed specific to the cable reporting unit in accordance with guidance effective in 2015 which compared the implied fair value of the goodwill to the carrying value of such goodwill. Under Step 2, the estimated fair value of goodwill of a reporting unit is determined by calculating the residual fair value that remains after the total estimated fair value of the reporting unit is allocated to its net assets other than goodwill. Other significant intangible assets that were identified and ascribed value as part of the Step 2 included affiliate relationships, advertiser relationships and a trade name. Based on this analysis, the carrying value of the cable reporting unit goodwill exceeded its implied value by $381 million and consequently, the Company recorded an impairment charge of that amount in the Consolidated Statement of Operations for the year ended December 31, 2015. Following the impairment charge, the carrying value of the goodwill at the cable reporting unit was $723 million at December 31, 2015.

No impairment charges were recorded in 2017 for FCC licenses. In the fourth quarter of 2016 and 2015, the Company recorded a non-cash pretax impairment charge of $3 million and $4 million within the Television and Entertainment segment, respectively, related to the Company’s FCC licenses. The estimated fair value of each of the Company’s FCC licenses was based on discounted future cash flows for a hypothetical start-up television station in the respective market that achieves and maintains an average revenue share for four years and has an average cost structure. For the Company’s FCC licenses, significant assumptions also include start-up operating costs for an independent station, initial capital investments and market revenue forecasts. The Company utilized a 9.5% discount rate and terminal growth rate of 2.0% to estimate the fair values of its FCC licenses in the fourth quarter of 2017. Fair value estimates for each of the Company’s indefinite-lived intangible assets are inherently sensitive to changes in these estimates, particularly with respect to the FCC licenses. The Company’s fourth quarter 2016 impairment review determined that the FCC licenses in two markets were impaired and the Company’s fourth quarter 2015 impairment review determined that the FCC license in one market was impaired. The impairments were primarily due to declines in estimated future market revenues available to a hypothetical start-up television station in these markets.

The Company’s FCC licenses and trade name constitute nonfinancial assets measured at fair value on a nonrecurring basis in the Company’s Consolidated Balance Sheets. These nonfinancial assets are classified as Level 3 assets in the fair value hierarchy established under ASC Topic 820. See Note 10 for a description of the hierarchy’s three levels. In 2017, the Company participated in the FCC spectrum auction and received $172 million in gross proceeds. As of December 31, 2017, certain FCC licenses that were part of the FCC spectrum auction are included in assets held for sale. The Company expects to recognize a net pretax gain of $133 million in the first quarter of 2018 related to the surrender of the spectrum of these television stations in January 2018. See Note 12 for additional information regarding the Company’s participation in the FCC spectrum auction.

The determination of estimated fair values of goodwill and other indefinite-lived intangible assets requires many judgments, assumptions and estimates of several critical factors, including projected revenues and related growth rates, projected operating margins and cash flows, estimated income tax rates, capital expenditures, market multiples and discount rates, as well as specific economic factors such as market share for broadcasting and royalty rates for the trade name intangible. Adverse changes in expected operating results and/or unfavorable changes in other economic factors could result in additional non-cash impairment charges in the future under ASC Topic 350.