Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2012

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Note 3 — Goodwill and Other Intangible Assets

Goodwill represents the excess of cost over the fair value of net assets acquired.  In 2007, we recorded goodwill in connection with the acquisitions of StayOnline, On Command and The Hotel Networks.  The product lines of both StayOnline and On Command shared the same operating and economic characteristics as our pre-acquisition product lines, and were integrated into the Hospitality operating segment.

Per Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, “Intangibles – Goodwill and Other,” our goodwill is not amortized; rather, it is tested for impairment annually or if there is a triggering event which indicates the carrying value may not be recoverable.  An entity may first assess qualitative factors to evaluate if the existence of events or circumstances leads to a determination it is necessary to perform the current two-step goodwill impairment test.  After assessing the totality of events or circumstances, if it is determined it is more likely than not the fair value of a reporting unit is less than its carrying amount, then the two-step impairment test must be performed for that reporting unit or units.  An entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to the two-step impairment test, and then resume performing the qualitative assessment in any subsequent period.  If an entity determines it is necessary to perform the two-step test, the first step is to compare a reporting unit’s fair value to its carrying amount.  If the carrying amount is positive and does not exceed the reporting unit’s fair value, no impairment loss exists.  If the carrying amount exceeds the reporting unit’s fair value, the second step (Step 2) is to be performed.  Reporting units with zero or negative carrying amounts are required to perform Step 2 of the goodwill impairment test if it is more likely than not goodwill impairment exists.  In considering whether it is more likely than not that an impairment loss exists, we evaluate qualitative factors, including the same factors which would trigger an interim impairment test of goodwill.  Factors include a significant deterioration in market conditions, unanticipated competition, a significant decline in revenue and margin or an anticipated sale of a reporting unit.  If an entity determines it is more likely than not that an impairment exists, Step 2 of the impairment test must be performed for that reporting unit or units.  Step 2 involves allocating the fair value of the reporting unit to each asset and liability, with the excess being implied goodwill.  An impairment loss results if the amount of recorded goodwill exceeds the implied goodwill.

The declines in Guest Entertainment revenue and in our room base during 2012 have occurred at a rate greater than what we previously estimated.  In addition, our market capitalization declined during the first half of 2012.  The declines in Guest Entertainment revenue and room base during the first half of 2012 caused the Company to reassess and update our financial plans to reflect these changes in our Hospitality business.  These matters were qualitative factors impacting the recovery of our Hospitality reporting unit goodwill, and triggered an assessment of goodwill on an interim basis during the second quarter of 2012.  As of June 30, 2012, our Hospitality reporting unit had a negative carrying value of $(85.7) million.  As such, we evaluated the qualitative factors and determined it was more likely than not that an impairment existed.  In Step 2 of our impairment testing, it was determined the estimated fair value of the assets and liabilities of the Hospitality reporting unit exceeded the fair value of the reporting unit, resulting in no implied goodwill.  As a result of our second quarter 2012 impairment test, we recorded a non-cash asset impairment charge in our Hospitality segment of $92.6 million related to goodwill.

The carrying amount of goodwill by reportable segment was as follows (dollar amounts in thousands):

			Advertising
	Hospitality		Services		Total
Balance as of December 31, 2011
Goodwill	$	92,614	$	18,679	$	111,293
Accumulated impairment losses	-		(11,212)		(11,212)
	92,614		7,467		100,081
Activity during the period - Impairment charge	(92,614)		-		(92,614)
Balance as of September 30, 2012
Goodwill	92,614		18,679		111,293
Accumulated impairment losses	(92,614)		(11,212)		(103,826)
	$	-	$	7,467	$	7,467

We have intangible assets consisting of certain acquired technology, patents, trademarks, hotel contracts, customer relationships, studio agreements and licensee fees.  These intangible assets have been deemed to have finite useful lives and are amortized over their current estimated useful lives, ranging from 2 to 20 years.  We review the intangible assets for impairment when triggering events occur or a change in circumstances, such as a significant deterioration in market conditions, warrant modifications to the carrying amount of the assets.  We have concluded that our liquidity constraints as more fully described in Note 1 and Note 6 have not resulted in any intangible asset impairments as of September 30, 2012.

We had the following intangible assets (dollar amounts in thousands):

	September 30, 2012				December 31, 2011
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
Assets subject to amortization:
Acquired contracts and relationships	$	116,915	$	(32,822)	$	120,315	$	(30,237)
Other acquired intangibles	12,101		(11,797)		13,988		(13,273)
Tradenames	3,024		(2,608)		3,145		(2,508)
Acquired patents	5,219		(5,044)		5,216		(5,004)
	$	137,259	$	(52,271)	$	142,664	$	(51,022)

We recorded amortization expense of $6.7 million and $5.6 million, respectively, for the nine months ended September 30, 2012 and 2011.  During the three months ended September 30, 2012 and 2011, we recorded amortization expense of $1.6 million and $1.8 million, respectively.  During the second quarter of 2012, due to changes in our broadband business, including continued room loss, we recorded a $1.4 million non-cash asset impairment charge related to intangible assets.  We estimate total amortization expense for the three months remaining in 2012 and the years ending December 31 as follows (dollar amounts in millions): 2012 - $1.6; 2013 - $6.1; 2014 - $6.0; 2015 - $6.0; 2016 - $5.9 and 2017 - $5.9.  Actual amounts may change from such estimated amounts due to additional intangible asset acquisitions, potential impairment, accelerated amortization or other events.