Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2012

Goodwill and Other Intangible Assets

Note 6 — Goodwill and Other Intangible Assets

We operate in three reportable segments, Hospitality, Advertising Services and Healthcare, for which only Hospitality and Advertising Services have goodwill.

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 FASB 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 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 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 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.

We perform our annual goodwill impairment test for each reporting unit during the fourth quarter.

In accordance with FASB ASC Topic 350, “Intangibles — Goodwill and Other,” finite lived assets shall be reviewed for impairment with the guidance in FASB ASC Topic 360, “Property, Plant and Equipment.” Impairment testing is not required for our finite-life intangibles unless there is a triggering event or a change in circumstances which indicate the carrying value may not be recoverable, such as a significant deterioration in market conditions. The carrying amount of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. That assessment shall be based on the carrying amount of the asset or asset group at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset or asset group exceeds its fair value.

The declines in Guest Entertainment revenue and in our room base during 2012 occurred at a rate greater than what previously estimated. In addition, our market capitalization declined during 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 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 impairment test, we recorded a non-cash asset impairment charge in our Hospitality segment of $92.6 million for all of the remaining Hospitality goodwill.

The liquidity constraints and other events discussed elsewhere triggered an assessment of the recoverability of our goodwill as of December 31, 2012. Under the first step of the two step process, our Advertising unit’s fair value substantially exceeded its carrying value as of December 31, 2012 and, as a result, no further evaluation is required and no impairment loss existed.

In our 2011 and 2010 tests, we determined there was no impairment.

The carrying amount of goodwill by reportable segment for the years ended December 31, 2012, 2011 and 2010 was as follows (dollar amounts in thousands):

			Advertising
	Hospitality		Services		Total
Balance as of December 31, 2010
Goodwill	$	92,614	$	18,679	$	111,293
Accumulated impairment losses	-		(11,212)		(11,212)
	92,614		7,467		100,081
Activity during the period	-		-		-

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 December 31, 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. As a result of our analysis over the long-lived assets, the undiscounted cash flows of the assets exceeded the carrying amount as of December 31, 2012 and, as a result, no further evaluation is required and no impairment loss existed.

The decline in Guest Entertainment revenue, in our room base and our market capitalization triggered an assessment of our intangible assets in the second quarter of 2012. As a result, we recorded a $1.4 million non-cash asset impairment charge related to intangible assets in our Hospitality segment under depreciation and amortization expenses. There were no triggering events or change in circumstances for the years ended 2011 or 2010; therefore, there were no impairment charges recorded.

We have the following intangible assets at December 31 (dollar amounts in thousands):

	2012				2011
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
Assets subject to amortization:
Acquired contracts and relationships	$	116,915	$	(34,302)	$	120,315	$	(30,237)
Other acquired intangibles	12,101		(11,808)		13,988		(13,273)
Tradenames	3,025		(2,674)		3,145		(2,508)
Acquired patents	5,227		(5,046)		5,216		(5,004)
	$	137,268	$	(53,830)	$	142,664	$	(51,022)

We recorded amortization expense of $8.2 million, $7.5 million and $8.2 million, respectively, for the years ended December 31, 2012, 2011 and 2010. We estimate total amortization expense for the years ending December 31 as follows (dollar amounts in millions): 2013 - $6.2; 2014 - $6.0; 2015 - $6.0; 2016 - $5.9 and 2017 - $5.9. Actual amounts may change from such estimated amounts due to recapitalization, additional intangible asset acquisitions, potential impairment, accelerated amortization or other events.

- 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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