v2.4.0.8

Goodwill, Regulatory Authorizations and Other Intangible Assets

12 Months Ended

Dec. 31, 2013

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 our reporting units of our operating segments and is subject to our annual impairment testing, or more frequently when events or changes in circumstances indicate the fair value of a reporting unit is more likely than not less than its carrying amount.

Changes in the carrying amount of our goodwill by reportable segment for the years ended December 31, 2013 and 2012 are as follows:

		EchoStar Technologies			Hughes			Consolidated Total
		(In thousands)
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
Impairment			(3,751	)		—			(3,751	)
​	​	​	​	​	​	​	​	​	​	​
Balance as of December 31, 2013		$	—		$	504,173		$	504,173
​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​

As of December 31, 2013, all of our goodwill was derived from the Hughes Acquisition. During the second quarter of 2013, we applied a qualitative assessment in our annual impairment testing of goodwill assigned to reporting units of the Hughes segment. Based on our assessment as of that date, we determined that no further testing of goodwill for impairment was necessary as it was not more likely than not that the fair values of the Hughes segment reporting units were less than the corresponding carrying amounts.

Prior to 2012, goodwill of $10.4 million was assigned to the Troppus reporting unit of our EchoStar Technologies segment. This goodwill was tested for impairment annually in the fourth quarter. In the fourth quarter of 2012, we determined that the goodwill was impaired and recognized a $6.6 million impairment loss to adjust the carrying amount of the goodwill to its implied fair value of $3.8 million. In the fourth quarter of 2013, we determined that the remaining goodwill balance was impaired and recognized a $3.8 million impairment loss to adjust the carrying amount to its implied fair value of zero. Our fair value estimates in 2013 and 2012 were based on updated business plans and the application of probability-weighted discounted cash flow techniques. Our estimates included significant unobservable inputs and are categorized within Level 3 of the fair value hierarchy.

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 $6.5 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.

Regulatory Authorizations

Regulatory Authorizations included amounts with finite and indefinite useful lives, as follows:

		As of December 31,
		2013			2012
		(In thousands)
Finite useful lives:
Cost		$	113,764		$	71,055
Accumulated amortization			(1,521	)		—
​	​	​	​	​	​	​	​
Net			112,243			71,055
Indefinite lives			471,657			491,657
​	​	​	​	​	​	​	​
Total regulatory authorizations, net		$	583,900		$	562,712
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​

In December 2013, we acquired 100.0% of Solaris Mobile which is based in Dublin, Ireland and licensed by the European Union ("EU") and individual Member States to provide MSS and a complementary ground component services covering the entire EU using S-band spectrum. On the acquisition date, Solaris Mobile lacked certain inputs and processes that would be necessary to be considered a business. Accordingly, we accounted for the transaction as an acquisition of net assets. The primary acquired asset was an EU Regulatory Authorization for S-band frequencies, which had a cost of $51.8 million, consisting of $43.4 million in cash payments and $10.3 million in assumed liabilities. The cost of the Regulatory Authorization is being amortized using the straight-line method over the remaining term of the authorization ending in May 2027.

In June 2013 we entered into an agreement with DISH Network pursuant to which we conveyed to DISH Network certain of our rights under a Canadian Regulatory Authorization to develop certain spectrum rights at the 103 degree west longitude orbital location, which we acquired in 2012. In the third quarter of 2013, we received $23.1 million from DISH Network in exchange for these rights. In accordance with accounting principles that apply to transfers of assets between companies under common control, we did not recognize any gain on this transaction. Rather, we increased our additional paid-in capital to reflect the excess of the cash payment over the carrying amount of the derecognized intangible asset, net of related income taxes.

In May 2012, we acquired an authorization to use the 45 degree west longitude orbital location in the Ku, Ka, and S-band spectrums from ANATEL, the Brazilian communications regulatory authority (the "Brazil authorization"), for cash of 145.2 million Brazilian reais (approximately $72.5 million based on the exchange rate at the time of payment). The Brazil authorization has a 15-year initial term and a one-time 15-year renewal term, which we expect to renew. The cost of the Brazil authorization, together with estimated renewal costs of approximately $5.6 million, is being amortized on a straight-line basis over the remaining expected term of 28 years commencing in June 2013, which was when a satellite was deployed in the orbital location for testing pursuant to the Brazil authorization.

Amortization expense for the Regulatory Authorizations with finite useful lives was $1.5 million for the year ended December 31, 2013. There was no amortization expense for the years ended December 31, 2012 and 2011.

Other Intangible Assets

Our other intangible assets, which are subject to amortization, primarily resulted from our acquisition of Hughes in 2011, consisted of the following:

				As of December 31,
				2013									2012
		Weighted Average Useful life (in Years)
				Cost			Accumulated Amortization			Carrying Amount			Cost			Accumulated Amortization			Carrying Amount
				(In thousands)
Customer relationships		8		$	293,932		$	(152,647	)	$	141,285		$	293,932		$	(113,906	)	$	180,026
Contract-based		10			255,366			(204,835	)		50,531			255,366			(178,138	)		77,228
Technology-based		7			126,272			(83,580	)		42,692			126,387			(66,338	)		60,049
Trademark portfolio		20			29,700			(3,836	)		25,864			29,700			(2,351	)		27,349
Favorable leases		4			4,707			(3,040	)		1,667			4,707			(1,863	)		2,844
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total other intangible assets				$	709,977		$	(447,938	)	$	262,039		$	710,092		$	(362,596	)	$	347,496
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

Customer relationships are amortized predominantly in relation to the expected contribution of cash flow to the business over the life of the intangible asset. 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, 2013, 2012 and 2011, intangible asset amortization expense was $88.4 million, $91.7 million and $107.0 million, respectively, including amortization of Regulatory Authorizations with finite lives.

Future Amortization

As of December 31, 2013, our estimated future amortization of intangible assets was as follows:

		Amount
		(In thousands)
For the Years Ending December 31,
2014		$	85,921
2015			66,289
2016			47,498
2017			28,541
2018			20,825
Thereafter			130,834
​	​	​	​	​
Total		$	379,908
​	​	​	​	​
​	​	​	​	​

Impairments of Intangible Assets

In connection with the Hughes Acquisition, we acquired contractual rights to receive $44.0 million in cash discounts on future launch services ("Credits") and assigned an estimated fair value of $22.0 million to the Credits on the acquisition date. 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 $22.0 million impairment loss to reduce the carrying amount of the Credits to their estimated fair value of zero as of December 31, 2012.

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 $4.2 million of impairment loss to reduce the carrying amount of the assets to their estimated fair value of 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.

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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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-Publisher FASB

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