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GOODWILL AND INTANGIBLE ASSETS | 12 Months Ended
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Dec. 31, 2011
GOODWILL AND INTANGIBLE ASSETS |
GOODWILL AND INTANGIBLE ASSETS |
6. GOODWILL AND INTANGIBLE ASSETS Goodwill The Company tests goodwill for impairment on an annual basis, which has been determined to be as of December 31 of each fiscal year. The Company also tests goodwill between annual tests if an event occurs or circumstances change that indicate that the fair value of a reporting unit may be below its carrying value. Goodwill impairment is determined using a two-step process. The first step involves a comparison of the estimated fair value of a reporting unit to its carrying amount, including goodwill. In performing the first step, the Company determines the fair value of a reporting unit using a discounted cash flow ("DCF") analysis. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, perpetual growth rates, and the amount and timing of expected future cash flows. Discount rates are based on a weighted-average cost of capital ("WACC"), which represents the average rate a business must pay its providers of debt and equity. The cash flows employed in the DCF analysis were derived from internal earnings and forecasts and external market forecasts. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with its carrying amount of goodwill to measure the amount of impairment loss, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, whereby the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The Company performed its annual impairment assessment of its goodwill as of December 31, 2010 and determined that no impairment charges were required, as the fair value of each reporting exceeded its book value. The Company performed its annual impairment assessment of its goodwill as of December 31, 2011. As a result of economic conditions for one of the Company's reporting units in the Island Wireless segment which contributed to a decline in expected future cash flows, it was determined that the book value of one of the Island Wireless reporting units exceeded its fair value. As a result, it was concluded that all of the goodwill recorded in a reporting unit within the Company's Island Wireless segment was impaired. In connection with this assessment, the Company recorded a non-cash goodwill impairment charge of $2.4 million during the year ended December 31, 2011. The changes in the carrying amount of goodwill, by operating segment, for the three years ended December 31, 2011 were as follows (in thousands):
|  | U.S. Wireless |  | U.S. Wireline |  | Island Wireless |  | Consolidated |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Balance at December 31, 2009 |  | $ | 32,148 |  | $ | 7,491 |  | $ | 3,060 |  | $ | 42,699 |
Acquired goodwill |  |  | — |  |  | — |  |  | 1,698 |  |  | 1,698 |
Balance at December 31, 2010 |  |  | 32,148 |  |  | 7,491 |  |  | 4,758 |  |  | 44,397 |
Acquired goodwill |  |  | — |  |  | — |  |  | 3,105 |  |  | 3,105 |
Impairment charge |  |  | — |  |  | — |  |  | (2,425 | ) |  | (2,425 | )
Balance at December 31, 2011 |  | $ | 32,148 |  | $ | 7,491 |  | $ | 5,438 |  | $ | 45,077 |
Telecommunications Licenses Telecommunications licenses are tested for impairment on a subsidiary by subsidiary basis, The Company performed its test of the fair values of licenses using a discounted cash flow model (the Greenfield Approach). The Greenfield Approach assumes a company initially owns only the telecommunications licenses, and then makes investments required to build an operation comparable to the one that currently utilizes the licenses. The projected cash flows are based on certain financial factors, including revenue growth rates, margins, and churn rates. This model then incorporates cash flow assumptions regarding investment in the network, development of distribution channels and the subscriber base, and other inputs for making the business operational. The Company based the assumptions, which underlie the development of the network, subscriber base and other critical inputs of the discounted cash flow model on a combination of average marketplace participant data and our historical results, trends and business plans. The Company also used operating metrics such as capital investment per subscriber, acquisition costs per subscriber, minutes of use per subscriber, etc., to develop the projected cash flows. Since we included the cash flows associated with these other inputs in the annual cash flow projections, the present value of the unlevered free cash flows of the segment, after investment in the network, subscribers, etc., is attributable to the telecommunications licenses. The terminal value of the subsidiary, which incorporates an assumed sustainable growth rate, is also discounted and is likewise attributed to the licenses. We used a discount rate based on the optimal long-term capital structure of a market participant and its associated cost of debt and equity, to calculate the present value of the projected cash flows. Based upon the results of the Company's impairment tests, it was determined that no impairment of any of the Company's telecommunications licenses existed during the three years ended December 31, 2011. The changes in the carrying amount of the Company's telecommunications licenses, by operating segment, for the three years ended December 31, 2011 were as follows (in thousands):
|  | U.S. Wireless |  | U.S. Wireline |  | Island Wireless |  | Consolidated |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Balance at December 31, 2009 |  | $ | 19,733 |  | $ | 31 |  | $ | 12,728 |  | $ | 32,492 |
Acquired licenses |  |  | 44,061 |  |  | — |  |  | 4,290 |  |  | 48,351 |
Balance at December 31, 2010 |  |  | 63,794 |  |  | 31 |  |  | 17,018 |  |  | 80,843 |
Acquired licenses |  |  | 525 |  |  | — |  |  | 6,100 |  |  | 6,625 |
Balance at December 31, 2011 |  | $ | 64,319 |  | $ | 31 |  | $ | 23,118 |  | $ | 87,468 |
Customer Relationships The customer relationships are being amortized, on an accelerated basis, over the expected period during which their economic benefits are to be realized. The Company recorded $0.6 million, $8.0 million, and $10.3 million of amortization related to customer relationships during 2009, 2010, and 2011 respectively. Customer relationships as of December 31, 2010, by operating segment, are as follows:
|  | U.S. Wireless |  | U.S. Wireline |  | Island Wireless |  | Consolidated |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Gross |  | $ | 55,500 |  | $ | 5,040 |  | $ | 428 |  | $ | 60,968 |
Accumulated amortization |  |  | (7,389 | ) |  | (4,474 | ) |  | (74 | ) |  | (11,937 | )
Net |  | $ | 48,111 |  | $ | 566 |  | $ | 354 |  | $ | 49,031 |
Customer relationships as of December 31, 2011, by operating segment, are as follows:
|  | U.S. Wireless |  | U.S. Wireline |  | Island Wireless |  | Consolidated |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Gross |  | $ | 55,500 |  | $ | 5,040 |  | $ | 3,028 |  | $ | 63,568 |
Accumulated amortization |  |  | (16,886 | ) |  | (4,969 | ) |  | (399 | ) |  | (22,254 | )
Net |  | $ | 38,614 |  | $ | 71 |  | $ | 2,629 |  | $ | 41,314 |
Future amortization of customer relationships, by operating segment, is as follows (in thousands):
|  | U.S. Wireless |  | U.S. Wireline |  | Island Wireless |  | Consolidated |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
2012 |  | $ | 7,985 |  | $ | 71 |  | $ | 464 |  | $ | 8,520 |
2013 |  |  | 6,443 |  |  | — |  |  | 414 |  |  | 6,857 |
2014 |  |  | 5,468 |  |  | — |  |  | 376 |  |  | 5,844 |
2015 |  |  | 4,769 |  |  | — |  |  | 343 |  |  | 5,112 |
2016 |  |  | 4,088 |  |  | — |  |  | 309 |  |  | 4,397 |
Thereafter |  |  | 9,861 |  |  | — |  |  | 723 |  |  | 10,584 |
Total |  | $ | 38,614 |  | $ | 71 |  | $ | 2,629 |  | $ | 41,314 |
Trade Name License Trade name licenses as of December 31, 2010, by operating segment are as follows:
|  | U.S. Wireless |  | Island Wireless |  | Consolidated |
--- | --- | --- | --- | --- | --- | --- | ---
Gross |  | $ | 13,400 |  | $ | 417 |  | $ | 13,817 |
Accumulated amortization |  |  | (326 | ) |  | (— | ) |  | (326 | )
Net |  | $ | 13,074 |  | $ | 417 |  | $ | 13,491 |
Trade name licenses as of December 31, 2011, by operating segment are as follows:
|  | U.S. Wireless |  | Island Wireless |  | Consolidated |
--- | --- | --- | --- | --- | --- | --- | ---
Gross |  | $ | 13,400 |  | $ | 417 |  | $ | 13,817 |
Accumulated amortization |  |  | (804 | ) |  | (— | ) |  | (804 | )
Net |  | $ | 12,596 |  | $ | 417 |  | $ | 13,013 |

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6905597&loc=d3e13816-109267 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6905858&loc=d3e16265-109275 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 142 -Paragraph 42, 43, 44, 45, 46, 47 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6905858&loc=d3e16373-109275 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6905858&loc=d3e16323-109275 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6905597&loc=d3e13854-109267 + Details
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