Goodwill and Intangible Assets

Goodwill

The following table sets forth the changes in the carrying amount of goodwill for the nine months ended September 30, 2017:



	Amounts
Balance at December 31, 2016	$	31,343
Foreign currency translation adjustment	2,331
Balance at September 30, 2017	$	33,674

ASC Topic 350, Intangibles—Goodwill and Other (ASC 350) requires the completion of a goodwill impairment test at least annually. Historically, this goodwill impairment test was comprised of a two-step process. In January 2017, the FASB issued ASC Update No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment. This ASC simplified the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step of the goodwill impairment test under ASC 350. Under previous guidance, if the fair value of a reporting unit is lower than its carrying amount (Step 1), an entity calculates any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). The implied fair value of goodwill is calculated by deducting the fair value of all assets and liabilities of the reporting unit from the reporting unit’s fair value as determined in Step 1. To determine the implied fair value of goodwill, entities estimate the fair value of any unrecognized intangible assets (including in-process research and development) and any corporate-level assets or liabilities that were included in the determination of the carrying amount and fair value of the reporting unit in Step 1. Under this new guidance if a reporting unit's carrying value exceeds its fair value, an entity will record an impairment charge based on that difference with such impairment charge limited to the amount of goodwill in the reporting unit. This ASC does not change the guidance on completing Step 1 of the goodwill impairment test. An entity will still be able to perform today’s optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. This ASC will be applied prospectively and is effective for annual and interim impairment test performed in periods beginning after December 15, 2019 for public business enterprises. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company has elected to early adopt this ASC as of January 1, 2017. The adoption of this ASC had no impact on the Company's consolidated statements of operations, financial condition or cash flows.

As of August 31, 2017, the Company performed its annual impairment test for goodwill at the reporting unit level and concluded that the fair value of its reporting units exceeded their carrying value. To date, the Company has not had accumulated goodwill impairment losses. The Company utilized an income approach and market approaches to estimate the fair value of the Company’s reporting units. The Company believes that the assumptions it used to estimate the fair value of its reporting units were reasonable. As an additional corroborative test of the reasonableness of those assumptions, the Company completed a reconciliation of its market capitalization and overall enterprise value to the fair value of all of its reporting units as of August 31, 2017. If different assumptions were used, particularly with respect to estimating future cash flows, weighted average costs of capital, and terminal growth rates, different estimates of fair value may have resulted. However, based on the excess of fair value over carrying value and additional sensitivity analysis considered with respect to the Company’s valuation assumptions, the Company concluded that it was more-likely-than-not that no goodwill impairment exists. The Company notes that, as of August 31, 2017, the fair value of all of the Company’s reporting units exceeded their carrying values by more than 10%. A negative trend of operating results or material changes to forecasted operating results could result in the requirement for additional interim goodwill impairment tests and the potential of a future goodwill impairment charge, which could be material.

Intangible Assets

The changes in the carrying amount of intangible assets during the nine months ended September 30, 2017 are as follows:



	Amounts
Balance at December 31, 2016	$	17,838
Amortization expense	(3,266		)
Intangible assets acquired in asset acquisition	105
Foreign currency translation adjustment	1,370
Balance at September 30, 2017	$	16,047

Intangible assets arose from an acquisition made prior to 2013, the acquisition of KVH Media Group (acquired as Headland Media Limited) in May 2013 and the acquisition of Videotel in July 2014. Intangibles arising from the acquisition made prior to 2013 are being amortized on a straight-line basis over an estimated useful life of 7 years. Intangibles arising from the acquisition of KVH Media Group are being amortized on a straight-line basis over the estimated useful life of: (i) 10 years for acquired subscriber relationships, (ii) 15 years for distribution rights, (iii) 3 years for internally developed software and (iv) 2 years for proprietary content. Intangibles arising from the acquisition of Videotel are being amortized on a straight-line basis over the estimated useful life of: (i) 8 years for acquired subscriber relationships, (ii) 5 years for favorable leases, (iii) 4 years for internally developed software and (iv) 5 years for proprietary content. The intangibles arising from the KVH Media Group and Videotel acquisitions were recorded in pounds sterling and fluctuations in exchange rates could cause these amounts to increase or decrease from time to time.

In January 2017, the Company completed the acquisition of certain subscriber relationships from a third party. This acquisition did not meet the definition of a business under ASC 2017-01, Business Combinations (Topic 805)-Clarifying the Definition of a Business, which the Company adopted on October 1, 2016. The Company ascribed $100 of the initial purchase price to the acquired subscriber relationships definite-lived intangible assets with an initial estimated useful life of 10 years. Under the asset purchase agreement, the purchase price includes a component of contingent consideration under which the Company is required to pay a percentage of recurring revenues received from the acquired subscriber relationships through 2026 up to a maximum annual payment of $114. As the acquisition did not represent a business combination, the contingent consideration arrangement is recognized only when the contingency is resolved and the consideration is paid or becomes payable. The amounts payable under the contingent consideration arrangement, if any, will be included in the measurement of the cost of the acquired subscriber relationships. During the nine months ended September 30, 2017, $5 in consideration was earned under the contingent consideration arrangement.

Acquired intangible assets are subject to amortization. The following table summarizes acquired intangible assets at September 30, 2017 and December 31, 2016, respectively:



	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
September 30, 2017
Subscriber relationships	$	17,825	$	7,853	$	9,972
Distribution rights	4,367		1,381		2,986
Internally developed software	2,323		2,134		189
Proprietary content	8,211		5,527		2,684
Intellectual property	647		431		216
Favorable lease	2,284		2,284		—
	$	35,657	$	19,610	$	16,047
December 31, 2016
Subscriber relationships	$	16,888	$	6,431	$	10,457
Distribution rights	4,122		1,180		2,942
Internally developed software	2,301		1,904		397
Proprietary content	7,960		4,431		3,529
Intellectual property	2,284		2,056		228
Favorable lease	627		342		285
	$	34,182	$	16,344	$	17,838

Amortization expense related to intangible assets for the three and nine months ended September 30, 2017 and 2016 was as follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Expense Category	2017		2016		2017		2016
Cost of service sales	$	375	$	375	$	1,097	$	1,244
General administrative expense	721		770		2,169		2,434
Total amortization expense	$	1,096	$	1,145	$	3,266	$	3,678

As of September 30, 2017, the total weighted average remaining useful lives of the definite-lived intangible assets was 4.4 years and the weighted average remaining useful lives by the definite-lived intangible asset category are as follows:



Intangible Asset	Weighted Average Remaining Useful Life in Years
Subscriber relationships	5.1
Distribution rights	10.6
Internally developed software	0.7
Proprietary content	1.8
Intellectual property	0.0
Favorable lease	1.8

Estimated future amortization expense remaining at September 30, 2017 for intangible assets acquired is as follows:



Remainder of 2017	$	1,055
2018	4,051
2019	3,098
2020	2,273
2021	2,273
Thereafter	3,297
Total future amortization expense	$	16,047

For intangible assets, the Company assesses the carrying value of these assets whenever events or circumstances indicate that the carrying value may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset, or asset group, to the future undiscounted cash flows expected to be generated by the asset, or asset group. There were no events or changes in circumstances during the third quarter of 2017 which indicated that an assessment of the impairment of goodwill and intangible assets was required.