Charter 2013 Annual Report Download - page 96

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013, 2012 AND 2011
(dollars in millions, except share or per share data or where indicated)
F- 14
The Company assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination
that it is more likely than not that an indefinite lived intangible asset has been impaired. If, after this qualitative assessment, the
Company determines that it is not more likely than not that an indefinite lived intangible asset has been impaired, then no further
quantitative testing is necessary. In completing the 2013 and 2012 impairment testing, the Company evaluated the impact of
various factors to the expected future cash flows attributable to its units of accounting and to the assumed discount rate which
would be used to present value those cash flows. Such factors included macro-economic and industry conditions including the
capital markets, regulatory, and competitive environment, and costs of programming and customer premise equipment along with
changes to our organizational structure and strategies. After consideration of these qualitative factors, the Company concluded
that it is more likely than not that the fair value of the franchise assets in each unit of accounting exceeds the carrying value of
such assets and therefore did not perform a quantitative analysis in 2013 or 2012.
If we are required to perform a quantitative analysis to test the Company's franchise assets for impairment, the Company determines
the estimated fair value utilizing an income approach model based on the present value of the estimated discrete future cash flows
attributable to each of the intangible assets identified assuming a discount rate. This approach makes use of unobservable factors
such as projected revenues, expenses, capital expenditures, and a discount rate applied to the estimated cash flows. The determination
of the discount rate is based on a weighted average cost of capital approach, which uses a market participant’s cost of equity and
after-tax cost of debt and reflects the risks inherent in the cash flows.
The Company estimates discounted future cash flows using reasonable and appropriate assumptions including among others,
penetration rates for video, high-speed Internet, and voice; revenue growth rates; operating margins; and capital expenditures. The
assumptions are based on the Company’s and its peers’ historical operating performance adjusted for current and expected
competitive and economic factors surrounding the cable industry. The estimates and assumptions made in the Company’s valuations
are inherently subject to significant uncertainties, many of which are beyond its control, and there is no assurance that these results
can be achieved. The primary assumptions for which there is a reasonable possibility of the occurrence of a variation that would
significantly affect the measurement value include the assumptions regarding revenue growth, programming expense growth rates,
the amount and timing of capital expenditures and the discount rate utilized. The quantitative franchise valuation completed for
the year ended December 31, 2011 showed franchise values in excess of book values and thus resulted in no impairment.
Goodwill is tested for impairment as of November 30 of each year, or more frequently as warranted by events or changes in
circumstances. Accounting guidance also permits a qualitative assessment for goodwill to determine whether it is more likely
than not that the carrying value of a reporting unit exceeds its fair value. If, after this qualitative assessment, the Company
determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount then no further
quantitative testing would be necessary. If the Company is required to perform the two-step test under the accounting guidance,
the first step involves a comparison of the estimated fair value of each reporting unit to its carrying amount. If the estimated fair
value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired and the second
step of the goodwill impairment 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, and a comparison of the implied fair value of the reporting
unit’s goodwill is compared to its carrying amount to determine the amount of impairment, if any. The fair value of the reporting
unit, when performing the second step of the goodwill impairment test, is determined using a consistent income approach model
as that used for franchise impairment testing. As with the Company's franchise impairment testing, in 2013 and 2012, the Company
elected to perform a qualitative assessment for its goodwill impairment testing and concluded that goodwill is not impaired. The
Company’s 2011 quantitative impairment analysis also did not result in any goodwill impairment charges.
Customer relationships, for valuation purposes, represent the value of the business relationship with existing customers (less the
anticipated customer churn), and are calculated by projecting the discrete future after-tax cash flows from these customers, including
the right to deploy and market additional services to these customers. The present value of these after-tax cash flows yields the
fair value of the customer relationships. Customer relationships are amortized on an accelerated method over useful lives of 8-15
years based on the period over which current customers are expected to generate cash flows. Customer relationships are evaluated
for impairment upon the occurrence of events or changes in circumstances indicating that the carrying amount of an asset may not
be recoverable.
The fair value of trademarks is determined using the relief-from-royalty method which applies a fair royalty rate to estimated
revenue. Royalty rates are estimated based on a review of market royalty rates in the communications and entertainment industries.
As the Company expects to continue to use each trademark indefinitely, trademarks have been assigned an indefinite life and are
tested annually for impairment using either a qualitative analysis or quantitative analysis as elected by management. The qualitative