Frontier Airlines 2010 Annual Report Download - page 107

for the trade names as a result of the Company's decision to no longer use the Midwest trade name during the year ended December 31, 2010.
The calculation of the fair value of the trade names was determined primarily using a discounted cash flow analysis (relief from royalty
method). Management determined that this fair value measurement would be included as Level 3 in the fair value hierarchy. These trade
names are included in the Branded reportable operating segment. The Company also recorded an impairment of $2.0 million for other
indefinite-lived intangible assets that were included in the Fixed-fee reportable operating segment during the year ended December 31,
2009. These impairment losses are included in other impairment losses in the consolidated statements of income (loss).
8. GOODWILL
Goodwill is required to be tested for impairment at the reporting unit level on an annual basis and between annual tests if a
triggering event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying
value.
During 2008 and prior to the acquisition of Midwest in July 2009, the Company had one reporting unit and all of the goodwill of
$13.3 million was assigned to that reporting unit.
During the first quarter of 2009, the Company performed an interim test of its goodwill. Factors deemed by management to have
collectively constituted a potential triggering event included record high fuel prices, a softening US economy and the differences between
market capitalization of our stock as compared to the book value of equity. As a result of the testing, the Company determined that the
goodwill was completely impaired and recorded an impairment charge during the first quarter of 2009 to write-off the full value of goodwill.
The Company’ s acquisition of Midwest resulted in approximately $100.4 million of goodwill which was assigned to the Company’ s
Branded operations reporting unit. As of December 31, 2009, the Company performed its annual assessment of the recoverability of its
goodwill. The branded operations book value of invested capital exceeded its fair value by approximately $200 million. The Company
determined the fair value of the branded invested capital utilizing the income, market, and cost approach. The Company's fair value
calculations for goodwill are classified within Level 3 of the fair value hierarchy as defined in ASC Topic 820, Fair Value Measurements and
Disclosures. As a result of failing Step One, the Company was required to perform Step Two of the ASC Topic 350 goodwill impairment
testing methodology.
In Step Two of the impairment testing, the Company determined the implied fair value of goodwill of the reporting unit by
allocating the fair value of the reporting unit determined in Step One to all the assets and liabilities of the reporting unit. The Company
utilized its recent valuations of tangible and intangible assets related to the branded operations reporting unit to determine the fair value assets
and liabilities. As a result of the Step Two testing, the Company determined that goodwill was impaired and recorded a full impairment
charge on December 31, 2009, the Company’ s annual assessment date.
The changes in the carrying amount of goodwill for the years ended December 31, 2010 and 2009 are as follows (in thousands):
Fixed-fee Branded Total
Gross goodwill balance as of January 1, 2009 $13,335 $
—
$ 13,335
Goodwill acquired during 2009
—
100,424 100,424
Gross goodwill balance as of December 31, 2009 $13,335 $ 100,424 $ 113,759
Accumulated impairment losses as of January 1, 2009
—
—
—
Goodwill impaired during 2009 $(13,335 ) $ (100,424 ) $ (113,759 )
Net goodwill balance as of December 31, 2010 and 2009 $
—
$
—
$
—
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