Note 6 - Goodwill and Other Intangible Assets, Net

9 Months Ended

Sep. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets, Net

All of our goodwill and other intangible assets relate to our Services segment, as a result of our acquisition of Clayton in 2014 and its subsequent acquisitions of Red Bell and ValuAmerica in 2015. The following table shows the changes in the carrying amount of goodwill as of and for the year-to-date periods ended September 30, 2016 and December 31, 2015:



(In thousands)	Goodwill		Accumulated Impairment Losses			Net
Balance at December 31, 2014	$	194,027	$	(2,095	)	$	191,932
Goodwill acquired	3,238		—			3,238
Impairment losses	—		—			—
Balance at December 31, 2015	197,265		(2,095		)	195,170
Goodwill acquired	—		—			—
Impairment losses	—		—			—
Balance at September 30, 2016	$	197,265	$	(2,095	)	$	195,170

During the first quarter of 2015, Clayton expanded its service offerings by acquiring Red Bell, a real estate brokerage company that provides products and services that include automated valuation models; broker price opinions used by investors, lenders and loan servicers; and advanced technology solutions for: (i) monitoring loan portfolio performance; (ii) tracking non-performing loans; (iii) managing REO assets; and (iv) valuing and selling residential real estate through a secure platform. The transaction was treated as a purchase for accounting purposes, with the excess of the acquisition price over the estimated fair value of the net assets acquired resulting in goodwill of $2.4 million. In addition, in October 2015, Clayton acquired ValuAmerica, a national title agency and appraisal management company with a technology platform that helps mortgage lenders and their vendors streamline and manage their supply chains and operational workflow. The transaction was treated as a purchase for accounting purposes, with the excess of the acquisition price over the estimated fair value of the net assets acquired resulting in goodwill of $0.8 million. Neither of these acquisitions met the criteria to be considered a material business combination.

Goodwill is an asset representing the estimated future economic benefits arising from the assets we have acquired that were not individually identified and separately recognized, and includes the value of the discounted expected future cash flows, the workforce, expected synergies with our other affiliates and other unidentifiable intangible assets. Goodwill is deemed to have an indefinite useful life and is subject to review for impairment annually, or more frequently, whenever circumstances indicate potential impairment. Events that could result in an interim assessment of goodwill impairment and/or a potential impairment loss include, but are not limited to: (i) significant under-performance relative to historical or projected future operating results; (ii) significant changes in the strategy for the Services segment; (iii) significant negative industry or economic trends; and (iv) a decline in market capitalization below book value attributable to the Services segment. Management regularly updates certain assumptions related to our projections, including potential revenues from new initiatives and business strategies, and to the extent these items have a significant negative impact on the reporting unit’s projections we may perform additional analysis to determine whether an impairment charge is needed.

The evaluation of the estimated fair value of our Services segment in comparison to the recorded value of goodwill and other intangibles is performed primarily using an income approach and requires the use of significant estimates and assumptions that are highly subjective in nature, such as attrition rates, discount rates, future expected cash flows and market conditions. The most significant assumptions relate to the valuation of goodwill and customer relationships. In particular, future expected cash flows for the Services segment include: estimated transaction volumes that are not currently contracted; volume projections associated with non-agency RMBS securitizations for which current market conditions are not favorable; and projected revenues from new business initiatives that do not have an established customer base. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. If the projected revenues are not as favorable as those currently being used in our annual goodwill impairment assessment, or if revenues related to new initiatives and business strategies are not realized, it could result in an impairment charge which could have a material adverse effect on our results of operations for the period in which the impairment occurs.

We performed a qualitative assessment for the quarter ended September 30, 2016, and considered factors such as: (i) the decline in revenues and gross margins during 2016 (as compared to the forecasted amounts for the same period); (ii) the improvement in revenue and gross margins during the second and third quarters of 2016 (as compared to the first quarter of 2016); (iii) new senior management of the segment; and (iv) new business initiatives. Our third quarter 2016 qualitative evaluation of impairment included future revenue projections that were lower than those included in our annual impairment analysis conducted in the fourth quarter of 2015. However, based on our third quarter 2016 analysis, we concluded that it is not “more likely than not” that the fair value of the Services reporting unit is less than its carrying amount as of September 30, 2016. We monitor the performance of the Services segment each quarter, including through our annual impairment assessment planned for the fourth quarter of 2016.

The following is a summary of the gross and net carrying amounts and accumulated amortization of our other intangible assets as of the periods indicated:



	As of September 30, 2016
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Client relationships	$	83,359	$	(17,543	)	$	65,816
Technology	15,100		(4,856		)	10,244
Trade name and trademarks	8,340		(1,905		)	6,435
Client backlog	6,680		(4,972		)	1,708
Non-competition agreements	185		(158		)	27
Total	$	113,664	$	(29,434	)	$	84,230

	As of December 31, 2015
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Client relationships	$	83,471	$	(11,038	)	$	72,433
Technology	15,100		(2,949		)	12,151
Trade name and trademarks	8,340		(1,243		)	7,097
Client backlog	6,680		(4,184		)	2,496
Non-competition agreements	185		(115		)	70
Total	$	113,776	$	(19,529	)	$	94,247

The estimated aggregate amortization expense for the remainder of 2016 and thereafter is as follows (in thousands):



2016	$	3,287
2017	12,621
2018	12,027
2019	10,768
2020	9,159
2021	7,353
Thereafter	29,015

Generally, for tax purposes, substantially all of our goodwill and other intangible assets are deductible and will be amortized over a period of 15 years.

- 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.

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