Note 7 - Goodwill and Other Intangible Assets, Net (Notes)

12 Months Ended

Dec. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

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, as discussed further below and in Note 2. The following table shows the changes in the carrying amount of goodwill as of and for the years ended December 31, 2016 and 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 December 31, 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, valuation and technology 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. These acquisitions expand Clayton’s scope of services and are consistent with our strategy to be positioned to offer products and services throughout the entire mortgage value chain.

The goodwill in these acquisitions 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 the likelihood of achieving the assumed potential revenues from new initiatives and business strategies, and if these or other 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. Lower earnings over sustained periods also can lead to impairment of goodwill, which could result in a charge to earnings. The value of goodwill is primarily supported by revenue projections which are driven primarily by projected transaction volume and margins.

We conducted our annual goodwill impairment analysis in the fourth quarters of 2015 and 2016. For purposes of performing our annual goodwill impairment tests, we concluded that the Services segment constitutes one reporting unit to which all of our recorded goodwill is related. As part of the annual goodwill impairment assessment in 2016, we estimated the fair value of the reporting unit using primarily an income approach and, to a lesser extent, a market approach. The key factor in our fair value analysis was forecasted future cash flows, which were less than originally had been expected at the acquisition date. Given that the current goodwill impairment analysis relies significantly on projected high growth rates of future cash flows, failure to meet those projections may result in an impairment in a future period.

We considered both positive and negative factors and concluded that, after considering all of the factors and evidence available, there is no impairment of goodwill as of December 31, 2016. The goodwill impairment test is a two-step process as required by the accounting standard related to intangible assets. Step one compares a reporting unit’s estimated fair value to its carrying value. If the carrying amount exceeds the estimated fair value, the second step must be completed to measure the amount of the reporting unit’s goodwill impairment loss, if any. In 2016, the estimated fair value of the reporting unit exceeded our carrying amount.

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



	December 31, 2016
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Client relationships	$	83,316	$	(19,696	)	$	63,620
Technology	15,250		(5,497		)	9,753
Trade name and trademarks	8,340		(2,125		)	6,215
Client backlog	6,680		(5,235		)	1,445
Non-competition agreements	185		(160		)	25
Total	$	113,771	$	(32,713	)	$	81,058

	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

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. For financial reporting purposes, other intangible assets with finite lives will be amortized over their applicable estimated useful lives in a manner that approximates the pattern of expected economic benefit from each intangible asset, as follows:



	Estimated Useful Life
Client relationships	3 years	-	15 years
Technology	3 years	-	8 years
Trade name and trademarks			10 years
Client backlog	3 years	-	5 years
Non-competition agreements	2 years	-	3 years

For the years ended December 31, 2016, 2015 and 2014, amortization expense was $13.2 million, $13.0 million and $8.6 million, respectively. The amortization expense for 2014 includes an impairment loss of $2.1 million, related to a small subsidiary within our Services segment that we acquired in 2013. The estimated aggregate amortization expense for 2017 and thereafter is as follows:



(In thousands)
2017	$	12,646
2018	12,052
2019	10,793
2020	9,185
2021	7,375
Thereafter	29,007
Total	$	81,058

- 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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