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Note 7 - Goodwill and Other Acquired Intangible Assets, Net (Notes)
 12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets Disclosure [Text Block] Goodwill and Other Acquired Intangible Assets, Net
All of our goodwill and other acquired intangible assets relate to our Services segment. The purchase price allocation for the acquisition of Five Bridges in December 2018 was finalized in the first quarter of 2019. In comparison to the preliminary fair value amounts recorded as of December 31, 2018, the final calculations resulted in an increase in goodwill of $0.5 million and a decrease in other acquired intangible assets of $0.5 million.
The following table shows the changes in the carrying amount of goodwill as of and for the years ended December 31, 2019 and 2018:
(In thousands)
Goodwill
 
Accumulated Impairment Losses
 
Net
Balance at December 31, 2017
$
197,391

 
$
(186,469
)
 
$
10,922

Goodwill acquired
3,170

 
—

 
3,170

Balance at December 31, 2018
200,561

 
(186,469
)
 
14,092

Goodwill acquired
538

 
—

 
538

Impairment losses
—

 
(4,828
)
 
(4,828
)
Balance at December 31, 2019
$
201,099

 
$
(191,297
)
 
$
9,802


The following is a summary of the gross and net carrying amounts and accumulated amortization (including impairment) of our other acquired intangible assets as of the periods indicated:
 
December 31, 2019 (1)
(In thousands)
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Client relationships
$
43,550

 
$
(27,269
)
 
$
16,281

Technology
8,435

 
(6,789
)
 
1,646

Trade name and trademarks
480

 
(404
)
 
76

Licenses
463

 
(81
)
 
382

Total
$
52,928

 
$
(34,543
)
 
$
18,385

 
December 31, 2018
(In thousands)
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Client relationships
$
84,000

 
$
(48,227
)
 
$
35,773

Technology
17,362

 
(13,141
)
 
4,221

Trade name and trademarks
8,340

 
(3,864
)
 
4,476

Non-competition agreements
185

 
(177
)
 
8

Licenses
463

 
(35
)
 
428

Total
$
110,350

 
$
(65,444
)
(2)
$
44,906

______________________
(1)
Excludes total gross carrying amount and accumulated amortization (including impairment) related to Clayton of $60.9 million and $57.2 million, respectively, which were reclassified to assets held-for-sale and included in other assets on our consolidated balance sheets at December 31, 2019.
(2)
Includes accumulated impairment charges of $15.8 million as of December 31, 2018, which were related entirely to Clayton.
For the years ended December 31, 2019, 2018 and 2017, amortization expense was $8.6 million, $12.4 million and $11.8 million, respectively. The estimated aggregate expense for 2020 and thereafter is as follows:
(In thousands)
 
2020
$
3,880

2021
3,516

2022
3,463

2023
3,428

2024
3,343

Thereafter
755

Total
$
18,385


Impairment Analysis
2019 Activity
As described below, in 2017, we undertook a strategic review of our Services business and made several decisions with respect to the business strategy that were designed to reposition this business to drive future growth and profitability. As a further step in this strategic repositioning, we initiated a process in 2019 to evaluate a potential sale of Clayton, through which we provided mortgage services related to loan acquisition, RMBS securitization and distressed asset reviews and servicer and loan surveillance services. This sale was completed in January 2020.
We report an asset group as held for sale when: (i) management is committed to a formal plan to sell the assets; (ii) the asset group is available for immediate sale; (iii) it is being actively marketed at a price that is reasonable in relation to its fair value; (iv) there is an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated; (v) the sale is probable and expected to be completed within one year; and (vi) it is deemed unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Based on developments in the fourth quarter of 2019, we determined that the asset group associated with the sale of Clayton met the criteria to be reclassified as held for sale as of December 31, 2019.
An asset group classified as held for sale is reflected at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized. Due to the reclassification as held for sale of the asset group associated with the sale of Clayton, we recognized an impairment charge of $4.8 million for goodwill allocated to this asset group. The allocation was based on the estimated relative indicated fair value of the Clayton asset group and the remaining Services reporting unit. In addition, we recognized an impairment of other acquired intangible assets for $13.7 million and reclassified the remaining other acquired intangible assets balance associated with the asset group of $3.7 million as held for sale as of December 31, 2019.
Assets and liabilities related to Clayton classified as held for sale are presented in other assets and other liabilities, respectively, in the consolidated balance sheets in the period in which the business is classified as held for sale. See Notes 4 and 9 for additional detail on assets held for sale as of December 31, 2019.
We generally perform our annual goodwill impairment test during the fourth quarter of each year, using balances as of the prior quarter. Following the reclassification to held for sale of allocated goodwill and other acquired intangible assets and the related impairment recognized, we elected to perform a qualitative impairment analysis for the remaining goodwill and other acquired intangible assets in the fourth quarter of 2019. The qualitative analysis requires us to assess all relevant events and circumstances that could affect the significant inputs used to determine the fair value of the reporting unit. We considered factors such as: (i) our recent impairment of goodwill and other acquired intangible assets related to the sale of Clayton and (ii) the increase in and timing of revenues during the third and fourth quarters of 2019 for the remaining reporting unit (as compared to the forecasted amounts for the same periods), including the impact of higher margin business. Based on our qualitative assessment in the fourth quarter of 2019, we concluded that it is not “more likely than not” that the fair value of the remaining Services reporting unit is less than its carrying amount as of December 31, 2019. In addition, based on our analysis, there was no impairment indicated for the remaining other acquired intangible assets, as the carrying amounts were estimated to be recoverable from future cash flows.
2018 Activity
As part of our annual goodwill impairment assessment in 2018, which was conducted in the fourth quarter of 2018, 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. We considered both positive and negative factors and concluded that, after considering all of the factors and evidence available, there was no impairment of goodwill as of December 31, 2018 because the estimated fair value of the reporting unit exceeded our carrying amount.
As of December 31, 2018, we also evaluated the recoverability of our other acquired intangible assets. Factors affecting the estimated fair value of our goodwill were also considered in estimating the recoverability of our other acquired intangible assets. Based on our analysis, there was no impairment indicated for other acquired intangible assets, as the carrying amounts were estimated to be recoverable from future cash flows.
2017 Activity
Our Chief Executive Officer joined Radian in March 2017 and initiated a review to evaluate the strategic direction of the Services segment. Based on this strategic review, in the second quarter of 2017, we made several decisions with respect to business strategy for the segment in order to reposition the Services business to drive future growth and profitability. We determined to: (i) discontinue certain initiatives and (ii) shift the strategy of the Services segment to focus on core products and services that were expected to have higher growth potential, to produce more predictable, recurring revenue streams over time and to better align with our market expertise and the needs of our customers.
During the second quarter of 2017, the Services segment performed below forecasted levels. The anticipated business and growth opportunities for certain business lines in our Services segment had been impacted by: (i) market demand, which was lower than anticipated; (ii) increased competition, including with respect to product alternatives and pricing; and (iii) delays in the realization of efficiencies and margin improvements associated with certain technology initiatives. The impact of the observed market trends, which we expected to continue, together with our strategic decisions in 2017 discussed above, resulted in changes to our expected product mix and the expected growth rates associated with various initiatives, which in turn generated material reductions to our forecasted net cash flows. As a result of the quantitative goodwill analysis, we recorded an impairment charge of $184.4 million for the three months ended June 30, 2017, to reduce the carrying amount of the Services segment to its estimated fair value. Prior to finalizing this amount, we also evaluated the recoverability of the segment’s other acquired intangible assets and recorded impairment charges of $15.8 million related to the Services segment’s other acquired intangible assets.
During the fourth quarter of 2017, we elected to perform a qualitative annual goodwill impairment analysis, which requires us to assess all relevant events and circumstances that could affect the significant inputs used to determine the fair value of the reporting unit. We considered factors such as: (i) the increase in and timing of revenues during the third and fourth quarters of 2017 (as compared to the forecasted amounts for the same periods); (ii) the impact to projected cash flows, a significant input used to determine the fair value of the reporting unit, associated with the TCJA enacted in the fourth quarter of 2017; (iii) our recent interim goodwill impairment test and recognition of impairment charges; and (iv) the January 2020 sale of a business line. Based on our qualitative assessment in the fourth quarter of 2017, we concluded that it was not “more likely than not” that the fair value of the Services reporting unit was less than its carrying amount as of December 31, 2017.
For additional information on our accounting policies for goodwill and other acquired intangible assets, see Note 2.