Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Note 6: Goodwill and Other Intangible Assets

Goodwill

We assess goodwill for potential impairment at the reporting unit level on an annual basis as of November 30, or whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. During the three months ended June 30, 2015, it became evident that revenue and profitability trends in our ecoATM reporting unit were not being achieved as expected. For example collection rates, revenue and profitability on a per kiosk basis experienced declines versus prior periods and expected seasonal trends. As a result, we revised our internal expectations for future revenue growth and profitability lower than our previous estimates. This is primarily driven by certain challenges in an increasingly competitive industry which impact the per kiosk device collection, revenue and profitability expectations and the timing and installation of kiosks. Further, while these competitive challenges grew more acute during the second quarter, we also experienced the loss of a key executive at ecoATM. This led to an indication in the second quarter of 2015 that ecoATM’s fair value was more likely than not below its carrying value.

As a result, we performed the first step of the goodwill impairment test with the assistance of a third-party valuation specialist. The first step of the impairment test was completed by comparing the carrying value of ecoATM, including goodwill, to its fair value determined using a weighted combination of a discounted cash flow (“DCF”) income based approach and a guideline public company market based approach. The DCF methodology requires significant judgment in selecting appropriate inputs including the risk adjusted market cost of capital for the discount rate, the terminal growth rate and projections of future cash flows, all of which are inherently uncertain. The guideline public company method involves significant judgment in selecting the appropriate inputs including the peer company group, the selection of relevant multiples and the determination of a reasonable control premium. Due to these significant judgments, the fair value determined in connection with the goodwill impairment test may not necessarily be indicative of the actual value that would be recognized in a future transaction. Completion of the first step of the impairment test determined that the carrying amount of ecoATM exceeded its fair value and that the second step of the impairment test needed to be performed.

Under the second step of the impairment test, we completed the process of estimating the fair value of ecoATM’s assets and liabilities, including intangible assets consisting of developed technology, trade name and covenants not to compete for the purpose of deriving an estimate of the implied fair value of goodwill. The estimate of the implied fair value of goodwill was then compared to the recorded goodwill to determine the amount of the impairment. Significant assumptions used in measuring the value of these assets and liabilities included the discount rates and obsolescence rates used in valuing the intangible assets, and replacement costs for valuing the tangible assets. The inputs and assumptions used in our goodwill impairment test are classified as Level 3 inputs within the fair value hierarchy.

Based on the result of the second step of the goodwill impairment analysis, we recognized a non-cash, non-tax deductible charge for goodwill impairment of $85.9 million related to our ecoATM business segment.

As a result of the impairment recorded, the estimated fair value of the ecoATM reporting unit equals its carrying value. The estimate of ecoATM's fair value includes key assumptions with inherent uncertainty which may change in future periods and have a negative effect on the fair value resulting in potential future impairments, the most significant of which is our estimate of future cash flows predicated on estimated kiosks, revenue and profitability measures.

Gross amount of goodwill and accumulated impairment charges that we have recorded are as follows:



Dollars in thousands
Goodwill	$	559,307
Accumulated impairment losses	(85,890		)
Net goodwill at June 30, 2015	$	473,417

A reconciliation of the beginning and ending carrying amounts of goodwill by segment is as follows:



Dollars in thousands	December 31, 2014		Goodwill Impairment			June 30, 2015
Redbox	$	138,743	$	—		$	138,743
Coinstar	156,351		—			156,351
ecoATM	264,213		(85,890		)	178,323
Total goodwill	$	559,307	$	(85,890	)	$	473,417

Other Intangible Assets

The gross amount of our other intangible assets and the related accumulated amortization were as follows:



Dollars in thousands	Amortization Period	June 30, 2015			December 31, 2014
Retailer relationships	5 - 10 years	$	53,295		$	53,295
Accumulated amortization		(25,206		)	(23,200		)
Retailer relationships, net		28,089			30,095
Developed technology	5 years	34,000			34,000
Accumulated amortization		(13,033		)	(9,633		)
Developed technology, net		20,967			24,367
Other	1 - 40 years	16,800			16,800
Accumulated amortization		(7,827		)	(6,571		)
Other, net		8,973			10,229
Total intangible assets, net		$	58,029		$	64,691

Amortization expense was as follows:



	Three Months Ended					Six Months Ended
	June 30,					June 30,
Dollars in thousands	2015		2014			2015			2014
Retailer relationships	$	1,003	$	1,535		$	2,006		$	3,071
Developed technology	1,700		1,700			3,400			3,400
Other	606		612			1,256			1,224
Total amortization of intangible assets	3,309		3,847			6,662			7,695
Less: amortization included in discontinued operations	—		(7		)	(44		)	(13		)
Total amortization of intangible assets from continuing operations	$	3,309	$	3,840		$	6,618		$	7,682

Assuming no future impairment, the expected future amortization as of June 30, 2015, is as follows:



Dollars in thousands	Retailer Relationships		Developed Technology		Other		Total
Remainder of 2015	$	2,006	$	3,400	$	1,182	$	6,588
2016	4,012		6,800		2,281		13,093
2017	4,012		6,800		2,281		13,093
2018	4,012		3,967		1,664		9,643
2019	4,012		—		801		4,813
2020	4,012		—		407		4,419
Thereafter	6,023		—		357		6,380
Total expected amortization	$	28,089	$	20,967	$	8,973	$	58,029

- 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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