Goodwill and Identifiable Intangible Assets

12 Months Ended

Dec. 31, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Identifiable Intangible Assets

In accordance with authoritative guidance, goodwill is tested for impairment at the reporting unit level annually and in interim periods if certain events occur that indicate that the fair value of a reporting unit may be below its carrying value. Determining the number of reporting units and the fair value of a reporting unit requires the Company to make judgments and involves the use of significant estimates and assumptions. The Company has six reporting units for goodwill impairment testing purposes. The annual goodwill testing date for the five reporting units that are included in the portfolio purchasing and recovery reportable segment is October 1st; the annual goodwill testing date for the tax lien business reporting unit is April 1st.

The Company first assesses qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The qualitative factors include economic environment, business climate, market capitalization, operating performance, competition, and other factors. The Company may proceed directly to the two-step quantitative test without performing the qualitative test.

The first step involves measuring the recoverability of goodwill at the reporting unit level by comparing the estimated fair value of the reporting unit in which the goodwill resides to its carrying value. The second step, if necessary, measures the amount of impairment, if any, by comparing the implied fair value of goodwill to its carrying value. The Company applies various valuation techniques to measure the fair value of each reporting unit, including the income approach and the market approach. For goodwill impairment analyses conducted at most of the reporting units, the Company uses the income approach in determining fair value, specifically the discounted cash flow method, or DCF. In applying the DCF method, an identified level of future cash flow is estimated. Annual estimated cash flows and a terminal value are then discounted to their present value at an appropriate discount rate to obtain an indication of fair value. The discount rate utilized reflects estimates of required rates of return for investments that are seen as similar to an investment in the reporting unit. DCF analyses are based on management’s long-term financial projections and require significant judgments, therefore, for the Company’s Cabot reporting unit, which carries a material goodwill balance and where the Company has access to reliable market participant data, the market approach is conducted in addition to the income approach in determining its fair value. The Company uses a guideline company method under the market approach to estimate the fair value of equity and the market value of invested capital (“MVIC”). The guideline company approach relies on estimated remaining collections data for each of the selected guideline companies, which enables a direct comparison between the reporting unit and the selected peer group. The Company believes that the current methodology used in determining the fair value at its reporting units represent its best estimates. In addition, the Company compares the aggregate fair value of the reporting units to its overall market capitalization.

For the Company’s annual goodwill impairment tests performed at October 1, 2015 for its reporting units that are included in the portfolio purchasing and recovery reportable segment, the estimated fair value of each of these reporting units exceeded its respective carrying value. As a result, no impairment existed at any of these reporting units.

The Company determined, at April 1, 2015, the annual goodwill impairment testing date for its tax lien business reporting unit, that the estimated fair value exceeded the carrying value. The estimation of fair value was based on a DCF analysis under the income approach as discussed above. However, as discussed in Note 17, Subsequent Event, on February 19, 2016, the Company entered into an agreement with certain funds which provides for the sale of 100% of the Company’s membership interests in Propel. The purchase price for the transaction is calculated in accordance with a formula relating to the redemptive value of certain tax liens as well as the book value of certain other assets and liabilities of Propel, and will be determined at the closing of the transaction. The application of the purchase price formula as of December 31, 2015 would have resulted in an enterprise value for Propel of $344.3 million. After repayment of third party debt, the cash consideration payable to the Company would have been $142.8 million. Authoritative guidance defines fair value as the price that would be received upon sale of an asset or the price paid to transfer a liability, in an orderly transaction between market participants at the measurement date (i.e., the “exit price”). In connection with the preparation of its financial statements, considering these developments, management believes that the proposed purchase price indicates that Propel’s fair value at December 31, 2015 was less than its carrying value. Based on the estimated sales price at closing, the Company wrote-down the entire goodwill balance of $49.3 million carried at the tax lien business reporting unit as of December 31, 2015.

Management continues to evaluate and monitor all key factors impacting the carrying value of the Company’s recorded goodwill and long-lived assets. Further adverse changes in the Company’s actual or expected operating results, market capitalization, business climate, economic factors or other negative events that may be outside the control of management could result in a material non-cash impairment charge in the future.

Goodwill was allocable to reporting units included in the Company’s reportable segments. The following table summarizes the activity in the Company’s goodwill balance, as follows (in thousands):



	Portfolio Purchasing and Recovery			Tax Lien Business			Total
Balance, December 31, 2014	$	848,656		$	49,277		$	897,933
Goodwill acquired	114,730			—			114,730
Goodwill impairment	—			(49,277		)	(49,277		)
Goodwill adjustment⁽¹⁾	2,410			—			2,410
Effect of foreign currency translation	(40,949		)	—			(40,949		)
Balance, December 31, 2015	$	924,847		$	—		$	924,847

______________________


(1)	Represents purchase accounting adjustments.

The Company’s acquired intangible assets are summarized as follows (in thousands):



	As of December 31, 2015							As of December 31, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	$	5,716	$	(1,263	)	$	4,453	$	5,437	$	(743	)	$	4,694
Developed technologies	8,141		(3,793		)	4,348		8,353		(2,194		)	6,159
Trade name and other	11,304		(3,938		)	7,366		10,458		(1,709		)	8,749
Other intangibles—indefinite lived	1,962		—			1,962		1,962		—			1,962
Total intangible assets	$	27,123	$	(8,994	)	$	18,129	$	26,210	$	(4,646	)	$	21,564

The weighted-average useful lives of intangible assets at the time of acquisition were as follows:




	Weighted-Average Useful Lives
Customer relationships	10
Developed technologies	5
Trade name and other	6

The amortization expense for intangible assets that are subject to amortization was $5.0 million, $3.6 million, and $0.8 million for the years ended December 31, 2015, 2014, and 2013, respectively. Estimated future amortization expense related to finite-lived intangible assets at December 31, 2015 is as follows (in thousands):



2016	$	4,323
2017	3,943
2018	2,341
2019	1,186
2020	1,109
Thereafter	3,265
Total	$	16,167

- 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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