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Fair Value Measurements | 6 Months Ended
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Jun. 30, 2018
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements The authoritative guidance for fair value measurements 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”). The guidance utilizes a fair value hierarchy that prioritizes the inputs used in valuation techniques to measure fair value into three broad levels. The following is a brief description of each level:
• | Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
• | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
• | Level 3: Unobservable inputs, including inputs that reflect the reporting entity’s own assumptions.
Financial Instruments Required To Be Carried At Fair Value Financial assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
| Fair Value Measurements as of June 30, 2018
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |
Foreign currency exchange contracts | $ | — |  |  | $ | 1,035 |  |  | $ | — |  |  | $ | 1,035 |
Interest rate swap agreements | — |  |  | 10 |  |  | — |  |  | 10 |
Interest rate cap contracts | — |  |  | 2,191 |  |  | — |  |  | 2,191 |
Liabilities |  |  |  |  |  |  |
Foreign currency exchange contracts | — |  |  | (7,211 | ) |  | — |  |  | (7,211 | )
Contingent consideration | — |  |  | — |  |  | (6,993 | ) |  | (6,993 | )
Temporary Equity |  |  |  |  |  |  |
Redeemable noncontrolling interest | — |  |  | — |  |  | (136,188 | ) |  | (136,188 | )
| Fair Value Measurements as of December 31, 2017
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |
Foreign currency exchange contracts | $ | — |  |  | $ | 1,912 |  |  | $ | — |  |  | $ | 1,912 |
Interest rate cap contracts | — |  |  | 3,922 |  |  | — |  |  | 3,922 |
Liabilities |  |  |  |  |  |  |
Foreign currency exchange contracts | — |  |  | (1,110 | ) |  | — |  |  | (1,110 | )
Interest rate swap agreements | — |  |  | (7 | ) |  | — |  |  | (7 | )
Contingent consideration | — |  |  | — |  |  | (10,612 | ) |  | (10,612 | )
Temporary Equity |  |  |  |  |  |  |
Redeemable noncontrolling interest | — |  |  | — |  |  | (151,978 | ) |  | (151,978 | )
Derivative Contracts: The Company uses derivative instruments to manage its exposure to fluctuations in interest rates and foreign currency exchange rates. Fair values of these derivative instruments are estimated using industry standard valuation models. These models project future cash flows and discount the future amounts to a present value using market-based observable inputs, including interest rate curves, foreign currency exchange rates, and forward and spot prices for currencies. Contingent Consideration: The Company carries certain contingent liabilities resulting from its mergers and acquisition activities. Certain sellers of the Company’s acquired entities could earn additional earn-out payments in cash based on the entities’ subsequent operating performance. The Company recorded the acquisition date fair values of these contingent liabilities, based on the likelihood of contingent earn-out payments, as part of the consideration transferred. The earn-out payments are subsequently remeasured to fair value at each reporting date. The Company reviewed the earn-out analysis for the three and six months ended June 30, 2018 and determined that, based on actual and forecasted operating performance, the expected future earn-out payments would be reduced by approximately $2.4 million and $4.7 million, respectively. As of June 30, 2018, the aggregated fair value of the contingent consideration was approximately $7.0 million. The following table provides a roll forward of the fair value of contingent consideration for the periods ended June 30, 2018 and December 31, 2017 (in thousands):
| Amount
Balance at December 31, 2016 | $ | 2,531 |
Issuance of contingent consideration in connection with acquisition | 10,808 |
Change in fair value of contingent consideration | (2,465 | )
Payment of contingent consideration | (781 | )
Effect of foreign currency translation | 519 |
Balance at December 31, 2017 | 10,612 |
Issuance of contingent consideration in connection with acquisition | 1,728 |
Change in fair value of contingent consideration | (4,652 | )
Payment of contingent consideration | (232 | )
Effect of foreign currency translation | (463 | )
Balance at June 30, 2018 | $ | 6,993 |
Redeemable Noncontrolling Interest: Some minority shareholders in certain subsidiaries of the Company have the right, at certain times, to require the Company to acquire their ownership interest in those entities at fair value and, in some cases, to force a sale of the subsidiary if the Company chooses not to purchase their interests at fair value. The noncontrolling interest subject to these arrangements is included in temporary equity as redeemable noncontrolling interest, and is adjusted to its estimated redemption amount each reporting period with a corresponding adjustment to additional paid-in capital. Future reductions in the carrying amount are subject to a “floor” amount that is equal to the fair value of the redeemable noncontrolling interest at the time it was originally recorded. The recorded value of the redeemable noncontrolling interest cannot go below the floor level. Adjustments to the carrying amount of redeemable noncontrolling interest are charged to retained earnings (or to additional paid-in capital if there are no retained earnings) and do not affect net income or comprehensive income in the consolidated financial statements. The components of the change in the redeemable noncontrolling interest for the periods ended June 30, 2018 and December 31, 2017 are presented in the following table (in thousands):
| Amount
Balance at December 31, 2016 | $ | 45,755 |
Addition to redeemable noncontrolling interest | 277 |
Net loss attributable to redeemable noncontrolling interest | (4,905 | )
Adjustment of the redeemable noncontrolling interest to fair value | 108,296 |
Effect of foreign currency translation attributable to redeemable noncontrolling interest | 2,555 |
Balance at December 31, 2017 | 151,978 |
Redemption of redeemable noncontrolling interest | (11,536 | )
Net income attributable to redeemable noncontrolling interest | 2,373 |
Adjustment of the redeemable noncontrolling interest to fair value | (7,419 | )
Effect of foreign currency translation attributable to redeemable noncontrolling interest | 792 |
Balance at June 30, 2018 | $ | 136,188 |
Financial Instruments Not Required To Be Carried At Fair Value Investment in Receivable Portfolios: The Company records its investment in receivable portfolios at cost, which represents a significant discount from the contractual receivable balances due. The Company computes the fair value of its investment in receivable portfolios using Level 3 inputs by discounting the estimated future cash flows generated by its proprietary forecasting models. The key inputs include the estimated future gross cash flow, average cost to collect, and discount rate. In accordance with authoritative guidance related to fair value measurements, the Company estimates the average cost to collect and discount rates based on its estimate of what a market participant might use in valuing these portfolios. The determination of such inputs requires significant judgment, including assessing the assumed market participant’s cost structure, its determination of whether to include fixed costs in its valuation, its collection strategies, and determining the appropriate weighted average cost of capital. The Company evaluates the use of these key inputs on an ongoing basis and refines the data as it continues to obtain better information from market participants in the debt recovery and purchasing business. In the Company’s current analysis, the fair value of investment in receivable portfolios was approximately $3,195.9 million and $3,415.3 million as of June 30, 2018 and December 31, 2017, respectively, as compared to the carrying value of $3,084.6 million and $2,890.6 million as of June 30, 2018 and December 31, 2017, respectively. A 100 basis point fluctuation in the cost to collect and discount rate used would result in an increase or decrease in the fair value of U.S. and European portfolios by approximately $55.1 million and $71.3 million, respectively, as of June 30, 2018. This fair value calculation does not represent, and should not be construed to represent, the underlying value of the Company or the amount which could be realized if its investment in receivable portfolios were sold. Deferred Court Costs: The Company capitalizes deferred court costs and provides a reserve for those costs that it believes will ultimately be uncollectible. The carrying value of net deferred court costs approximates fair value. Debt: The majority of Encore and its subsidiaries’ borrowings are carried at historical amounts, adjusted for additional borrowings less principal repayments, which approximate fair value. These borrowings include Encore’s senior secured notes and borrowings under its revolving credit and term loan facilities, Cabot’s senior secured notes and borrowings under its revolving credit facility, and other borrowings under revolving credit facilities at certain of the Company’s other subsidiaries. Encore’s convertible senior notes are carried at historical cost, adjusted for the debt discount. The carrying value of the convertible senior notes was $455.7 million and $450.8 million as of June 30, 2018 and December 31, 2017, respectively. The fair value estimate for these convertible senior notes, which incorporates quoted market prices using Level 2 inputs, was approximately $475.2 million and $520.9 million as of June 30, 2018 and December 31, 2017, respectively. Cabot’s senior secured notes are carried at historical cost, adjusted for debt discount and debt premium. The carrying value of Cabot’s senior secured notes was $1,186.2 million and $1,214.6 million, as of June 30, 2018 and December 31, 2017, respectively. The fair value estimate for these senior notes, which incorporates quoted market prices using Level 2 inputs, was $1,202.4 million and $1,258.9 million as of June 30, 2018 and December 31, 2017, respectively. The Company’s preferred equity certificates are legal obligations to the noncontrolling shareholders of certain subsidiaries. They are carried at the face amount, plus any accrued interest. The Company determined that the carrying value of these preferred equity certificates approximated fair value as of June 30, 2018 and December 31, 2017.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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