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Fair value measurements | 6 Months Ended
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Jun. 30, 2021
Fair Value Disclosures [Abstract] |
Fair value measurements | Our policies on impairment of goodwill and indefinite-lived intangible assets and impairment of long-lived assets and amortizable intangibles explain our methodology for assessing impairment of these assets and can be found under the caption "Note 1: Significant Accounting Policies" in the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K. 2021 goodwill impairment analyses – As a result of changes in our financial management reporting process during the second quarter of 2021, we concluded that a realignment of our reporting units was required. We analyzed goodwill for impairment immediately prior to this realignment by performing a qualitative analysis for the reporting units with goodwill. The qualitative analyses evaluated factors, including, but not limited to, economic, market and industry conditions, cost factors and the overall financial performance of the reporting units. We also considered the last quantitative analyses we completed. In completing these assessments, we noted no changes in events or circumstances that indicated that it was more likely than not that the fair value of any reporting unit was less than its carrying amount. The realignment of our reporting units, effective April 1, 2021, did not change the reporting units within our Cloud Solutions or Checks segments. Within our Payments segment, the number of reporting units increased from 1 to 4, and within our Promotional Solutions segment, the number of reporting units increased from 1 to 2. Upon completing the realignment, we reallocated the carrying value of goodwill to our new reporting units based on their relative fair values. Immediately subsequent to the realignment, we completed qualitative analyses for the reporting units that changed and to which goodwill was assigned. We determined that it was appropriate to perform qualitative assessments, given that our analysis indicated that the change in reporting units did not mask or prevent an impairment that existed at the time of the change. In completing the qualitative assessments, we noted no changes in events or circumstances that indicated that it was more likely than not that the fair value of any reporting unit was less than its carrying amount. As such, no goodwill impairment charges were recorded during the quarter ended June 30, 2021. 2020 asset impairment charges – During the quarter ended March 31, 2020, we concluded that a triggering event had occurred for 2 of our reporting units as a result of the COVID-19 pandemic. As such, we completed goodwill impairment analyses for these reporting units as of March 31, 2020. Our analyses indicated that the goodwill of our Promotional Solutions reporting unit was partially impaired and the goodwill of our Cloud Solutions Web Hosting reporting unit was fully impaired. As such, we recorded goodwill impairment charges of $67,132 and $4,317, respectively. The impairment charges were measured as the amount by which the reporting units' carrying values exceeded their estimated fair values, limited to the carrying amount of goodwill. After the impairment charges, $59,009 of goodwill remained in the Promotional Solutions reporting unit as of the measurement date. Also as a result of the impacts of the COVID-19 pandemic, we assessed for impairment certain long-lived assets of our Cloud Solutions Web Hosting reporting unit as of March 31, 2020. As a result of these assessments, we recorded asset impairment charges of $17,678, primarily related to customer list, software and trade name intangible assets. With the exception of certain internal-use software assets, we determined that the assets were fully impaired. We utilized the discounted value of estimated future cash flows to estimate the fair value of the asset group. In our analysis, we assumed a revenue decline of 31% and a gross margin decline of 5.2 points in 2020, as well as a discount rate of 9%. During the first quarter of 2020, we assessed for impairment the carrying value of an asset group related to a small business distributor that we previously purchased. Our assessment was the result of customer attrition during the quarter that impacted our projections of future cash flows. Based on our estimate of discounted future cash flows, we determined that the asset group was partially impaired as of February 29, 2020, and we recorded an asset impairment charge of $2,752, reducing the carrying value of the related customer list intangible asset. In calculating the estimated fair value of the asset group, we assumed no revenue growth, a 1.9 point improvement in gross margin and a discount rate of 11%. Also during the six months ended June 30, 2020, we recorded asset impairment charges of $7,110 related to the rationalization of our real estate footprint, as well as internal-use software and a small business customer list. These assets were written down to their estimated fair values less costs to sell. Information regarding the asset impairment analyses completed during the six months ended June 30, 2020 was as follows:
|  |  |  | Fair value measurements using |  |
|  | Fair value as of measurement date |  | Quoted prices in active markets for identical assets |  | Significant other observable inputs |  | Significant unobservable inputs |  | Impairment charge
(in thousands) |  |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Intangible assets (Cloud Solutions Web Hosting reporting unit)(1) |  | $ | 2,172 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,172 |  |  | $ | 17,678 |
Small business distributor |  | 7,622 |  |  | — |  |  | — |  |  | 7,622 |  |  | 2,752 |
Other assets |  | 11,210 |  |  | — |  |  | — |  |  | 11,210 |  |  | 7,110 |
Goodwill(2) |  |  |  |  |  |  |  |  |  | 71,449 |
Total |  |  |  |  |  |  |  |  |  | $ | 98,989 |
(1) The impairment charge consisted of $8,397 related to customer lists, $6,932 related to internal-use software and $2,349 related to other intangible assets. (2) Amount presented here has been revised from what was previously reported to correct the error described in Note 1. Business combination – On June 1, 2021, we acquired all of the equity of First American (Note 6). For all acquisitions, we are required to measure the fair value of the net identifiable tangible and intangible assets and liabilities acquired. The identifiable net assets acquired were comprised primarily of intangible assets, accounts receivable and operating lease assets and liabilities. The fair value of the customer relationship and partner relationship intangibles was estimated using the multi-period excess earnings method. This valuation model estimates revenues and cash flows derived from the asset and then deducts portions of the cash flow that can be attributed to supporting assets, such as a trade name or technology, that contributed to the generation of the cash flows. The resulting cash flow, which is attributable solely to the customer relationship or partner relationship asset, is then discounted at a rate of return commensurate with the risk of the asset to calculate a present value. Key assumptions used in the calculations included same-customer revenue and partner growth rates, estimated earnings, estimated customer and partner retention rates based on First American's historical information and the discount rate. The estimated fair values of the acquired trade names and technology-based intangibles were estimated using the relief from royalty method, which calculates the cost savings associated with owning rather than licensing the assets. Assumed royalty rates were applied to projected revenue for the estimated remaining useful lives of the assets to estimate the royalty savings. Royalty rates are selected based on the attributes of the asset, including its recognition and reputation in the industry, and in the case of trade names, with consideration of the specific profitability of the products sold under a trade name and supporting assets. The fair value of acquired accounts receivable approximates the gross contractual amounts receivable and we expect to collect all acquired receivables. The fair value of the acquired operating lease liabilities was estimated as if the leases were new. As such, we reassessed the lease term, the discount rate and the lease payments. The fair value of the related operating lease assets was measured at the same amount as the lease liability, adjusted to reflect favorable or unfavorable terms of the lease as compared to market terms. Recurring fair value measurements – Funds held for customers included available-for-sale debt securities (Note 3). These securities included a money market fund that is traded in an active market, a mutual fund investment that invests in Canadian and provincial government securities, and an investment in a Canadian guaranteed investment certificate (GIC) with a maturity of 2 years. The cost of the money market fund approximates its fair value because of the short-term nature of the investment. The cost of the GIC approximates its fair value, based on estimates using current market rates offered for deposits with similar remaining maturities. The mutual fund investment is not traded in an active market and its fair value is determined by obtaining quoted prices in active markets for the underlying securities held by the fund. Unrealized gains and losses, net of tax, are included in accumulated other comprehensive loss on the consolidated balance sheets. The cost of securities sold is determined using the average cost method. Realized gains and losses are included in revenue on the consolidated statements of comprehensive income (loss) and were not significant during the quarters or six months ended June 30, 2021 and 2020. Information regarding the fair values of our financial instruments was as follows:
|  |  |  |  |  | Fair value measurements using
|  |  |  | June 30, 2021 |  | Quoted prices in active markets for identical assets (Level 1) |  | Significant other observable inputs (Level 2) |  | Significant unobservable inputs (Level 3)
(in thousands) |  | Balance sheet location |  | Carrying value |  | Fair value |  |  |
Measured at fair value through comprehensive income (loss): |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  | Funds held for customers |  | $ | 11,500 |  |  | $ | 11,500 |  |  | $ | 11,500 |  |  | $ | — |  |  | $ | — |
Available-for-sale debt securities |  | Funds held for customers |  | 13,612 |  |  | 13,612 |  |  | — |  |  | 13,612 |  |  | — |
Derivative liability (Note 7) |  | Other non-current liabilities |  | (5,464) |  |  | (5,464) |  |  | — |  |  | (5,464) |  |  | — |
Amortized cost: |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | Cash and cash equivalents |  | 163,338 |  |  | 163,338 |  |  | 163,338 |  |  | — |  |  | — |
Cash |  | Funds held for customers |  | 110,492 |  |  | 110,492 |  |  | 110,492 |  |  | — |  |  | — |
Loans and notes receivable from distributors |  | Other current and non-current assets |  | 28,581 |  |  | 28,614 |  |  | — |  |  | — |  |  | 28,614 |
Long-term debt |  | Current portion of long-term debt and long-term debt |  | 1,833,411 |  |  | 1,897,500 |  |  | — |  |  | 1,897,500 |  |  | — |
|  |  |  |  |  | Fair value measurements using
|  |  |  | December 31, 2020 |  | Quoted prices in active markets for identical assets (Level 1) |  | Significant other observable inputs (Level 2) |  | Significant unobservable inputs (Level 3)
(in thousands) |  | Balance sheet location |  | Carrying value |  | Fair value |  |  |
Measured at fair value through comprehensive income (loss): |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  | Funds held for customers |  | $ | 15,000 |  |  | $ | 15,000 |  |  | $ | 15,000 |  |  | $ | — |  |  | $ | — |
Available-for-sale debt securities |  | Funds held for customers |  | 13,462 |  |  | 13,462 |  |  | — |  |  | 13,462 |  |  | — |
Derivative liability (Note 7) |  | Other non-current liabilities |  | (7,210) |  |  | (7,210) |  |  | — |  |  | (7,210) |  |  | — |
Amortized cost: |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | Cash and cash equivalents |  | 123,122 |  |  | 123,122 |  |  | 123,122 |  |  | — |  |  | — |
Cash |  | Funds held for customers |  | 91,287 |  |  | 91,287 |  |  | 91,287 |  |  | — |  |  | — |
Loans and notes receivable from distributors |  | Other current and non-current assets |  | 37,076 |  |  | 36,950 |  |  | — |  |  | — |  |  | 36,950 |
Long-term debt |  | Long-term debt |  | 840,000 |  |  | 840,000 |  |  | — |  |  | 840,000 |  |  | — |

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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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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