INSPERITY, INC.NSP

INSPERITY, INC. Goodwill & Intangibles Disclosure

10-KFiled Feb 13, 20172 min read
6.
Goodwill and Other Intangible Assets

We perform our annual asset impairment test as of December 31, the end of our fiscal year. During the fourth quarters of 2016, 2015 and 2014, we performed step one of the annual impairment test for each of our reporting units.

Additionally, any time impairment indicators are identified, we perform an interim impairment test. During the second quarter of 2014, impairment indicators were identified in our Employment Screening business, due to changes in management, the reporting unit’s financial results and the loss of certain customers.

The declines in the estimated fair values of Employment Screening resulted primarily from lower projected revenue growth rates and profitability levels. Upon completion of step two of the goodwill impairment tests, we recognized goodwill and other intangible asset impairments of $2.5 million in 2014 related to our Employment Screening business unit. The fair values of the reporting units were estimated using a discounted cash flow model. The material assumptions used in the model included the weighted average cost of capital and long-term growth rates.  We consider this a Level 3 fair value measure.

The following table presents the gross carrying amount and accumulated amortization for each class of intangible assets and the gross carrying amount and accumulated impairment for goodwill:

 
 
December 31, 2015
 
Twelve Months Ended 
 December 31, 2016
 
December 31, 2016
 
 
Balance
 
Impairment
 
Amortization Expense
 
Balance
 
 
(in thousands)
Gross carrying amount:
 
 
 
 
 
 
 
 
Trademarks
 
$
220

 
$
—

 
$
—

 
$
220

Customer relationships
 
6,392

 
—

 
—

 
6,392

Aggregate goodwill acquired:
 
 
 
 
 
 
 
 
Goodwill
 
21,156

 
—

 
—

 
21,156

Total
 
$
27,768

 
$
—

 
$
—

 
$
27,768

 
 
 
 
 
 
 
 
 
Accumulated amortization:
 
 
 
 
 
 
 
 
Trademarks
 
$
(101
)
 
$
—

 
$
(39
)
 
$
(140
)
Customer relationships
 
(5,609
)
 
—

 
(461
)
 
(6,070
)
Accumulated impairment:
 
 
 
 
 
 
 
 
Goodwill
 
(8,470
)
 
—

 
—

 
(8,470
)
Total
 
$
(14,180
)
 
$
—

 
$
(500
)
 
$
(14,680
)
 
 
 
 
 
 
 
 
 
Net carrying amount:
 
 
 
 
 
 
 
 
Trademarks
 
$
119

 
$
—

 
$
(39
)
 
$
80

Customer relationships
 
783

 
—

 
(461
)
 
322

Goodwill
 
12,686

 
—

 
—

 
12,686

Total goodwill and other intangible assets
 
$
13,588

 
$
—

 
$
(500
)
 
$
13,088



Our amortization expense related to purchased intangible assets other than goodwill was $0.5 million in 2016, $0.9 million in 2015 and $1.5 million in 2014, and is estimated to be $0.3 million in 2017, $36,000 in 2018, $12,000 in 2019 and $7,000 in 2020.
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Historical Timeline

Fiscal YearFiled
2016Feb 13, 2017Showing above
2015Feb 12, 2016

About Goodwill & Intangibles Disclosures

Goodwill and intangible asset disclosures reveal the premium paid in acquisitions and how management assesses whether that premium retains its value. Since goodwill is no longer amortized under US GAAP, the annual impairment test is the only mechanism that adjusts carrying values downward — making the assumptions behind that test critically important for investors.

Key signals: a history of goodwill impairments suggests management consistently overpays for acquisitions. Watch the gap between reporting unit fair value and carrying amount — when fair value exceeds carrying amount by less than 10-20%, a small decline in business performance could trigger a write-down. For finite-lived intangibles, examine useful life assumptions across customer relationships, technology, and trade names; aggressive estimates inflate near-term earnings. Compare total intangibles-to-total-assets ratios against peers to assess acquisition dependency. Rising goodwill as a percentage of equity can signal balance sheet fragility.

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