MoneyGram 2011 Annual Report Download - page 66

Table of Contents
Description Judgments and Uncertainties Effect if Actual Results Differ From Assumptions
Goodwill
We perform impairment testing of our goodwill
balances annually as of November 30 and whenever
events or changes in circumstances indicate the
carrying value of our goodwill may not be
recoverable.
Goodwill impairment is determined using a two−step
process. The first step identifies if a potential
impairment exists by comparing the fair value of each
reporting unit to its carrying amount. If the fair value
exceeds the carrying amount, goodwill is not
considered to have a potential impairment and the
second step of the test is not necessary. However, if
the carrying amount exceeds the fair value, the second
step is performed to determine the implied fair value
of a reporting unit’s goodwill by comparing the
reporting unit’s fair value to the allocated fair values
of all assets and liabilities as if the reporting unit had
been acquired in a business combination. If the
carrying amount of goodwill exceeds its implied fair
value, an impairment is recognized in an amount equal
to that excess.
Fair value of a reporting unit and goodwill is
estimated using a discounted cash flow model.
The estimates and assumptions used in this
model regarding expected cash flows, growth
rates, terminal values and the discount rate
require considerable judgment and are based on
historical experience, financial forecasts and
industry trends and conditions.
Our discount rate is based on our debt and
equity balances, adjusted for current market
conditions and investor expectations of return
on our equity. In addition, an assumed terminal
value is used to project future cash flows
beyond base years. Assumptions used in our
impairment testing are consistent with our
internal forecasts and operating plans.
The carrying value of goodwill assigned to the
Global Funds Transfer reporting unit at
December 31, 2011 was $428.7 million. No
goodwill is assigned to the other reporting
units. The annual impairment test indicated a
fair value for the Global Funds Transfer
reporting unit that was substantially in excess
of the reporting unit’s carrying value.
If the discount rate for the Global Funds
Transfer reporting unit increases by 50 basis
points from the rate used in our fair value
estimate, fair value would be reduced by
approximately $177.9 million, assuming all
other components of the fair value estimate
remain unchanged. If the growth rate for the
Global Funds Transfer reporting unit
decreases by 50 basis points from the rate used
in our fair value estimate, fair value would be
reduced by approximately $35.1 million,
assuming all other components of the fair
value estimate remain unchanged.
Our estimated fair value for the Global Funds
Transfer reporting unit would continue to be
substantially in excess under either scenario.
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