Western Union 2006 Annual Report Download - page 77

Notes to Consolidated Financial Statements 75
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Liabilities”
(“SFAS No. 159”). SFAS No. 159 provides companies
with an option to report selected financial assets and
liabilities at fair value, and establishes presentation and
disclosure requirements designed to facilitate comparisons
between companies that choose different measurement
attributes for similar types of assets and liabilities. The
new guidance is effective for fiscal years beginning after
November 15, 2007. The Company is currently evaluating
the potential impact of the adoption of SFAS No. 159 on
its financial position and results of operations.
|| 3. Acquisitions and Disposals
In December 2006, the Company acquired SEPSA, which
operates under the brand name Pago Fácil
SM
, for a
total purchase price of $69.5 million, less cash acquired of
$3.0 million. SEPSA provides consumer-to-business
payments to a variety of billers based in Argentina.
Previously, the Company held a 25% interest in SEPSA
which was treated as an equity method investment. As a
result of acquiring the additional 75% ownership, the
Company’s entire investment in and results of operations
of SEPSA have been included in the consolidated financial
statements since the acquisition date. The preliminary
purchase price allocation resulted in $22.4 million of
identifiable intangible assets, a significant portion of
which was attributable to the Pago Fácil service mark. The
identifiable intangible assets were calculated based on the
additional 75% ownership interest acquired, and are being
amortized over two to 25 years. After adjusting the additional
acquired net assets to fair value, goodwill of $48.0 million
was recorded, which is not expected to be deductible for
income tax purposes. The purchase price allocation is
preliminary and subject to change after the valuation of
identifiable assets and certain other assets and liabilities
is finalized.
In October 2005, First Data acquired 100% of GMT
Group, Inc. (“GMT”), the owner of Vigo, a provider of
consumer-to-consumer money transfer services to various
countries, for approximately $369.2 million, including cash
acquired of $20.1 million. GMT was contributed to Western
Union in connection with the spin-off. The results of Vigo’s
operations have been included in the consolidated financial
statements since the acquisition date. The purchase price
allocation resulted in $83.6 million of identifiable intangible
assets, which are being amortized over 3.5 to 11 years,
except for acquired trademarks aggregating $28.6 million,
which are being amortized over 25 years. Goodwill
of $284.4 million was recorded in connection with
the acquisition of GMT, none of which is expected to
be deductible for tax purposes.
In 2004, the Company purchased 30% equity interests
in two of its international money transfer agents. The
aggregate consideration paid during 2004 for these agents
was $42.0 million, net of $5.4 million of holdback reserves
to cover claims arising from the acquisitions, which was
paid in 2005 upon successful resolution of the related
claims. The aggregate purchase price allocation for these
acquisitions resulted in $12.9 million of identifiable intangible
assets, which are being amortized over three to seven
years. Western Union’s investments in these agents are
accounted for under the equity method of accounting.
In August 2003, the Company acquired a 51%
ownership interest in EPOSS Limited (“EPOSS”), a United
Kingdom based seller of prepaid products in Europe, for
$12.2 million, including cash acquired of $9.2 million. In
the fourth quarter of 2005, Western Union recorded a
goodwill impairment charge of $8.7 million due to a change
in strategic direction related to EPOSS. In the second
quarter 2006, the Company sold its majority interest
in EPOSS. The fair value of net assets on disposition
approximated the net book value subsequent to the
recognition of the goodwill impairment charge noted above.
The pro forma impact of all acquisitions on net income
in 2006, 2005 and 2004 was immaterial.
The following table presents changes to goodwill for the years ended December 31, 2006 and 2005 (in millions):
Consumer-to- Consumer-to-
Consumer Business Other Total
January 1, 2005 balance $1,107.6 $195.1 $ 40.9 $1,343.6
Acquisitions 283.1 — — 283.1
Impairments — — (8.7) (8.7)
December 31, 2005 balance $1,390.7 $195.1 $ 32.2 $1,618.0
Acquisitions — 48.0 — 48.0
Purchase price adjustments 1.3 — — 1.3
Disposals — — (19.3) (19.3)
December 31, 2006 balance $1,392.0 $243.1 $ 12.9 $1,648.0
The terms of certain of the Company’s acquisition
agreements provide for additional consideration to be
paid if the acquired entity’s results of operations exceed
certain targeted levels. Such additional consideration
is paid in cash and is recorded as additional purchase
price when targeted levels are achieved. There was no
additional consideration paid in 2005 and 2006. Additional
consideration paid in 2004 totaled $28.7 million. There are
no potential additional consideration payments remaining
as of December 31, 2006.