Western Union 2011 Annual Report Download - page 85

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Description Judgments and Uncertainties
Effect if Actual Results Differ from
Assumptions
Goodwill Impairment Testing
An impairment assessment of goodwill
is conducted annually at the reporting
unit level. This assessment of goodwill is
performed more frequently if events or
changes in circumstances indicate that
the carrying value of the goodwill may
not be recoverable.
Reporting units are driven by the level at
which management reviews segment
operating results. In some cases, that
level is the operating segment (e.g.,
consumer-to-consumer money transfer)
and in others it is one level below the
operating segment (e.g., Business
Solutions, which is included in our
global business payments segment).
Our impairment assessment begins with
a qualitative assessment to determine
whether it is more likely than not that the
fair value of a reporting unit is less than
its carrying value. The initial qualitative
assessment includes comparing the
overall financial performance of the
reporting units against the planned
results. Additionally, each reporting
unit’s fair value is assessed under certain
events and circumstances, including
macroeconomic conditions, industry and
market considerations, cost factors, and
other relevant entity-specific events.
If it is determined in the qualitative
assessment that it is more likely than not
that the fair value of a reporting unit is
less than its carrying value, then the
standard two-step quantitative
impairment test is performed. First, the
fair value of the reporting unit is
calculated or determined using
discounted cash flows and is compared to
its carrying value. If the first step
indicates the carrying value exceeds the
fair value of the reporting unit, then the
second step is required. The second step
is to determine the implied fair value of a
reporting unit’s goodwill by allocating
the determined fair value to all the
reporting unit’s assets and liabilities,
including any unrecognized intangible
assets, as if the reporting unit had been
acquired in a business combination. The
remaining fair value of the reporting unit,
if any, is deemed to be the implied fair
value of the goodwill and an impairment
is recognized in an amount equal to the
excess of the carrying amount of
goodwill above its implied fair value.
The determination of the reporting units
and which reporting units to include in
the qualitative assessment requires
significant judgment. Also, all of the
assumptions used in the qualitative
assessment require judgment.
For the quantitative goodwill impairment
test, we calculate the fair value of
reporting units through discounted cash
flow analyses which require us to make
estimates and assumptions including,
among other items, revenue growth
rates, operating margins, and capital
expenditures based on our budgets and
business plans which take into account
expected regulatory, marketplace, and
other economic factors.
We could be required to evaluate the
recoverability of goodwill if we
experience disruptions to the business,
unexpected significant declines in
operating results, a divestiture of a
significant component of our business,
significant declines in market
capitalization or other triggering events.
In addition, as our business or the way
we manage our business changes, our
reporting units may also change.
If an event described above occurs and
causes us to recognize a goodwill
impairment charge, it would impact our
reported earnings in the periods such
charge occurs.
The carrying value of goodwill as of
December 31, 2011 was $3,198.9 million
which represented approximately 35% of
our consolidated assets. As of December
31, 2011, goodwill of $1,945.3 million
and $1,014.7 million resides in our
consumer-to-consumer and Business
Solutions reporting units, respectively.
For the consumer-to-consumer reporting
unit, the fair value of the business greatly
exceeds its carrying amount. TGBP was
recently purchased and represents a
significant majority of the goodwill
related to the Business Solutions
reporting unit. A fair value decline could
occur if actual and forecasted cash flows
do not meet expectations. Such a decline
would likely result in an impairment,
which could be significant.
We have not recorded any goodwill
impairments during the three years
ended December 31, 2011.
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