Western Union 2012 Annual Report Download - page 81

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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 and in others it is one level
below the operating 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, 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
period such charge occurs.
The carrying value of goodwill as of December
31, 2012 was $3,179.7 million which
represented approximately 34% of our
consolidated assets. As of December 31, 2012,
goodwill of $1,947.7 million and $996.0
million resides in our Consumer-to-Consumer
and Business Solutions reporting units,
respectively. The remaining $236.0 million
resides in multiple reporting units which are
included in either our Consumer-to-Business
segment or Other.
For the reporting units that comprise
Consumer-to-Consumer, Consumer-to-
Business, and Other, the fair value of the
businesses greatly exceed their carrying
amounts.
For our Business Solutions reporting unit,
which was recently acquired between 2009 and
2011, a decline in estimated fair value of
approximately 10% could occur before
triggering an impairment of goodwill. We
believe the primary assumptions impacting our
Business Solutions impairment valuation
analysis relate to projected revenue and
EBITDA margins. For example, a decrease of
200 basis points in the ten-year projected
compound annual growth rate of either revenue
or EBITDA margin, assuming all other
elements of the cash flow model remain
unchanged, would result in such decline.
We have not recorded any goodwill
impairments during the three years ended
December 31, 2012.