Goodwill and Acquired Intangible Assets, NET (Note)

12 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET

Goodwill represents the excess of the purchase price of the acquired business over the estimated fair value of the underlying net tangible and intangible assets acquired. The following table summarizes intangible assets as of December 31, 2012 and 2011:



	As of December 31, 2012					As of December 31, 2011
(in thousands)	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Customer relationships	$	172,280	$	(120,117	)	$	178,572	$	(111,589	)
Trademarks and trade names	44,226		(13,742		)	43,401		(11,232		)
Software	5,914		(5,645		)	5,771		(5,233		)
Non-compete agreements	1,798		(1,325		)	1,253		(1,065		)
Total	$	224,218	$	(140,829	)	$	228,997	$	(129,119	)

The following table summarizes the goodwill and amortizable intangible assets activity for the years ended December 31, 2011 and 2012:



(in thousands)	Acquired Intangible Assets			Goodwill			Total Intangible Assets
Balance as of January 1, 2011	$	95,819		$	445,713		$	541,532
Increases (decreases):
2011 acquisitions	28,616			56,855			85,471
Amortization	(22,223		)	—			(22,223		)
Other (primarily changes in foreign currency exchange rates)	(2,334		)	(13,940		)	(16,274		)
Balance as of December 31, 2011	99,878			488,628			588,506
Increases (decreases):
2012 acquisitions	10,856			12,812			23,668
Impairment	(5,235		)	(23,505		)	(28,740		)
Amortization	(22,129		)	—			(22,129		)
Other (primarily changes in foreign currency exchange rates)	19			3,825			3,844
Balance as of December 31, 2012	$	83,389		$	481,760		$	565,149

The Company performs its annual goodwill impairment test during the fourth quarter of each year. As a result of the 2012 and 2010 annual goodwill impairment tests, the Company recorded non-cash goodwill impairment charges of $23.5 million and $70.9 million, respectively. The annual goodwill impairment test completed during the fourth quarter of 2011 resulted in no impairment charges.

2012 Impairment Charges

During the fourth quarter of 2012, epay Brazil recorded a goodwill impairment charge of $23.5 million and an additional $5.2 million impairment charge of other acquired intangibles assets, specifically customer relationships. The impairment charges were the cumulative result of a culmination of several factors in Brazil including, but not necessarily limited to, changes in mobile operator distribution strategies, delays in non-mobile product distribution and operating costs.

The initial factor contributing to the impairment charges was changes in certain mobile operators' distribution strategies throughout 2012. These changes limited our ability to distribute certain mobile operators' products in certain markets and had a negative impact on epay Brazil's 2012 results. While the changes affected our current results, we continued to negotiate alternative arrangements with the mobile operators in order to regain profitability in Brazil. During the fourth quarter of 2012, we determined that these negotiations were not likely to result in arrangements that would restore our profitability from those products in the future.

While these distribution changes were occurring, the Company was also establishing plans to introduce other electronic payment products in the Brazilian market which was expected to increase profitability. As the plans became more concrete during the fourth quarter of 2012, the Company's assessment was that the added profitability from these new products would likely grow steadily over time, but would not add significant earnings as quickly as originally projected.

Simultaneously with the changes in the mobile operators' distribution strategies, epay Brazil undertook efforts to align costs with revenues. While significant progress was made in reducing costs during 2012, the extent of that progress was constrained by the investments needed to launch the new electronic payment products. During the fourth quarter of 2012, the revised cost structure, which aligns costs with the decreased mobile revenues and supports the new products, was solidified and resulted in cost savings which were less than initially expected.

Further, the changes in the mobile operators' distribution strategies accelerated efforts to pursue other distribution channels. During the fourth quarter of 2012, epay Brazil acquired new partners in these other channels which provided insight to the profit potential of these channels. The Company's assessment of the opportunity in these channels was that while these channels are expected to be profitable, they are not likely to have profit margins as great as the ones lost with the changes in mobile operators' distribution strategies previously discussed.

As described above, the Company had several initiatives to improve profitability which were evolving during the year. The collective impact of those initiatives was the key consideration to determining if the epay Brazil business could return to or exceed its previous profitability. While each initiative had the potential to significantly contribute to that goal, during the fourth quarter of 2012, the Company determined that each initiative was likely to contribute less than what was previously expected. The culmination of these various factors in the fourth quarter of 2012 led the Company to conclude that the resulting valuation was not sufficient to support the recorded value of its investment in epay Brazil and, therefore, it recorded the goodwill and other acquired intangible assets impairment charges in the period.

2010 Impairment Charges

As a result of the 2010 annual goodwill impairment test, the Company recorded a non-cash goodwill impairment charge of $70.9 million. The results from the fourth quarter 2010 test reflected continuing declines in profitability for certain reporting units of the epay Segment in Central and Western Europe. While these decreases were primarily driven by general economic conditions in the respective markets, recent developments led the Company to conclude that its ability to recover from these declines would be more difficult for its epay reporting units in the U.K., Spain and Romania. The U.K. reporting unit primarily provides prepaid mobile airtime top-up services in a mature market with limited growth for these services and at the end of 2010 had experienced protracted declines in the volume of transactions processed. While new product offerings in the U.K. provided a significant opportunity, the dependence on top-up services was expected to hamper the unit's overall growth. In Spain, the general economic conditions led the Company to conclude that the profitability of its Spanish epay unit would grow more slowly and take longer to recover than its other European epay units. Finally, while the operating results of the Romanian epay unit improved during 2010, the unit had recently experienced strong pressure on its gross margins. In light of these developments, during the fourth quarter of 2010, the Company recorded goodwill impairment charges of $58.2 million related to the U.K., $11.2 million related to Spain and $1.5 million related to Romania.

In performing the annual goodwill impairment test, management must apply judgment in determining the estimated fair value of a business and uses all available information to make these fair value determinations, including discounted projected future cash flow analysis using discount rates commensurate with the risks involved in the assets, together with comparable sales prices that the Company or another purchaser would likely pay for the respective assets.

Of the total goodwill balance of $481.8 million as of December 31, 2012, $240.4 million relates to the Money Transfer Segment, $191.0 million relates to the epay Segment and the remaining $50.4 million relates to the EFT Processing Segment. Amortization expense for intangible assets with finite lives was $22.1 million, $22.2 million and $23.2 million for the years ended December 31, 2012, 2011 and 2010, respectively. Estimated annual amortization expense, before income taxes, on intangible assets with finite lives as of December 31, 2012, is expected to total $18.1 million for 2013, $15.3 million for 2014, $10.1 million for 2015, $8.5 million for 2016 and $6.9 million for 2017.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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