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Goodwill and Intangible Assets

12 Months Ended

Jun. 30, 2012

Goodwill and Intangible Assets [Abstract]

Note 5 — Goodwill and Intangible Assets

The components of goodwill and intangible assets are outlined below for the fiscal years ended June 30, 2012 and 2011:


			Risk and
			Financial		Talent and		Exchange
	Benefits		Services		Rewards		Solutions		All Other		Total
Balance as of June 30, 2010	$	1,151,681	$	459,373	$	105,027	$	-	$	1,214	$	1,717,295
Goodwill acquired and
contingent payments		49,769		49,150		2,191		-		-		101,110
Translation adjustment		86,909		30,241		8,019		-		-		125,169
Balance as of June 30, 2011	$	1,288,359	$	538,764	$	115,237	$	-	$	1,214	$	1,943,574
Goodwill acquired		13,867		22,764		-		341,012		-		377,643
Translation adjustment		(48,971)		(15,666)		(4,025)		-		-		(68,662)
Balance as of June 30, 2012	$	1,253,255	$	545,862	$	111,212	$	341,012	$	1,214	$	2,252,555

The $341.0 million of goodwill acquired in the Exchange Solutions segment is all related to the acquisition of Extend Health which was completed on May 29, 2012. We recorded the consideration less the tangible assets and liabilities and preliminary intangible assets as goodwill as of June 30, 2012. We have not yet finalized the preliminary assessment of the fair value of tangible assets and intangible assets separate from goodwill but we expect to do so in the first quarter of fiscal year 2013. See Note 2 for additional information regarding this acquisition.

Included in the Benefits and Risk and Financial Services goodwill acquired is $27.7 million of goodwill related to our purchase of additional ownership in Fifth Quadrant on November 30, 2011, which resulted in a controlling ownership. The Fifth Quadrant goodwill is evenly allocated to the Benefits and Risk and Finance Services segments based on the acquired company's historical revenue and service offerings. We recorded a $2.8 million gain in other non-operating income representing the increase in the fair value of our previous ownership. Also included in the Risk and Financial Services goodwill acquired is a $8.2 million goodwill adjustment, which was recorded in the first quarter to reflect the modification of deferred tax amounts for the acquisition of EMB, which was completed on January 31, 2011.

The following table reflects changes in the net carrying amount of the components of finite-lived intangible assets for the fiscal years ended June 30, 2012 and 2011:


			Customer		Core/				Favorable
	Trademark &		related		developed		Non-compete		lease
	trade name		intangible		technology		agreements		agreements		Total
Balance as of June 30, 2010	$	-		188,806		118,726		-		9,162	$	316,694
Intangible assets acquired		-		27,396		17,806		250		-		45,452
Intangible assets disposed of during the period		-		-		-		-		(1,376)		(1,376)
Amortization		-		(29,081)		(22,603)		(250)		(2,622)		(54,556)
Translation adjustment		-		15,034		(162)		-		274		15,146
Balance as of June 30, 2011		-		202,155		113,767		-		5,438		321,360
Intangible assets acquired		370		123,150		26,660		-		537		150,717
Intangible assets disposed of during the period		-		-		-		-		(508)		(508)
Amortization		(370)		(28,318)		(36,931)		-		(851)		(66,470)
Translation adjustment		-		(7,466)		(207)		-		(62)		(7,735)
Balance as of June 30, 2012	$	-	$	289,521	$	103,289	$	-	$	4,554	$	397,364

For the fiscal years ended June 30, 2012, 2011 and 2010, we recorded $65.6 million, $52.1 million and $31.4 million, respectively, of amortization related to our intangible assets.

Due to integration of our Retirement practice, management decided to discontinue the use of an application that was acquired in the Merger with an expected useful life of ten years. We calculated no impairment and we plan to shorten the life of the intangible asset and accelerate the amortization in the same pattern in which our clients are transitioned to the surviving application, which is expected to occur over the next three to four years. To develop our estimated useful remaining life of the application, we are using client engagement revenue and the planned transition developed by our practice management. We recorded an additional $8.4 million of amortization for the fiscal year ended June 30, 2012.

Our indefinite-lived non-amortizable intangible assets consist of acquired trademarks and trade names from the merger of Watson Wyatt and Towers Perrin in 2010 and the acquisition of Watson Wyatt LLC in 2005. The carrying value of these assets was $371.4 million and $373.6 million as of June 30, 2012 and June 30, 2011, respectively. The change during the period was due to foreign currency translation adjustment.

In conjunction with the Merger, we estimated the fair value of acquired leases and recorded an unfavorable lease liability in accordance with ASC 805. As of June 30, 2012 and June 30, 2011, this liability was $17.0 million and $21.3 million, respectively. The change for the fiscal year ended June 30, 2012 was comprised of a reduction to rent expense of $4.2 million and translation of $0.1 million.

Components of the change in the gross carrying amount of customer related intangibles, core/developed technology and favorable and unfavorable lease agreements reflect foreign currency translation adjustments between June 30, 2011 and June 30, 2012. Certain of the intangible assets and liabilities are denominated in the currencies of our subsidiaries outside the United States, and are translated into our reporting currency, the U.S. dollar, based on exchange rates at the balance sheet date.

The following table reflects the weighted average remaining life and carrying value of finite-lived intangible assets and liabilities as of June 30, 2012 and 2011:


		Fiscal Year 2012						Fiscal Year 2011
							Weighted					Weighted
			Gross				Average	Gross				Average
			Carrying		Accumulated		Remaining	Carrying		Accumulated		Remaining
			Amount		Amortization		Life	Amount		Amortization		Life
Finite-lived intangible assets and liabilities:
	Trademark and trade name		$	370	$	370	-	$	-	$	-	-
	Customer related intangibles			390,264		100,743	8.0		280,547		78,392	9.4
	Core/developed technology			173,498		70,209	4.3		166,110		52,343	6.0
	Non-compete agreements			-		-	-		1,525		1,525	-
	Favorable lease agreements			6,625		2,071	5.6		6,808		1,370	6.3
	Total finite-lived intangible assets		$	570,757	$	173,393		$	454,990	$	133,630

	Unfavorable lease agreements			27,670		10,707	4.8		27,833		6,498	6.3
	Total finite-lived intangible liabilities		$	27,670	$	10,707		$	27,833	$	6,498

Certain trademark and trade-name intangibles have indefinite useful lives and are not amortized. The weighted average remaining life of the net amortizable intangible assets and liabilities was 7.1 years and 8.1 years, respectively at June 30, 2012 and June 30, 2011.

The following table reflects:

future estimated amortization expense for amortizable intangible assets consisting of customer related intangibles and core/developed technology.
the rent offset resulting from the amortization of the net lease intangible assets and liabilities for future fiscal years as follows:


Fiscal year ending June 30,	Amortization		Rent Offset
2013	$	78,383		(2,529)
2014		72,462		(2,305)
2015		60,617		(1,980)
2016		51,540		(1,578)
2017		43,113		(1,854)
Thereafter		86,695		(2,164)
Total	$	392,810	$	(12,410)

- 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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