First Data 2008 Annual Report Download - page 118

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
capitalized costs for a given contract to the lesser of the estimated ongoing future cash flows from the contract or the termination fees the Company would
receive in the event of early termination of the contract by the customer. The initial payments for new contracts and contract renewals are amortized over the
term of the contract as a reduction of the associated revenue (transaction and processing service fees). Conversion costs are also amortized over the term of
the contract but are recorded as an expense in "Depreciation and amortization" in the Consolidated Statements of Operations. In connection with the allocation
of the purchase price related to the merger, previously recorded conversion and contract costs were eliminated.
The Company develops software that is used in providing processing services to customers. To a lesser extent, the Company also develops software to
be sold or licensed to customers. Software development costs are capitalized once technological feasibility of the software has been established. Costs
incurred prior to establishing technological feasibility are expensed as incurred. Technological feasibility is established when the Company has completed all
planning, designing, coding and testing activities that are necessary to determine that a product can be produced to meet its design specifications, including
functions, features and technical performance requirements. Capitalization of costs ceases when the product is available for general use. Software
development costs are amortized using the straight-line method over the estimated useful life of the software, which is generally five years. Software
development costs allocated as part of the purchase price allocation are amortized over three to 10 years.
In addition to capitalized contract and software development costs, other intangibles include copyrights, patents, acquired software, trademarks and
noncompete agreements acquired in business combinations. These other intangibles were recorded at fair value in connection with the merger. Other
intangibles, except for the First Data trade name discussed below, are amortized on a straight-line basis over the length of the contract or benefit period, which
generally ranges from three to 25 years. Other intangible amortization expense (including amortization associated with investments in affiliates) totaled
$1,306.9 million in 2008, $362.2 million for the successor period from September 25, 2007 through December 31, 2007, $375.1 million for the predecessor
period from January 1, 2007 through September 24, 2007, and $484.8 million in 2006.
In conjunction with the allocation of the purchase price related to the merger, $603.5 million was allocated to the First Data trade name. Upon
consideration of many factors, including the determination that there are no legal, regulatory or contractual provisions that limit the useful life of the First
Data trade name, the Company determined that the First Data trade name had an indefinite useful life. The Company also considered the effects of
obsolescence, demand, competition, other economic factors and ability to maintain and protect the trade name without significant expenditures. The First Data
trade name is expected to contribute directly or indirectly to the future cash flows of the Company for an indefinite period. As an indefinite lived asset, the
First Data trade name will not be amortized but will be reviewed annually for impairment until such time as it is determined to have a finite life. The First
Data trade name was not impaired at December 31, 2008.
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