First Data 2009 Annual Report Download - page 108

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
useful life of the related assets (generally three to 10 years for equipment, furniture and leasehold improvements,
and 30 years for buildings) or the lease term. Maintenance and repairs which do not extend the useful life of the
respective assets are charged to expense as incurred. Amounts charged to expense for the depreciation and
amortization of property and equipment, including equipment under capital lease, were $300.3 million in 2009,
$252.7 million in 2008, $65.0 million for the successor period September 25, 2007 through December 31, 2007
and $165.1 million for the predecessor period January 1, 2007 through September 24, 2007.
Goodwill and Other Intangibles
As discussed in Note 2, the Company merged with an entity controlled by affiliates of KKR on
September 24, 2007. The total purchase price was allocated to the Company’s net tangible and identifiable
intangible assets (including customer relationships, software and trade names) based on their estimated fair
values. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as
goodwill. The allocation of the purchase price to identifiable intangible assets was finalized in the third quarter of
2008.
Goodwill represents the excess of purchase price over tangible and intangible assets acquired less liabilities
assumed arising from business combinations. Goodwill is generally allocated to reporting units based upon
relative fair value (taking into consideration other factors such as synergies) when an acquired business is
integrated into multiple reporting units. The Company’s reporting units are at the operating segment level or
businesses one level below the operating segment level for which discrete financial information is prepared and
regularly reviewed by management. When a business within a reporting unit is disposed of, goodwill is allocated
to the disposed business using the relative fair value method. Relative fair value is estimated using a discounted
cash flow analysis.
The Company tests goodwill annually for impairment, as well as upon an indicator of impairment, using a
fair value approach at the reporting unit level. The Company estimates the fair value of each reporting unit using
a discounted cash flow analysis. The Company performed its annual goodwill impairment test in the fourth
quarters of 2009 and 2008 and recorded total impairment charges of $17 million and $3.2 billion, respectively, as
discussed in Note 3. The 2009 goodwill impairment impacted a reporting unit within All Other and Corporate
while the 2008 impairment impacted every reporting unit, also as discussed in Note 3.
Customer relationships represent the estimated value of the Company’s relationships with customers,
primarily merchants and financial institutions, for which it provides services. Prior to the merger, customer
relationships were amortized on a straight-line basis over their expected useful lives. Customer relationships
recorded as part of the purchase price allocation for the merger and those recorded subsequent to the merger are
amortized based on the pattern of undiscounted cash flows for the period as a percentage of total projected
undiscounted cash flows. The Company selected this amortization method for these customer relationships based
on a conclusion that the projected undiscounted cash flows could be reliably determined.
FDC capitalizes initial payments for new contracts, contract renewals and conversion costs associated with
customer processing relationships to the extent recoverable through future operations, contractual minimums
and/or penalties in the case of early termination. The Company’s accounting policy is to limit the amount of
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.
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