First Data 2009 Annual Report Download - page 117

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1) Changes in estimates during 2008 included reversals related to pre-merger restructuring accruals recorded in
purchase accounting as well as items reported in the “Restructuring, net” line item of the Consolidated
Statements of Operations.
Impairments
In the fourth quarter of 2009, within All Other and Corporate, the Company recorded approximately $33
million in impairment charges related to customer contracts, a goodwill impairment charge of approximately $17
million and a software impairment charge of approximately $3 million related to the Information Services
reporting unit. The Company followed a discounted cash flow approach in estimating the fair value of the
reporting unit and intangible assets consistent with the approach used to allocate the purchase price of the
merger. The significant factor that drove most of the impairment was lower projections of financial results as
compared to those used in the 2008 impairment testing. Discount rates were determined on a market participant
basis. The Company relied in part on a third party valuation firm in determining the appropriate discount rates.
All key assumptions and valuations were determined by and are the responsibility of management.
Also in the fourth quarter of 2009, the Company recorded approximately $124 million in asset impairment
charges related to the International reporting unit and segment. Approximately $64 million of the total
impairment charge related to the Company’s business in Germany and was allocated to impair the value of
customer contracts and real property by approximately $58 million and $6 million, respectively. The impairment
occurred because of the deterioration of profitability on existing business, higher risk of revenue attrition in
future years and lower projections of financial results compared to those used in prior periods. Approximately
$47 million of the total impairment charge related to impairment of customer contracts associated with the
Company’s card-issuing business in the United Kingdom. The impairment occurred because of negative cash
flow in the existing business and lower projections of financial results compared to those used in prior periods.
Approximately $2 million of the total impairment charge related to trade name impairment and was a result of
the Company’s decision to discontinue the use of a certain trade name in the Canadian market during the fourth
quarter of 2009 and instead continue the business under the First Data brand. The remaining $11 million of the
total impairment charge related to the Company’s businesses in Ireland and Brazil and was comprised of
approximately $7 million for impairment of customer contracts and approximately $4 million for software
impairment. The impairment occurred because of cash flow losses in the existing businesses and lower
projections of financial results compared to those used in prior periods. The Company followed a discounted cash
flow approach in estimating the fair value of the affected asset groups and individual intangible assets within
those groups consistent with the approach used to allocate the purchase price of the merger. The Company
obtained an appraisal from a third party brokerage firm to assist in estimating the value of real property in
Germany. All key assumptions and valuations were determined by and are the responsibility of management.
During the third quarter of 2009, the Company recorded a charge of $7.7 million related to an intangible
asset impairment within the International segment resulting from continuing and projected losses combined with
a change in business strategy related to an existing business.
During 2008 the Company performed its annual goodwill impairment test in the fourth quarter of 2008 and
recorded a total impairment charge of $3.2 billion that impacted every reporting unit. The primary causes of the
impairment charges were higher discount rates and revised projections of financial results as compared to those
used to allocate the purchase price of the merger. The revised projections resulted from the global economic
situation in 2008 that caused a decrease in near-term projections and a delay in the attainment of long-term
projections. Discount rates were determined on a market participant basis and increased due to the increased risk
in the marketplace and more costly access to capital. The assumptions used in the test reflect the Company’s
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