First Data 2009 Annual Report Download - page 35

FIRST DATA CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Purchase price allocation
The assets contributed to BAMS by the Company continue to be recorded at the Company’s carrying basis,
which for the majority of assets was established effective November 1, 2008 as described immediately above net
of applicable amortization expense subsequently recognized, and the assets contributed by BofA were recorded at
their estimated fair value. The fair value of the BofA contribution to BAMS was determined by estimating the
BAMS enterprise value and attributing the appropriate portion of that value to such contribution. The Company
relied in part upon a third party valuation firm in determining the enterprise value of BAMS. All key assumptions
and valuations were determined by and are the responsibility of management. The value attributed to the net
tangible and identifiable intangible assets contributed by BofA was based on their estimated fair values. During
the fourth quarter of 2009 the final valuation was completed and the purchase price allocation resulted in
identifiable intangible assets of $1,317 million, which will be amortized over a range estimated to be 11 to 20
years, and goodwill of $2,127 million. Refer to Note 4 to the Consolidated Financial Statements included in
Item 8 of this Form 10-K for a description of the methodologies used to determine the fair value of the enterprise
and intangible assets.
Management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934. As allowed
by the SEC, the Company’s policy is to not include in management’s assessment of internal controls the internal
controls of acquired companies in the year of acquisition if the Company deems that an assessment could not be
adequately accomplished in the normal course of business. With the exception of BAMS, all acquisitions that
closed in 2009 were not within the scope of management’s report on internal control over financial reporting.
The Company does not deem these acquisitions significant, individually or in aggregate, to the Consolidated
Financial Statements.
Other
On June 30, 2009, the Company extended its merchant acquiring alliance with The PNC Financial Services
Group (“PNC”) for an additional eight years which now includes National City Corporation merchant referrals.
The Company also contributed $28 million and customer contracts in 2009 into the alliance as part of the
agreement in order to maintain its ownership percentage. In addition, the Company renewed and expanded its
agreement for transaction processing services with PNC which will include additional PIN-debit and ATM
processing PNC gained through its acquisition of National City Corporation.
Impairment
In the fourth quarter of 2009, domestically, the Company recorded a $33 million impairment charge related
to customer contracts, a $17 million goodwill impairment charge and a $3 million software impairment charge
related to the Information Services reporting unit within All Other and Corporate. The Company followed a
discounted cash flow approach in estimating the fair value of the reporting units 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. A relatively small change in these inputs would have
had an immaterial impact on the impairments.
In the fourth quarter of 2009, internationally, the Company recorded $124 million in asset impairment
charges related to the International reporting unit and segment. Approximately $64 million of the total
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