First Data 2011 Annual Report Download - page 57

assets using the excess earnings method, royalty savings method, or cost savings method, all of which are a form of a discounted cash
flow analysis. An impairment charge of a reporting unit's goodwill could have a material adverse effect on the Company's financial
results. Changes in the underlying business and economic conditions could affect these estimates used in the analysis discussed above,
which in turn could affect the fair value of the reporting unit. Thus, it is possible for reporting units that record impairments to record
additional impairments in the future.
The Company did not record any goodwill impairment charges in 2011 or 2010. As of October 1, 2011, the most recent
impairment analysis date, the fair value of each reporting unit substantially exceeded its carrying value with two exceptions. The fair
value of the International reporting unit exceeded its carrying value by 10%. The fair value of the Canada reporting unit exceeded its
carrying value by 3%. Together, these two reporting units represent the entire International segment. As of October 1, 2011, the
International and Canada reporting units had goodwill balances of $2,140.6 million and $142.0 million, respectively. As of December
31, 2011, these balances had not materially changed.
In the fourth quarter of 2009, the Company recorded a $17 million goodwill impairment charge related to the Information
Services reporting unit. The Company followed a discounted cash flow approach in estimating the fair value of the reporting units and
intangible assets. The significant factor that drove most of the 2009 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.
Discussion of impairments that were recorded is included in Note 2 to the Company's Consolidated Financial Statements in
Item 8 of this Form 10-K.
Transactions with related parties. A substantial portion of the Company's business within the Retail and Alliance Services and
International segments is conducted through merchant alliances. Merchant alliances are alliances between the Company and financial
institutions. If the Company has majority ownership and management control over an alliance, then the alliance's financial statements
are consolidated with those of the Company and the related processing fees are treated as an intercompany transaction and eliminated
upon consolidation. If the Company does not have a controlling ownership interest in an alliance, it uses the equity method of
accounting to account for its investment in the alliance. As a result, the Company's consolidated revenues include processing fees
charged to alliances accounted for under the equity method. No directors or officers of the Company have ownership interests in any
of the alliances. The formation of each of these alliances generally involves the Company and the bank contributing contractual
merchant relationships to the alliance and a cash payment from one owner to the other to achieve the desired ownership percentage for
each. The Company and the bank contract a long-term processing service agreement as part of the negotiation process. This agreement
governs the Company's provision of transaction processing services to the alliance.
The Company negotiated all agreements with the alliance banks. Therefore, all transactions between the Company and its
alliances were conducted at arm's length; nevertheless, accounting guidance defines a transaction between the Company and an equity
method investee as a related party transaction requiring separate disclosure in the financial statements of the Company. Accordingly,
the revenue associated with these related party transactions are presented on the face of the Consolidated Statements of Operations.
Certain members of the Company's Board of Directors are affiliated with KKR. In addition, First Data has a management
agreement with affiliates of KKR pursuant to which such entities or their affiliates provide management services to the Company.
Pursuant to such agreement, the Company pays an aggregate annual base management fee and reimburses out-of-pocket expenses
incurred in connection with the provision of services pursuant to the agreement. The agreement provides that the Company will pay
fees in connection with certain subsequent financing, acquisition, disposition and change of control transactions, as well as a
termination fee based on the net present value of future payment obligations under the management agreement, in the event of an
initial public offering or under certain other circumstances. The agreement also includes customary exculpation and indemnification
provisions in favor of KKR and its affiliates. The Company also paid fees to an affiliate of KKR for services in extending maturities
under its senior secured lending facility and issuing new secured notes.
Refer to Note 10 to the Company's Consolidated Financial Statements in Item 8 of this Form 10-K for additional information
regarding transactions with related parties.
New Accounting Guidance
In May 2011, the Financial Accounting Standards Board revised its guidance on fair value measurements. The amendment
clarifies certain aspects of the Board's intent for the application of existing fair value measurement requirements and additionally
changes certain requirements for measuring fair value or for disclosing information about fair value measurements. The amendments
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