First Data 2011 Annual Report Download - page 73

The Company has receivables associated with its point-of-sale ("POS") terminal leasing businesses. Leasing receivables are
included in "Accounts receivable" and "Other long-term assets" in the Consolidated Balance Sheets. The Company recognizes interest
income on its leasing receivables using the effective interest method. For direct financing leases, the interest rate used incorporates
initial direct costs included in the net investment in the lease. For sales type leases, initial direct costs are expensed as incurred.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is computed using the straight-
line method over the lesser of the estimated 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. The following table presents the amounts charged to expense for the
depreciation and amortization of property and equipment, including equipment under capital lease:
Year ended December 31,
(in millions) Amount
2011 $ 292.1
2010 320.4
2009 300.3
Goodwill and Other Intangibles
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 2011, 2010 and 2009. 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. The
Company did not record any goodwill impairment charges in 2011 or 2010. In 2009, the Company recorded an impairment of $17
million, as discussed in Note 2 of these Consolidated Financial Statements. The 2009 goodwill impairment impacted a reporting unit
within All Other and Corporate.
Customer relationships represent the estimated value of the Company's relationships with customers, primarily merchants and
financial institutions, to which it provides services. Customer relationships 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.
The Company 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.
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
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