First Data 2013 Annual Report Download - page 68

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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:
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2013 $288.4
2012 $ 284.5
2011 $292.1
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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 2013, 2012 and 2011. As of October 1, 2013, the most recent impairment analysis date, the fair value of each
reporting unit substantially exceeded its carrying value. The Company did not record any goodwill impairment charges in 2013 or 2011. Discussion of
impairments that were recorded in 2012 is included in Note 7 of these Consolidated Financial Statements.
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 are
amortized using the straight-line method over the estimated useful life of the software, which is generally five years. Software acquired in connection with
business combinations is amortized using the straight-line method over the estimated useful life of the software which generally ranges from three to 10 years.
In addition to capitalized contract and software development costs, other intangibles include copyrights, patents, purchased software, trademarks and
non-compete agreements acquired in business combinations. Other intangibles, except for the First Data trade name discussed below, are amortized on a
straight-line basis over the length of the contract or benefit period, which generally
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