First Data 2014 Annual Report Download - page 42

(c) Includes future pension plan contributions for all plans in 2015 and future contractual commitments for the United Kingdom (U.K.) plan through 2024 which are subject to
change. The amount of pension plan contributions depends upon various factors that cannot be accurately estimated beyond a one-year time frame other than the U.K. plan.
(d) Many of our contracts contain clauses that allow us to terminate the contract with notice, and with or without a termination penalty. Termination penalties are generally an amount
less than the original obligation. Certain contracts also have an automatic renewal clause if we do not provide written notification of our intent to terminate the contract.
Obligations under certain contracts are usage-based and are, therefore, estimated in the above amounts. Historically, we have not had any significant defaults of our contractual
obligations or incurred significant penalties for termination of our contractual obligations.
(e) Technology and telecommunications represents obligations related to hardware purchases, including purchases of ATMs and terminals, as well as software licenses, hardware and
software maintenance and support, technical consulting services, and telecommunications services.
(f) Other includes obligations related to materials, data, non-technical contract services, facility security, investor management fees, maintenance, and marketing promotions.
As of December 31, 2014, we had approximately $262 million of tax contingencies comprised of approximately $238 million reported in long-term income
taxes payable in the “Other long-term liabilities” line of the Consolidated Balance Sheets, including approximately $4 million of income tax liabilities for
which The Western Union Company (Western Union) is required to indemnify us, and approximately $24 million recorded as an increase of our deferred tax
liability. Timing of tax payments is dependent upon various factors which cannot be reasonably estimated at this time.

 Goodwill represents the excess of cost over the fair value of net assets acquired, including identifiable intangible assets, and has been allocated to
reporting units. Our reporting units are businesses at the operating segment level or one level below the operating segment level for which discrete financial
information is prepared and regularly reviewed by management.
We test goodwill annually for impairment, as well as upon an indicator of impairment, using a fair value approach at the reporting unit level. The estimate of
fair value requires various assumptions about a reporting unit’s future financial results and cost of capital. We determine the cost of capital for each reporting
unit giving consideration to a number of factors including discount rates. All key assumptions and valuations are determined by and are the responsibility of
management. If it is determined that the fair value of the reporting unit is less than its carrying value, we would estimate the fair value of all of the reporting
unit’s assets and liabilities and calculate an implied fair value of goodwill, which is the difference between the reporting unit’s fair value and the fair value of
all its other assets and liabilities. If the implied fair value of goodwill is less than its carrying value, the shortfall is recognized as impairment. The
methodology for estimating fair value varies by asset; however, the most significant assets are intangible assets. We estimate the fair value of the intangible
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 our 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.
As of December 31, 2014, the carrying value of goodwill was $17.0 billion in our Consolidated Balance Sheet. As of October 1, 2014, the most recent
impairment analysis date, the fair value of each reporting unit exceeded its carrying value. Based on the most recent annual goodwill test for impairment, all
of our four reporting units passed the test, though two passed with a margin of 20% or less. Based on the most recent annual goodwill test for impairment, our
Merchant Solutions and International segments passed by 18% and 16%, respectively. An additional analysis was performed which sensitized the base
discount rate by an additional 50 basis points with all reporting units still passing. Refer to Note 1 "Summary of Significant Accounting Policies" to our
Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for additional information regarding goodwill.
 We capitalize initial payments for new contracts, contract renewals, and conversion costs associated with customer contracts and system
development costs. Capitalization of such costs is subject to strict accounting policy criteria and requires management judgment as to the appropriate time to
initiate capitalization. Capitalization of initial payments for contracts and conversion costs only occurs when management is satisfied that such costs are
recoverable through future operations, contractual minimums, and/or penalties in case of early termination.
We develop software that is used in providing processing services to customers. To a much lesser extent, we also develop software to be sold or licensed to
customers. Capitalization of internally developed software, primarily associated with operating platforms, occurs only upon management’s estimation that
the likelihood of successful development and implementation reaches a probable level. Currently unforeseen circumstances in software development could
require us to implement alternative plans with respect to a particular effort, which could result in the impairment of previously capitalized software
development costs.
42