First Data 2007 Annual Report Download - page 109

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 2007, there were nine affiliates accounted for under the equity method of accounting, comprised of five merchant alliances and four
strategic investments in companies in related markets. The majority of equity earnings relate to the Chase Paymentech alliance. The Company's largest
merchant alliance, Chase Paymentech, is 51% owned by J.P. Morgan Chase Bank, N.A., and 49% owned by FDC. The current term of the existing alliance
agreement expires in 2010; however, JPMorgan had the right to terminate the alliance due to the change of control upon the closing of the merger. The
Company has extended the time period to exercise this right to allow for further discussions regarding the alliance. If JPMorgan exercises its termination right,
FDC has the right to receive 49% of the alliance's merchant contracts by value and be allocated 49% of the alliance's sales force.
In December 2005, FDC sold 20% of the PNC Merchant Services alliance (33% of the Company's interest) and began accounting for it under the equity
method of accounting retroactively back to January 1, 2005.
A summary of unaudited financial information for the merchant alliances and other affiliates accounted for under the equity method of accounting is as
follows (in millions):
December 31,
Successor
2007
Predecessor
2006
Total assets $ 7,450.9 $ 7,006.8
Total liabilities $ 6,201.1 $ 5,994.3
Successor Predecessor
Period from
September 25, 2007
through
December 31, 2007
Period from
January 1, 2007
through
September 24, 2007
Year ended
December 31,
2006
Year ended
December 31,
2005
Net operating revenues $ 477.9 $ 1,193.8 $ 1,489.9 $ 1,353.0
Operating expenses 252.6 667.5 877.6 790.4
Operating income 225.3 526.3 612.3 562.6
Net income $ 216.9 $ 506.1 $ 580.0 $ 517.7
FDC equity earnings $ 46.8 $ 223.0 $ 283.1 $ 232.9
Net operating revenues and operating expenses for 2005 have been adjusted to reflect the impact of conforming accounting policies resulting from the
integration of the Chase Merchant Services and Paymentech alliances in the fourth quarter of 2005. Net operating revenues, operating expenses, operating
income, and net income in the above table for 2005 have been adjusted to reflect eliminations among certain of the merchant alliances. The adjustments for
eliminations had no effect on FDC's share of net income or equity earnings.
The primary components of assets and liabilities are settlement-related accounts as described in Note 6.
The formation of a merchant joint venture alliance accounted for under the equity method of accounting generally involves the Company and/or a
financial institution contributing merchant contracts to the alliance and a cash payment from one owner to the other to achieve the desired ownership
percentages. The asset amounts reflected above are owned by the alliances and other equity method investees and do not include any of such payments made
by the Company. As discussed in Note 2, a portion of the preliminary purchase price related to the merger was allocated to the Company's investments in
unconsolidated joint ventures. The amount by which the total of the Company's investments in its joint ventures exceeded its proportionate share of the joint
ventures' net assets totaled $3,190.8 million and $538.5 million at December 31, 2007 and 2006, respectively. The non-goodwill portion of this amount is
considered an identifiable intangible asset that is amortized accordingly. The estimated future amortization expense for these intangible assets as of
December 31, 2007 is $194.9 million in 2008, $161.2 million in 2009, $140.0 million in 2010, $105.9 million in 2011 and $89.7 million in 2012. These
amounts assume that these alliances continue as they currently exist. Much of the difference between FDC's proportionate share of the investee's net income
and FDC's equity earnings noted above relates to this amortization.
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