First Data 2007 Annual Report Download - page 36

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Internationally, the Company closed three European data centers in 2007. First Data International is also in the process of consolidating its operating
platforms. The most significant international platform consolidation that is under way is the migration of clients from the Equasion card processing platform
to the VisionPLUS card processing platform. The Company expects to continue to incur these costs into 2009 when the project is expected to be completed.
Direct incremental costs incurred to execute the companywide initiatives that are not comprehended as an assumed liability in purchase accounting, not
classified as either restructuring or impairment and that are not salaries and benefits of existing, continuing employees are compiled and reported within All
Other and Corporate. Such amounts recorded in All Other and Corporate in 2007 were $13 million for the predecessor period and $6 million for the successor
period relating to international data center and platform consolidation and $16 million and $5 million for the same periods for domestic data center
consolidation.
2006 Overview
Financial Statement Restatement
In August 2006, the Company restated its previously issued Consolidated Financial Statements after an extensive review of its accounting for
derivatives. The restatement pertained to the initial documentation for certain interest rate swaps associated with its official check business, within the IPS
segment, which the Company determined did not meet the requirements to qualify for hedge accounting. As a result, changes in the fair market value of these
certain derivative instruments were recognized in the Consolidated Statements of Income in the "Other income (expense)" line. In September 2006, the
Company terminated most of the above noted interest rate swaps and entered into new interest rate swaps that qualified for hedge accounting under Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). These new interest rate swaps
were subsequently terminated in connection with the portfolio repositioning associated with the official check and money order wind-down noted above.
Spin-off of Western Union
On September 29, 2006, the Company separated its Western Union money transfer business into an independent, publicly traded company through a
spin-off of 100% of Western Union to FDC shareholders in a transaction intended to qualify for tax-free treatment ("the spin-off"). FDC and Western Union
are independent and have separate ownership, boards of directors and management.
Immediately prior to the spin-off, Western Union transferred $1 billion of Western Union notes and $2.5 billion in cash to FDC. On September 29,
2006, the Company exchanged these Western Union notes for FDC debt (commercial paper) held by investment banks ("the debt-for-debt exchange"). The
Company utilized approximately $2.1 billion of the $2.5 billion cash to repurchase commercial paper and debt through a cash tender offer and other
repurchases.
In connection with the distribution by the Company of all of the outstanding shares of common stock of Western Union to the stockholders of the
Company, the Company entered into certain agreements with Western Union to govern the terms of the spin-off and to define the ongoing relationship
between FDC and Western Union following the spin-off. The Company effected the contribution to Western Union of the subsidiaries that operate Western
Union's business and related assets on an "as is, where is" basis without any representations or warranties. The Company generally has not retained any of the
liabilities associated with the subsidiaries or assets contributed to Western Union, and Western Union and the contributed subsidiaries have agreed to perform
and fulfill all of the liabilities arising out of the operation of the contributed money transfer and consumer payments businesses. Western Union also has
indemnified the Company for taxes attributable to Western Union with respect to periods before the spin-off.
Discontinued Operations
The historic results of operations of the Western Union Company, Primary Payment Systems ("PPS"), IDLogix and Taxware, LP ("Taxware") are
presented as discontinued operations due to the spin-off or sale of these entities in 2006. All prior period amounts presented in the financial statements and
MD&A were adjusted to reflect this discontinued operation presentation. In 2004, the Company divested its 64% ownership of NYCE, an electronic funds
transfer network. The sale agreement of NYCE contemplated potential adjustments to the sales price which resulted in activity in discontinued operations in
2005 and 2006.
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