First Data 2007 Annual Report Download - page 46

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Impairment charges related to the impairment of a prepaid asset, software, terminals and buildings offset partially by gains on the sale of assets
previously impaired.
The Company recorded a benefit of approximately $45 million due to the Visa settlement within All Other and Corporate. Also in 2006, excess
litigation accruals in the Commercial Services segment totaling $7.5 million were released. The Company recorded minority interest expense of $3.5 million
associated with this release. The settlement and accrual release were partially offset by a $15.0 million settlement associated with a patent infringement
lawsuit against TeleCheck, clearing all past and future claims related to this litigation, and a charge of $2.7 million related to the settlement of a claim within
All Other and Corporate.
2005 Activities
Pretax Benefit (Charge)
Predecessor
Year ended December 31, 2005
First Data
Commercial
Services
First Data
Financial
Institution
Services
First Data
International
Integrated
Payment
Systems
All Other and
Corporate Total
(in millions)
Restructuring charges $ (19.1) $ (27.9) $ (20.3) $ (0.6) $ (11.5) $ (79.4)
Restructuring accrual reversals 1.7 1.1 0.2 — 0.2 3.2
Impairments (0.2) (4.4) (7.8) — (28.4) (40.8)
Other (8.0) (8.9) (1.1) (4.8) (2.8) (25.6)
Total pretax charge, net of reversals $ (25.6) $ (40.1) $ (29.0) $ (5.4) $ (42.5) $ (142.6)
The Company recorded restructuring charges comprised of severance totaling $75.9 million and facility closures totaling $3.5 million for the year
ended December 31, 2005. Severance charges resulted from the termination of approximately 1,600 employees across the organization, representing all levels
of employees and approximately 6% of the Company's workforce. In December 2005, the Company implemented a company wide restructuring of its
operations. The restructuring closely followed a change in the Company's senior management. The new management took steps it determined necessary to
position the company for growth, reduce operating costs and build shareholder value. These restructuring plans were completed in 2005. The Company
reversed $3.2 million of prior period restructuring accruals during 2005 related to changes in estimates regarding severance and facility costs from
restructuring activities that occurred in 1998 and 2000 through 2005.
In June 2005, Simpay Limited, the only client of First Data Mobile Payments, announced and executed a plan to cease operations. As a result, the
Simpay product solutions supporting interoperable mobile payments was not launched as planned. Based on these developments and the completion of a
strategic review in August 2005, the Company significantly reduced the scale of its operations. These actions and the reduced business outlook led the
Company to record asset impairment charges in All Other and Corporate of approximately $28.4 million related to goodwill, other assets and fixed assets.
Several smaller unrelated impairment charges were also taken during 2006.
During 2005, the Company recognized an "Other" charge related to an additional accrual of domestic and international escheatment liabilities related to
years prior to 2005. Additionally, other charges related to reimbursement to certain clients for the misallocation of certain pass-through billings, the majority
of which related to 2004. The misallocations had no impact on prior period expenses.
Interest income
Interest income in the 2007 predecessor period was higher than the comparable period in 2006 while the successor period was lower than the
comparable period in 2006. This was most significantly a result of an increase in cash balances as described above in the "Spin-off of Western Union"
discussion. Interest income increased for 2006 compared to 2005 due most significantly to the increased cash balance discussed above.
Interest expense
Interest expense in the 2007 successor period was higher than the Company has experienced in the past due to increasing its debt to approximately
$22.5 billion after the merger from approximately $2.3 billion as of June 30, 2007. Interest expense was lower during the 2007 predecessor period due to
lower debt balances than the Company had prior to the debt for debt exchange related to the Western Union spin-off and the repayments of debt in September,
November and December 2006 and January 2007.
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