First Data 2007 Annual Report Download - page 74

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Contractual Obligations
The Company's contractual obligations as of December 31, 2007 are as follows (in millions):
Payments Due by Period
Total
Less than
1 year 1-3 years 4-5 years
After
5 years
Debt $ 22,409.7 $ 570.7 $ 290.6 $ 290.9 $ 21,257.5
Capital lease obligations 164.1 49.6 42.3 7.8 64.4
Operating leases 216.5 62.2 93.4 48.7 12.2
Pension plan contributions (a) 40.0 40.0 — — —
Purchase obligations (b):
Technology and telecommunications (c) 549.0 349.7 152.8 46.5 —
All other (d) 693.8 356.8 172.8 104.6 59.6
Other long-term liabilities 62.9 29.0 32.1 0.8 1.0
$ 24,136.0 $ 1,458.0 $ 784.0 $ 499.3 $ 21,394.7
(a) The amount of pension plan contributions depends upon various factors that cannot be accurately estimated beyond a one-year time frame.
(b) Many of the Company's contracts contain clauses that allow the Company 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 the
Company does not provide written notification of its intent to terminate the contract. Obligations under certain contracts are usage-based and are,
therefore, estimated in the above amounts. Historically, the Company has not had any significant defaults of its contractual obligations or incurred
significant penalties for termination of its contractual obligations.
(c) Technology and telecommunications includes obligations related to hardware purchases, software licenses, hardware and software maintenance and
support, technical consulting services and telecommunications services.
(d) Other includes obligations related to materials, data, non-technical contract services, facility security, investor management fees, maintenance and
marketing promotions.
The Company adopted Financial Account Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes – An
Interpretation of FASB Statement No. 109," in January 2007. At December 31, 2007 the Company had approximately $518 million of tax contingencies
included in income taxes payable, including approximately $133 million of income tax liabilities for which Western Union is required to indemnify the
Company. Approximately $155 million of the balance was reclassified from deferred tax liabilities to income taxes payable. Both income taxes payable and
deferred tax liabilities are included in the "Accounts payable and other liabilities" line of the Consolidated Balance Sheets. Timing of tax payments is
dependent upon various factors which cannot be reasonably estimated at this time.
Critical Accounting Policies
Stock-Based Compensation
Upon the September 24, 2007 close of the merger, the vesting of FDC stock options, restricted stock awards and restricted stock units (including
Western Union stock options, restricted stock awards and restricted stock units held by FDC personnel) was accelerated and the associated expense recorded
in the predecessor financial statements. These stock-based compensation plans were terminated at that time. The Company has established a stock incentive
plan for certain management employees of FDC and its affiliates ("stock plan"). This stock plan is at the Holdings level which owns 100% of FDC's equity
interests. The stock plan provides the opportunity for certain management employees to purchase shares in Holdings and then receive a number of stock
options or restricted stock based on a multiple of their investment in such shares. The expense associated with this plan will be recorded by FDC. FDC will
use the Black-Scholes option pricing model to measure the fair value of equity-based awards granted to management. Option-pricing models require estimates
of a number of key valuation inputs including expected volatility, expected dividend yield, expected term and risk-free interest rate. Certain of these inputs
may become more subjective than in previous periods due to FDC being privately held and thus not having objective historical or public information. The
most subjective inputs will be the expected term, expected volatility and determination of share value. The expected term will be determined using probability
weighted expectations and expected volatility will be determined using a selected group of guideline companies as surrogates for FDC.
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