First Data 2013 Annual Report Download - page 34

accounting associated with the Company’s 2007 merger with an affiliate of KKR which adversely impacted the equity earnings in affiliates growth rate for
2012 compared to 2011 by 7 percentage points.
Net income attributable to noncontrolling interests and redeemable noncontrolling interest. Most of the net income attributable to noncontrolling
interests and redeemable noncontrolling interest relates to the Company’s consolidated merchant alliances. Net income attributable to noncontrolling interests
and redeemable noncontrolling interest increased in 2013 compared to 2012 due most significantly to increased profit by one of the Company’s merchant
alliances driven by increased volumes and network routing incentives.
Net income attributable to noncontrolling interests and redeemable noncontrolling interest decreased in 2012 compared to 2011 due to increased
processing expense in the BAMS alliance resulting from a shift in processing from the alliance partner to FDC partially offset by the impact of lower debit
interchange rates as a result of the Dodd-Frank Act, transaction and dollar volume growth and pricing increases.
FDC classifies its businesses into three segments: Retail and Alliance Services, Financial Services and International. All Other and
Corporate is not discussed separately as its results that had a significant impact on operating results are discussed in the “Consolidated Results” discussion
above.
The business segment measurements provided to and evaluated by the chief operating decision maker are computed in accordance with the principles
listed below.
· The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies.
· Segment revenue includes equity earnings in affiliates (excluding amortization expense) and intersegment revenue. Retail and Alliance Services
segment revenue does not include equity earnings because it is reported using proportionate consolidation as described below.
· Segment revenue excludes reimbursable debit network fees, postage and other revenue.
· Segment earnings before net interest expense, income taxes, depreciation and amortization (“EBITDA”) includes equity earnings in affiliates and
excludes depreciation and amortization expense, net income attributable to noncontrolling interests, other operating expenses and other income
(expense). Retail and Alliance Services segment EBITDA does not include equity earnings because it is reported using proportionate consolidation
as described below. Additionally, segment EBITDA is adjusted for items similar to certain of those used in calculating the Company’s compliance
with debt covenants. The additional items that are adjusted to determine segment EBITDA are:
· stock based compensation and related expense is excluded;
· official check and money order businesses’ EBITDA are excluded as these are winding down;
· certain costs directly associated with the termination of the Chase Paymentech Solutions alliance, and expenses related to the
conversion of certain BAMS alliance merchant clients onto the Company’s platforms (excludes costs accrued in purchase
accounting). Effective October 1, 2011, First Data and Bank of America N.A. (“the Bank”) jointly decided to have First Data
operate the Bank’s legacy settlement platform. Transition costs associated with the revised strategy are also excluded from segment
EBITDA;
· debt issuance costs are excluded and represent costs associated with issuing debt and modifying the Company’s debt structure;
and
· KKR related items including annual sponsor and other fees for management, consulting, financial and other advisory services are
excluded.
· Retail and Alliance Services segment revenue and EBITDA are reflected based on the Company’s proportionate share of the results of its
investments in businesses accounted for under the equity method and consolidated subsidiaries with noncontrolling ownership interests. In
addition, Retail and Alliance Services segment measures reflect commission
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