First Data 2013 Annual Report Download - page 67

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The Company’s contingent obligation relates to imprecision in its estimates of required collateral. A provision for this obligation is recorded based
primarily on historical experience of credit losses and other relevant factors such as economic downturns or increases in merchant fraud. Merchant credit
losses are included in “Cost of services” in the Company’s Consolidated Statements of Operations. The amount of the reserves attributable to entities
consolidated by the Company was $24.1 million and $23.4 million as of December 31, 2013 and 2012, respectively.
The majority of the TeleCheck Services, Inc. (“TeleCheck”) business involves the guarantee of checks received by merchants. If the check is returned,
TeleCheck is required to purchase the check from the merchant at its face value and pursue collection from the check writer. A provision for estimated check
returns, net of anticipated recoveries, is recorded at the transaction inception based on recent history. The following table presents the accrued warranty and
recovery balances:
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Accrued warranty balances $ 9.4 $ 10.9
Accrued recovery balances $ 27.2 $ 24.8
Accrued warranties are included in “Other current liabilities” and accrued recoveries are included in “Accounts receivable” in the Consolidated Balance
Sheets. The maximum potential future payments under the guarantees were estimated by the Company to be approximately $1.2 billion as of December 31,
2013 which represented an estimate of the total uncleared checks at that time.
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The Company and its domestic subsidiaries file a consolidated U.S. income tax return with their parent, First Data Holdings, Inc. (“Holdings”). The
Company’s foreign operations file income tax returns in their local jurisdictions. Income taxes are computed in accordance with current accounting guidance
and reflect the net tax effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and the corresponding income
tax amounts. The Company has deferred tax assets and liabilities and maintains valuation allowances where it is more likely than not that all or a portion of
deferred tax assets will not be realized. To the extent the Company determines that it will not realize the benefit of some or all of its deferred tax assets, then
these deferred tax assets will be adjusted through the Company’s provision for income taxes in the period in which this determination is made.
The Company recognizes the tax benefits from uncertain tax positions only when it is more likely than not, based on the technical merits of the position,
that the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the
consolidated financial statements from such a position are measured as the largest benefit that has a greater than fifty percent likelihood of being realized upon
ultimate resolution.
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Investments (other than those included in settlement assets) with original maturities of three months or less (that are readily convertible to cash) are
considered to be cash equivalents and are stated at cost, which approximates market value. Cash and cash equivalents that were restricted from use due to
regulatory requirements are included in “Other long-term assets” in the Consolidated Balance Sheets and were immaterial as of December 31, 2013 and 2012.
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Accounts receivable balances are stated net of allowance for doubtful accounts. Historically, the Company has infrequently incurred significant write-
offs. The Company records allowances for doubtful accounts when it is probable that the accounts receivable balance will not be collected. Long-term accounts
receivable balances are included in “Other long-term assets” in the Consolidated Balance Sheets.
The Company has receivables associated with its POS terminal leasing businesses. Leasing receivables are included in “Accounts receivable” and
“Other long-term assets” in the Consolidated Balance Sheets. The Company recognizes interest income on its leasing receivables using the effective interest
method. Interest income from leasing receivables is included in “Product Sales and Other” in the Consolidated Statements of Operations. For direct financing
leases, the interest rate used incorporates initial direct costs included in the net investment in the lease. For sales type leases, initial direct costs are expensed as
incurred.
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