First Data 2013 Annual Report Download - page 74

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


Settlement assets and obligations result from FDC’s processing services and associated settlement activities, including settlement of payment
transactions. Settlement assets are generated principally from merchant services transactions. Certain merchant settlement assets that relate to settlement
obligations accrued by the Company are held by partner banks to which the Company does not have legal ownership but has the right to use to satisfy the
related settlement obligation. FDC records corresponding settlement obligations for amounts payable to merchants and for payment instruments not yet
presented for settlement. The difference in the aggregate amount of such assets and liabilities is primarily due to unrealized net investment gains and losses,
which are reported as OCI in equity. The principal components of FDC’s settlement assets and obligations are as follows:

  


Cash and cash equivalents $1,576.7 $3,790.4
Investment securities 71.2 125.6
Due from card associations and bank partners 5,102.5 4,523.4
Due from merchants 791.4 734.4
7,541.8 9,173.8

Investment securities 15.2 54.3
$7,557.0 $9,228.1


Payment instruments outstanding $ 164.1 $ 289.9
Card settlements due to merchants 7,389.3 8,936.4
$7,553.4 $9,226.3
The changes in settlement assets and obligations are presented on a net basis within operating activities in the Consolidated Statements of Cash Flows.
However, because the changes in the settlement assets balance exactly offset changes in settlement obligations, the activity nets to zero.
Refer to Note 5 of these Consolidated Financial Statements for information concerning the Company’s investment securities.

The majority of the Company’s investment securities are a component of settlement assets and represent the investment of funds received by the
Company from prior sales of payment instruments (official checks and financial institution money orders) by authorized agents. The Company’s investment
securities, excluding those classified as cash equivalents, within current settlement assets primarily consisted of municipal obligations as of December 31,
2013 and 2012. The Company’s long-term settlement assets were primarily comprised of student loan auction rate securities (“SLARS”) as of December 31,
2013 and 2012. Realized gains and losses and OTTI on investments classified as settlement assets are recorded in the “Product sales and other” line item of the
Consolidated Statements of Operations. The Company carried other investments, primarily cost method investments, which are included in the “Other current
assets” and “Other long-term assets” line items of the Consolidated Balance Sheets and are discussed further below. Realized gains and losses on these
investments are recorded in the “Other income (expense)” line item of the Consolidated Statements of Operations described in Note 9 of these Consolidated
Financial Statements.
73