First Data 2007 Annual Report Download - page 91

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Consolidation
The accompanying Consolidated Financial Statements of First Data Corporation ("FDC" or "the Company") include the accounts of FDC and its
controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in unconsolidated affiliated companies are
accounted for under the equity method and are included in "Investment in affiliates" in the accompanying Consolidated Balance Sheets. The Company
generally utilizes the equity method of accounting when it has an ownership interest of between 20% and 50% in an entity, providing the Company is able to
exercise significant influence over the investee's operations.
The Company consolidates an entity's financial statements when the Company either will absorb a majority of the entity's expected losses or residual
returns, in the case of a variable interest entity ("VIE"), or has the ability to exert control over a subsidiary. Control is normally established when ownership
interests exceed 50% in an entity; however, when the Company does not exercise control over a majority-owned entity as a result of other investors having
rights over the management and operations of the entity, the Company accounts for the entity under the equity method. As of December 31, 2007 and 2006,
there were no greater-than-50%-owned affiliates whose financial statements were not consolidated.
On September 24, 2007, the Company was acquired through a merger transaction by affiliates of Kohlberg Kravis Roberts & Co ("KKR" or the
"sponsor"). The merger resulted in the equity of FDC becoming privately held. Details of the merger are more fully discussed in Note 2. The transaction was
accounted for as a reverse acquisition with Omaha Acquisition Corporation. Although FDC continued as the surviving corporation and same legal entity after
the merger, the accompanying consolidated statements of operations, cash flows and stockholder's equity are presented for two periods: predecessor and
successor, which relate to the periods preceding the merger and the period succeeding the merger, respectively. The Company applied purchase accounting to
the opening balance sheet and results of operations on September 25, 2007 as the merger occurred at the close of business on September 24, 2007. The merger
resulted in a new basis of accounting beginning on September 25, 2007 and the financial reporting periods are presented as follows:
• The twelve month period ended December 31, 2007 includes the predecessor period of the Company from January 1, 2007 to September 24,
2007 and the successor period, reflecting the merger of the Company and Omaha Acquisition Corporation, from September 25, 2007 to
December 31, 2007.
• The results of operations of Omaha Acquisition Corporation from March 29, 2007 (formation date) to September 24, 2007 are included in the
results of operations in the successor period. Omaha Acquisition Corporation had no assets, liabilities or results of operations other than those
related to two forward starting, deal contingent interest rate swaps entered into prior to consummation of the merger.
• The 2006 and 2005 periods presented are predecessor. The Consolidated Financials Statements for all predecessor periods have been prepared
using the historical basis of accounting for the Company. As a result of the merger and the associated purchase accounting, the Consolidated
Financial Statements of the successor period are not comparable to periods preceding the merger.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ from
those estimates.
Presentation
The Company's Consolidated Balance Sheet presentation has historically been unclassified due to the short–term nature of its settlement obligations
contrasted with the Company's ability to invest cash awaiting settlement in long–term investment securities. As noted below and as of October 2007, the
Company had repositioned the majority of its investment portfolio associated with cash awaiting settlement from long-term investments to short-term
investments. As a result of the repositioning of the portfolio such that both the settlement assets and liabilities are short-term and since management will more
closely manage working capital in 2008, the Company will convert to a classified balance sheet in the first quarter 2008.
As a result of the spin-off of Western Union ("the spin-off") and the sale of subsidiaries Primary Payment Systems ("PPS"), IDLogix and Taxware, LP
("Taxware") in 2006 as discussed in Note 19, the Company's financial statements reflect Western Union,
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