First Data 2008 Annual Report Download - page 111

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Business Description
First Data Corporation ("FDC" or "the Company") operates electronic commerce businesses providing a variety of services to financial institutions,
commercial establishments and consumers. Such services include merchant transaction processing and acquiring; credit, retail and debit card issuing and
processing; official check issuance; and check verification, settlement and guarantee services.
On September 24, 2007, the Company was acquired through a merger transaction (the "merger") with an entity controlled 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.
Upon completion of a strategic review of the Company's official check and money order operations in the first quarter of 2007, the Company decided to
gradually exit this line of business. The majority of the clients of this business deconverted during 2008. The remaining clients are expected to deconvert
mainly during 2009 though some will be after 2009, in accordance with their respective contract terms. Integrated Payment Systems Inc. ("IPS") will continue
to use its licenses to offer payment services that fall under state and federal regulations and the business will continue to operate in a much reduced capacity
after all of the client deconversions as outstanding official check and money order clearance activity related to the financial institution clients winds down.
On September 29, 2006, the Company separated its Western Union money transfer business into an independent, publicly traded company through a
spin-off of 100% of Western Union to FDC shareholders in a transaction intended to qualify for tax-free treatment ("the spin-off").
Consolidation
The accompanying Consolidated Financial Statements of FDC 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, 2008 and 2007,
there were no greater-than-50%-owned affiliates whose financial statements were not consolidated.
As a result of the merger, the accompanying consolidated statements of operations and cash flows are presented for two periods: predecessor (the year
ended December 31, 2006 and the period from January 1, 2007 to September 24, 2007) and successor (the period from September 25, 2007 to December 31,
2007 and the year ended December 31, 2008), which relate to the periods preceding the merger and the periods succeeding the merger, respectively, except as
noted at footnote (a) on the Consolidated Statements of Operations. 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.
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