First Data 2008 Annual Report Download - page 57

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Other income (expense)
Successor Predecessor
(in millions)
Year ended
December 31,
2008
Period from
September 25
through
December 31,
2007
Period from
January 1
through
September 24,
2007
Year ended
December 31,
2006
Investment gains and (losses) $ 21.1 $ 0.9 $ (2.0) $ 11.6
Derivative financial instruments gains and (losses) (12.9) (33.3) (0.6) 33.8
Divestitures, net (8.5) 0.2 6.1 8.0
Debt repayment gains and (losses) 7.0 (17.2) 1.4 (30.8)
Non-operating foreign currency gains and (losses) (21.1) (24.6) — —
Other income (expense) $ (14.4) $ (74.0) $ 4.9 $ 22.6
Investment gains and (losses)—The 2008 investment gains and losses resulted from the recognition of a gain related to the sale of MasterCard stock in
the Merchant Services and International segments and a gain on the sale of investment securities within the Financial Services segment partially offset by a
loss resulting from a money market investment impairment. The 2007 predecessor and successor investment gains and losses related to a variety of small
gains and losses on the sale of investments none being significant on an individual basis. The 2006 investment gain resulted from the recognition of a gain of
$10.5 million on the redemption of MasterCard stock, and additionally, recognized gains on other strategic investments.
Derivative financial instruments gains and (losses)—The derivative financial instruments loss in 2008 related most significantly to $16.0 million of
charges for ineffectiveness from interest rate swaps that were designated as accounting hedges but are not perfectly effective partially offset by miscellaneous
individually insignificant items.
The derivative loss in the 2007 successor period related most significantly to a $12.2 million mark-to-market loss on collars entered into to
economically hedge, although not designated as an accounting hedge, MasterCard stock held by the Company. These collars were terminated in January 2008
in connection with the sale of the hedged MasterCard stock. A loss of approximately $19 million was also recognized due to decreases in the fair value of
forward starting, deal contingent interest rate swaps of a subsidiary of KKR, Omaha Acquisition Corporation, for the period prior to its merger with and into
the Company from March 29, 2007 (its formation) through September 24, 2007 and prior to their designation as a hedge.
The derivative gains in 2006 were associated with the mark-to-market of and net settlements with derivative counterparties on interest rate swaps not
qualifying for hedge accounting that were formally related to the official check business.
Divestitures, net—During 2008, the Company recognized a loss related to a divestiture of a business within the International segment. The Company
also recognized a loss of $3.8 million resulting from the sale of 12.5% of its membership interest in Wells Fargo Merchant Services, LLC discussed above in
"Overview".
During the 2007 predecessor period, the Company recognized benefits resulting from the release of excess divestiture accruals due to the expiration of
certain contingencies.
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