First Data 2008 Annual Report Download - page 60

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Under the Tax Allocation Agreement executed at the time of the spin-off of Western Union on September 29, 2006, Western Union is responsible for
and must indemnify the Company against all taxes, interest and penalties that relate to Western Union for periods prior to the spin-off date, including the
amounts asserted in the Notice as described above. If Western Union were to agree to or be finally determined to owe any amounts for such periods but were
to default in its indemnification obligation under the Tax Allocation Agreement, the Company as parent of the tax group during such periods generally would
be required to pay the amounts to the relevant tax authority, resulting in a potentially material adverse effect on the Company's financial position and results
of operations. As of December 31, 2008, the Company had approximately $132 million of uncertain income tax liabilities recorded related to Western Union
for periods prior to the spin-off date. The Company has recorded a corresponding account receivable of equal amount from Western Union, which is included
as a long-term account receivable in the "Other long-term assets" line of the Company's Consolidated Balance Sheets, reflecting the indemnification
obligation. The uncertain income tax liabilities and corresponding receivable are based on information provided by Western Union regarding its tax
contingency reserves for periods prior to the spin-off date. There is no assurance that a Western Union-related issue raised by the IRS or other tax authority
will be finally resolved at a cost not in excess of the amount reserved and reflected in the Company's uncertain income tax liabilities and corresponding
receivable from Western Union.
Minority interest
Most of the minority interest expense relates to the Company's consolidated merchant alliances. Minority interest increased in 2008 compared to 2007
due to the new joint venture with AIB in January 2008 and higher earnings from the alliance with Wells Fargo. Minority interest expense was relatively
consistent in 2007 and 2006. Minority interest expense (non-controlling interest in 2009) will be reduced significantly in 2009 due to the deconsolidation of
the alliance with Wells Fargo at December 31, 2008 upon sale of part of the Company's interest in the alliance discussed in "Overview" above.
Equity earnings in affiliates
Equity earnings in affiliates for 2008 and in the 2007 successor period was lower than the 2007 predecessor period due to increased amortization
associated with the value assigned to the identifiable intangible assets of merchant alliances from the excess of the Company's investment over the
proportionate share of the affiliates net assets from the merger as well as amortization of customer relationships on an accelerated basis in the successor
periods. As discussed in "Overview" above, equity earnings also decreased significantly subsequent to the termination of the Chase Paymentech Solutions
alliance on November 1, 2008. Effective December 31, 2008, the Company sold a portion of it's ownership interest in the merchant alliance with Wells Fargo.
The Company now owns less than 50% of the merchant alliance and will begin accounting for it under the equity method of accounting starting in 2009. In
2009, equity earnings is expected to decrease significantly due to the termination of the Chase Paymentech Solutions alliance; however, the impact will be
partially offset due to the Company's remaining 40% interest in the Wells Fargo alliance being accounted for under the equity method.
Equity earnings in affiliates decreased for pro forma 2007 compared to historical 2006 earnings levels resulting most significantly from the above noted
merger related amortization partially offset by increased merchant transaction volume in the merchant alliances. Increased amortization negatively impacted
the pro forma 2007 period by 67 percentage points.
Segment Results
FDC classifies its businesses into five segments: Merchant Services, Financial Services, International, Prepaid Services and Integrated Payment
Systems. Integrated Payment Systems, Prepaid Services and All Other
59