First Data 2008 Annual Report Download - page 92

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The Company establishes an incremental liability (and deferred revenue) for the fair value of the check guarantee. The liability is relieved and revenue
is recognized when the check clears, is presented to TeleCheck, or the guarantee period expires. The majority of the guarantees are settled within 30 days. The
incremental liability was approximately $1.9 million and $2.4 million at December 31, 2008 and 2007, respectively.
The following table details the check guarantees of TeleCheck for the successor year ended December 31, 2008, the successor period from
September 25, 2007 through December 31, 2007, the predecessor period from January 1, 2007 through September 24, 2007 and the predecessor year ended
December 31, 2006.
Successor Predecessor
Year ended
December 31,
2008
Period from
September 25,
2007
through
December 31,
2007
Period from
January 1,
2007
through
September 24,
2007
Year ended
December 31,
2006
Aggregate face value of guaranteed checks (in billions) $ 43.4 $ 12.7 $ 30.4 $ 25.7
Aggregate amount of checks presented for warranty (in millions) $ 404.4 $ 128.2 $ 303.6 $ 295.1
Warranty losses net of recoveries (in millions) $ 106.3 $ 35.8 $ 80.0 $ 73.9
The maximum potential future payments under the guarantees were estimated by the Company to be approximately $1.5 billion at December 31, 2008
which represented an estimate of the total uncleared checks presented at that time.
Income Taxes
The determination of the Company's provision for income taxes requires management's judgment in the use of estimates and the interpretation and
application of complex tax laws. Judgment is also required in assessing the timing and amounts of deductible and taxable items. The Company establishes
contingency reserves for material, known tax exposures relating to deductions, transactions and other matters involving some uncertainty as to the proper tax
treatment of the item. The Company's reserves reflect its judgment as to the resolution of the issues involved if subject to judicial review. Several years may
elapse before a particular matter, for which the Company has established a reserve, is audited and finally resolved or clarified. While the Company believes
that its reserves are adequate to cover reasonably expected tax risks, issues raised by a tax authority may be finally resolved at an amount different than the
related reserve. Such differences could materially increase or decrease the Company's income tax provision in the current and/or future periods. When facts
and circumstances change (including a resolution of an issue or statute of limitations expiration), these reserves are adjusted through the provision for income
taxes in the period of change. As the result of the additional interest and amortization expenses that the Company incurs due to the merger, the Company is
currently in a tax net operating loss position. Judgment is required to determine whether some portion or all of the deferred tax assets will not be realized. To
the extent the Company determines that it will not realize the benefit of some or all of its deferred tax assets, then these assets will be adjusted through the
Company's provision for income taxes in the period in which this determination is made.
Estimating Fair Value
The Company has investment securities and derivative financial instruments that are carried at fair value. Statement of Financial Accounting Standards
("SFAS") No. 157, "Fair Value Measurements," became effective for the Company beginning January 1, 2008 as it relates to fair value measurements of
financial assets and
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