First Data 2009 Annual Report Download - page 126

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 5: Settlement Assets and Obligations
Settlement assets and obligations result from FDC’s processing services and associated settlement activities,
including settlement of payment transactions. Settlement assets are generated principally from merchant services
transactions. Certain merchant settlement assets that relate to settlement obligations accrued by the Company are
held by partner banks to which the Company does not have legal ownership but has the right to use to satisfy the
related settlement obligation. FDC records corresponding settlement obligations for amounts payable to
merchants and for payment instruments not yet presented for settlement. At December 31, 2009, the difference in
the aggregate amount of such assets and liabilities is primarily due to unrealized net investment gains and losses,
which are reported as OCI in equity. The principal components of FDC’s settlement assets and obligations are as
follows (in millions):
Successor
December 31, 2009 2008
Settlement assets:
Current settlement assets:
Cash and cash equivalents ................................................ $2,627.8 $4,772.3
Investment securities .................................................... 250.9 121.9
Due from card associations and bank partners ................................ 3,832.4 2,807.1
Due from merchants .................................................... 139.9 —
Due from selling agents .................................................. 19.3 228.9
6,870.3 7,930.2
Long-term settlement assets:
Investment securities .................................................... 480.7 732.7
$7,351.0 $8,662.9
Settlement obligations:
Current settlement obligations:
Payment instruments outstanding .......................................... $1,232.6 $3,734.8
Card settlements due to merchants ......................................... 6,144.0 4,718.6
Due to selling agents .................................................... 18.1 227.2
$7,394.7 $8,680.6
Cash equivalents consist of short-term time deposits, commercial paper and other investments. See Note 6
for information concerning the Company’s investment securities.
FDC generated revenues from its investment of certain settlement assets, the majority of which pertained to
cash equivalents and investment securities. At December 31, 2009, the IPS segment portfolio was invested in
cash equivalents with ratings of “A1/P1” or better or in the “A” category or better and long-term investments
rated in the “A” category or better with the exception of $73.9 million in lower rated securities, primarily auction
rate securities described in Note 18. Short-term investment securities were not rated. IPS segment investment
portfolio balances averaged $2.7 billion in 2009, $7.3 billion in 2008, and $12.6 billion in 2007. Investment
revenues (before commissions to certain selling agents and hedging gains and losses) from the IPS segment
portfolio totaled $31.1 million in 2009, $163.2 million in 2008, $116.6 million for the successor period
September 25, 2007 through December 31, 2007, and $341.5 million for the predecessor period January 1, 2007
through September 24, 2007 (on a pretax equivalent basis: $31.1 million, $163.2 million, $172.5 million, and
$524.0 million, respectively).
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