First Data 2009 Annual Report Download - page 37

FIRST DATA CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Retail and Alliance Services segment until as noted under “Banc of America Merchant Services, LLC” above,
the majority of the assets received by the Company from the termination of CPS were contributed to BAMS
effective June 26, 2009. The Company continues to provide transaction processing and related services for
certain merchants of the alliance that were allocated to JPMorgan Chase but are resident on the Company’s
processing platforms. The Company historically accounted for its minority interest in the alliance under the
equity method of accounting. Since November 1, 2008, the portion of CPS business received by the Company in
the separation is reflected on a consolidated basis throughout the financial statements. In 2008 and 2007, CPS
comprised the vast majority of the “Equity earnings in affiliates” and the processing and other fees noted in
footnote (b) on the face of the Consolidated Statements of Operations.
On December 31, 2008, the Company and Wells Fargo & Company (“WFB”) extended their merchant
alliance relationship, Wells Fargo Merchant Services, LLC (“WFMS”) for five years beyond its previously
contracted termination date through December 31, 2014. In connection with the agreement to extend WFMS, the
Company sold 12.5% of the membership interests to WFB for cash consideration. This resulted in the Company
and WFB owning 40% and 60% of WFMS, respectively, as of December 31, 2008. As a result of the transaction,
the Company deconsolidated the WFMS balance sheet as of December 31, 2008 and began reflecting its
remaining ownership interest as an equity method investment beginning January 1, 2009. In 2009, the
Company’s share of WFMS’s earnings is reflected in the “Equity earnings in affiliates” line in the Consolidated
Statements of Operations. In 2009 WFMS comprised the majority of the “Equity earnings in affiliates” and the
processing and other fees noted in footnote (b) on the face of the Consolidated Statements of Operations.
In comparing 2009 to 2008, the net impact of the termination of CPS and the deconsolidation of WFMS
were offsetting in nature but resulted in net increases in consolidated revenues and expenses and net decreases in
“Equity earnings in affiliates” due to the relative greater significance of CPS related balances. Net income (loss)
attributable to the Company was negatively impacted in 2009 compared to 2008 as the result of the WFMS
membership interest sale referred to above but was generally unaffected by the structural changes for CPS. The
combined impact of these transactions when comparing results for 2009 to 2008 is referred to as “the net impact
of the CPS and WFMS alliance transactions” in the “Consolidated Results” discussion below. In comparing 2008
to pro forma 2007, 2008 earnings were not significantly impacted due to the termination of CPS.
2007 Overview
Merger
On September 24, 2007, the Company merged with an affiliate of Kohlberg Kravis Roberts & Co (“KKR”)
(the “merger”). The merger resulted in the Company’s equity becoming privately held. The Company applied
purchase accounting to the opening balance sheet and results of operations effective immediately subsequent to
the merger date. The value assigned to intangible assets and fixed assets as well as other purchase accounting
adjustments were finalized in the third quarter of 2008 other than certain adjustments related to income tax
matters that were finalized in the fourth quarter of 2008.
Official Check and Money Order Wind-down
In the first quarter of 2007, the Company announced its intent to wind-down the official check and money
order business included within the IPS segment. The official check and money order businesses are conducted by
a subsidiary of the Company, Integrated Payment Systems Inc., which is licensed to offer payment services that
fall under state and federal regulations. This subsidiary has separate creditors and its assets, including the
investment portfolio associated with the official checks and money orders, are not intended to be available to
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