First Data 2011 Annual Report Download - page 122

benefits and the uncertain income tax liabilities related to Western Union on these previously disputed items were reduced to zero and
an income taxes payable of $114 million was recorded, reflecting the agreements reached with the IRS related to the Western Union
issues in the 2003 through 2006 federal tax years. The Company also recorded a corresponding account receivable from Western
Union, reflecting its indemnification obligation with respect to these adjustments.
Note 18: Investment in Affiliates
Operating results include the Company's proportionate share of income from affiliates, which consist of unconsolidated
investments accounted for under the equity method of accounting. The most significant of these affiliates are related to the Company's
merchant bank alliance program.
A merchant alliance, as it pertains to investments accounted for under the equity method, is an agreement between FDC and a
financial institution that combines the processing capabilities and management expertise of the Company with the visibility and
distribution channel of the bank. The alliance acquires credit and debit card transactions from merchants. The Company provides
processing and other services to the alliance and charges fees to the alliance primarily based on contractual pricing. These fees have
been separately identified on the face of the Consolidated Statements of Operations.
In November 2011, the Company formed an alliance, TCH LLC, by contributing the assets of its transportation business (a
controlling interest in a business) to the alliance in exchange for a noncontrolling 30% interest in TCH, LLC. The alliance is
accounted for as an equity method investment by the Company. The Company recognized a pretax gain of $59.1 million in the "Other
income (expense)" line item of the Consolidated Statement of Operations upon deconsolidation of the Company's assets associated
with its transportation business and contribution of those assets to the alliance.
In the fourth quarter of 2011, the Company funded $160.0 million to one of its merchant alliance partners for referrals from
bank branches contributed to the alliance as called for by the agreement that extended the term of the alliance in 2008. In 2009, the
Company contributed $28.0 million to the PNC alliance.
At December 31, 2011, there were ten affiliates accounted for under the equity method of accounting, comprised of five
merchant alliances and five strategic investments in companies in related markets.
A summary of unaudited financial information for the merchant alliances and other affiliates accounted for under the equity
method of accounting is presented below.
As of December 31,
(in millions) 2011 2010
Total assets $ 2,727.9 $ 1,721.1
Total liabilities 2,495.7 1,558.5
The primary components of assets and liabilities are settlement-related accounts similar to those described in Note 4 of these
Consolidated Financial Statements.
Year ended December 31,
(in millions) 2011 2010 2009
Net operating revenues $ 1,114.4 $ 999.1 $ 869.9
Operating expenses 577.4 520.6 435.1
Operating income $ 537.0 $ 478.5 $ 434.8
Net income $ 509.8 $ 455.6 $ 415.3
FDC equity earnings $ 153.4 $ 117.3 $ 97.8
The formation of a merchant alliance accounted for under the equity method of accounting generally involves the Company and/
or a financial institution contributing merchant contracts to the alliance and a cash payment from one owner to the other to achieve the
desired ownership percentages. The asset amounts reflected above are owned by the alliances and other equity method investees and
do not include any of such payments made by the Company. The amount by which the total of the Company's investments in
affiliates exceeded its proportionate share of the investees' net assets was approximately $1.4 billion and $1.1 billion at December 31,
2011 and 2010, respectively. The non-goodwill portion of this amount is considered an identifiable intangible asset that is amortized.
The estimated future amortization expense for these intangible assets as of December 31, 2011 is $112.0 million in 2012, $105.7
million in 2013, $89.7 million in 2014, $33.0 million in 2015 and $29.1 million in 2016. These amounts assume that these alliances
continue as they currently exist. Much of the difference between FDC's proportionate share of the investees' net income and FDC's
equity earnings noted above relates to this amortization.
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