First Data 2011 Annual Report Download - page 33

Other income (expense).
Year ended December 31,
(in millions) 2011 2010 2009
Investment gains $ — $ 2.5 $ 3.0
Derivative financial instruments gains (losses) 58.2 (58.3) (67.4)
Divestitures, net 57.4 18.7 (12.9)
Non-operating foreign currency gains and (losses) 5.3 21.2 10.5
Other 3.2 — 5.5
Other income (expense) $ 124.1 $ (15.9)$ (61.3)
Derivative financial instruments gains and (losses). The net gains and losses for 2011, 2010 and 2009 were due most
significantly to the fair value adjustments for cross currency swaps and interest rate swaps that are not designated as accounting
hedges. The gain in 2011 compared to losses in 2010 and 2009 was mostly driven by a new interest rate swap entered into in
conjunction with the April 2011 debt modifications and amendments as well as the expiration of interest rate swaps noted above in the
"Interest expense" discussion.
Divestitures, net. The gain recognized in 2011 resulted most significantly from the contribution of the Company's transportation
business to an alliance in exchange for a 30% interest in that alliance. The 2010 gain related most significantly to a contingent
payment received in connection with the Company's November 2009 sale of a merchant acquiring business in Canada. The loss in
2009 resulted from the Company selling its debit and credit card issuing and acquiring processing business in Austria in August 2009
partially offset by a gain related to the sale of a merchant acquiring business in Canada in November 2009.
Non-operating foreign currency gains and (losses). The net gains and losses related to currency translations on the Company's
intercompany loans and its euro-denominated debt.
Income taxes. The Company's effective tax rates on pretax loss were tax benefits of 44.6% in 2011, 27.7% in 2010, and 36.3%
in 2009. The calculation of the effective tax rate includes most of the equity earnings in affiliates in pretax income because this item
relates principally to entities that are considered pass-through entities for income tax purposes.
The effective tax rate benefit in 2011 was greater than the statutory rate due primarily to net income attributable to
noncontrolling interests from pass through entities for which there was no tax expense provided, state tax benefits, lower tax earnings
and profits than book income for foreign entities, a decrease in the Company's liability for unrecognized tax benefits, a net benefit
relating to tax effects of foreign exchange gains and losses on intercompany notes and prior year income tax return true-ups. These
positive adjustments were partially offset by an increase in the Company's valuation allowance against foreign tax credits and the tax
impact of a contribution of the Company's transportation business in exchange for a 30% interest in an alliance.
The effective tax rate benefit in 2010 was less than the statutory rate primarily due to an increase in the Company's valuation
allowance against foreign tax credits (discussed below). This negative adjustment was partially offset by state tax benefits, net income
attributable to noncontrolling interests for which there was no tax expense provided and a decrease in the Company's liability for
unrecognized tax benefits.
The effective tax rate benefit in 2009 was greater than the statutory rate due primarily to state tax benefits, lower tax earnings
and profits than book income for foreign entities and net income attributable to noncontrolling interests for pass through entities for
which there was no tax expense provided. These positive adjustments were partially offset by an increase in the Company's liability
for unrecognized tax benefits and an increase in the valuation allowance established against certain state and foreign net operating
losses.
Subsequent to the merger and as part of the First Data Holdings, Inc. ("Holdings") consolidated federal group and consolidated,
combined or unitary state groups for income tax purposes, the Company has been and continues to be in a tax net operating loss
position. The Company currently anticipates being able to utilize in the future most of its existing federal and state net operating loss
carryforwards due to the existence of significant deferred tax liabilities established in connection with purchase accounting for the
merger. Accordingly, the Company has not established valuation allowances against most of such loss carryforwards. The Company,
however, may not be able to record a benefit related to losses in certain states and foreign countries, requiring the establishment of
valuation allowances.
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