First Data 2011 Annual Report Download - page 69

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Business Description
First Data Corporation ("FDC" or "the Company") operates electronic commerce businesses providing a variety of services to
financial institutions, commercial establishments and consumers. Such services include merchant transaction processing and
acquiring; credit, retail and debit card issuing and processing; prepaid services and check verification, settlement and guarantee
services.
Consolidation
The accompanying Consolidated Financial Statements of FDC include the accounts of FDC and its controlled subsidiaries. All
significant intercompany accounts and transactions have been eliminated. Investments in unconsolidated affiliated companies are
accounted for under the equity method and are included in "Investment in affiliates" in the accompanying Consolidated Balance
Sheets. The Company generally utilizes the equity method of accounting when it has an ownership interest of between 20% and 50%
in an entity, provided the Company is able to exercise significant influence over the investee's operations.
The Company consolidates an entity's financial statements when the Company either will absorb a majority of the entity's
expected losses or residual returns, in the case of a variable interest entity, or has the ability to exert control over a subsidiary. Control
is normally established when ownership interests exceed 50% in an entity; however, when the Company does not exercise control over
a majority-owned entity as a result of other investors having rights over the management and operations of the entity, the Company
accounts for the entity under the equity method. As of December 31, 2011 and 2010, there were no greater-than-50%-owned affiliates
whose financial statements were not consolidated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and
accompanying notes. Actual results could differ from those estimates.
Presentation
Depreciation and amortization presented as a separate line item on the Company's Consolidated Statements of Operations does
not include amortization of initial payments for new contracts which is recorded as a contra-revenue within "Transaction and
processing service fees." Also not included is amortization related to equity method investments which is netted within the "Equity
earnings in affiliates" line. The following table presents the amounts associated with such amortization:
Year ended December 31,
(in millions) 2011 2010 2009
Amortization of initial payments for new contracts $ 42.5 $ 38.6 $ 27.7
Amortization related to equity method investments 56.7 73.0 73.8
In 2011, the Company recorded a net $58.5 million pretax ($35.2 million after tax) benefit in the Consolidated Statement of
Operations to correct cumulative depreciation and amortization errors related to purchase accounting associated with the Company's
2007 merger with an affiliate of Kohlberg Kravis Roberts & Co. The corrections impacted "Costs of services" ($10.2 million
expense), "Depreciation and amortization" ($57.7 million benefit) and amortization of equity method investments within "Equity
earnings in affiliates" ($11.0 million benefit). The errors and the cumulative correction, which totaled $58.5 million in aggregate and
occurred over a four year period, were deemed immaterial to prior years and the current year, respectively.
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