First Data 2012 Annual Report Download - page 30

million in asset impairment charges related to the International segment. Approximately $6.2 million of the total impairment occurred
because the Company did not complete a software project and determined that there were no likely alternative uses for the software.
The remaining $3.7 million of impairment charges resulted from the write off of assets the Company determined have no future use or
value.
Interest expense. Interest expense increased in 2012 compared to 2011 due to higher average interest rates resulting primarily
from the March 2012, August 2012 and April 2011 debt modifications and amendments partially offset by a decrease due to the
expiration of certain interest rate swaps which were replaced by swaps with lower fixed interest rates.
Interest expense increased in 2011 compared to 2010 due to higher average interest rates resulting primarily from the
August 2010 and April 2011 debt modifications and amendments as well as the December 2010 debt exchange and higher debt
balances due to payment-in-kind (“PIK”) interest accretion. Partially offsetting these increases was a decrease resulting from the
expiration of interest rate swaps with a notional balance of $2.5 billion.
The Company utilizes interest rate swaps to hedge its interest payments on a portion of its variable rate debt from fluctuations in
interest rates. While these swaps do not qualify for hedge accounting, they continue to be effective economically in eliminating
variability in interest rate payments. Additionally, the Company utilizes a fixed to floating interest rate swap, which does not qualify
for hedge accounting, to maintain a desired ratio of fixed rate and floating rate debt. The fair value adjustments for interest rate swaps
that do not qualify for hedge accounting as well as interest rate swap ineffectiveness are recorded in the “Other income (expense)” line
item of the Consolidated Statements of Operations and totaled charges of $89.9 million, benefits of $55.7 million and charges of $67.9
million for the years ended December 31, 2012, 2011 and 2010, respectively
Other income (expense).
Investment losses. The net investment losses in 2012 relate primarily to the impairment of a strategic investment.
Derivative financial instruments gains and (losses). The net gains and losses for the periods presented 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 loss in 2012 compared to the gain in 2011 was primarily driven by fair value adjustments related to new interest rate
swaps entered into during 2012 and 2011. The gain in 2011 compared to the loss in 2010 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.
Non-operating foreign currency gains and (losses). Amounts represent 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 from continuing operations were tax benefits of 29.8% in 2012,
44.6% in 2011, and 27.7% in 2010. 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 2012 was less than the statutory rate primarily due to an increase in the Company’s valuation
allowance against foreign tax credits, foreign and state net operating losses and capital losses. The negative adjustment was partially
offset by net income attributable to noncontrolling interests from pass through entities for which there was no tax expense provided,
lower tax earnings and profits than book income for foreign entities, a decrease in the Company’s liability for unrecognized tax
30
Year ended December 31,
(in millions) 2012 2011 2010
Investment gains (losses) $(7.7) $
—
$2.5
Derivative financial instruments gains (losses) (91.4) 58.2 (58.3)
Divestitures, ne
t
—
57.4 18.7
N
on-operating foreign currency gains 4.8 5.3 21.2
Other
—
3.2
—
Other income (expense)
$ (94.3) $ 124.1
$ (15.9)