First Data 2012 Annual Report Download - page 32

Company had approximately $110 million of income taxes payable, including approximately $4 million of uncertain income tax
liabilities, recorded related to Western Union for periods prior to the spin-off date. The Company has recorded a corresponding
account receivable of equal amount from Western Union, which is included as a long-term account receivable in the “Other long-term
assets” line of the Company’s Consolidated Balance Sheets, reflecting the indemnification obligation. During the year ended
December 31, 2012, the uncertain income tax liabilities related to Western Union decreased by approximately $14 million as a result
of the closure of the 2003-2004 federal tax years. As of December 31, 2012, the Company anticipates it is reasonably possible that the
uncertain tax liabilities related to Western Union may decrease by approximately $4 million within the next twelve months as the
result of the possible closure of its 2005 and 2006 federal tax years. The uncertain income tax liabilities and corresponding receivable
are based on information provided by Western Union regarding its tax contingency reserves for periods prior to the spin-off date.
There is no assurance that a Western Union-related issue raised by the Internal Revenue Service (“IRS”) or other tax authority will be
finally resolved at a cost not in excess of the amount reserved and reflected in the Company’s uncertain income tax liabilities and
corresponding receivable from Western Union. The Western Union contingent liability is in addition to the Company’s liability for
unrecognized tax benefits discussed above.
The IRS completed its examination of the U.S. federal consolidated income tax returns of the Company for 2005 through 2007
and issued a 30-Day letter on October 31, 2012. The 30-Day letter claims that the Company and its subsidiaries, which included
Western Union during some of the years at issue, owe additional taxes with respect to a variety of adjustments. The Company and
Western Union agree with several of the adjustments in the 30-Day letter, such adjustments representing tax due of approximately $40
million. This undisputed tax and associated interest due (pretax) of approximately $16 million through December 31, 2012, have been
fully reserved. The undisputed tax for which Western Union would be required to indemnify the Company is greater than the total tax
due, such that settlement of the undisputed tax would result in a net refund to the Company. As to the adjustments that are disputed,
such issues represent total taxes allegedly due of approximately $59 million, of which $40 million relates to the Company and $19
million relates to Western Union. The Company estimates that total interest due (pretax) on the disputed amounts is approximately
$16 million through December 31, 2012, of which $9 million relates to the Company and $7 million relates to Western Union. As to
the disputed issues, the Company and Western Union have contested the adjustments by filing a protest with the IRS. The IRS has
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repared a rebuttal to the protest and has forwarded the case to Appeals. The Company believes that it has adequately reserved for the
disputed issues in its liability for unrecognized tax benefits described above and that final resolution of those issues will not have a
material adverse effect on its financial position or results of operations.
Equity earnings in affiliates. Equity earnings in affiliates increased in 2012 compared to 2011 due mostly to transaction
growth, dollar volume growth, pricing increases and the positive impact of lower debit interchange rates as a result of the Dodd-Frank
Act. These increases were partially offset by a decrease resulting from the 2011 error correction described below which adversely
impacted the equity earnings in affiliates growth rate for 2012 compared to 2011 by 7 percentage points.
Equity earnings in affiliates increased in 2011 compared to 2010 mostly due to the 2011 correction of cumulative depreciation
and amortization errors related to purchase accounting associated with the Company’s 2007 merger with an affiliate of KKR. The
error corrections, which totaled an $11 million benefit in “Equity earnings in affiliates” (a $58.5 million benefit in aggregate) and
occurred over a four year period, benefited the equity earnings in affiliates growth rate in 2011 compared to 2010 by 9 percentage
points.
Net income attributable to noncontrolling interests and redeemable noncontrolling interests. Most of the net income
attributable to noncontrolling interests and redeemable noncontrolling interests relates to the Company’s consolidated merchant
alliances. Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased in 2012 compared to
2011 due to increased processing expense in the BAMS alliance resulting from a shift in processing from the alliance partner to FDC
partially offset by the impact of lower debit interchange rates as a result of the Dodd-Frank Act, transaction and dollar volume growth
and pricing increases.
Segment results. FDC classifies its businesses into three segments: Retail and Alliance Services, Financial Services and
International. All Other and Corporate is not discussed separately as its results that had a significant impact on operating results are
discussed in the “Consolidated Results” discussion above.
The business segment measurements provided to and evaluated by the chief operating decision maker are computed in
accordance with the principles listed below.
• The accounting policies of the operating segments are the same as those described in the summary of significant
accounting policies.
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