First Data 2012 Annual Report Download - page 53

The Company did not record any goodwill impairment charges in 2011 or 2010. As of October 1, 2012, the most recent
impairment analysis date, the fair value of each reporting unit substantially exceeded its carrying value. As of December 31, 2012,
these balances had not materially changed.
Discussion of impairments that were recorded is included in Note 7 to the Company’ s Consolidated Financial Statements in
Item 8 of this Form 10-K.
Transactions with related parties. A substantial portion of the Company’ s business within the Retail and Alliance Services
and International segments is conducted through merchant alliances. Merchant alliances are alliances between the Company and
financial institutions. If the Company has majority ownership and management control over an alliance, then the alliance’ s financial
statements are consolidated with those of the Company and the related processing fees are treated as an intercompany transaction and
eliminated upon consolidation. If the Company does not have a controlling ownership interest in an alliance, it uses the equity method
of accounting to account for its investment in the alliance. As a result, the Company’ s consolidated revenues include processing fees
charged to alliances accounted for under the equity method. No directors or officers of the Company have ownership interests in any
of the alliances. The formation of each of these alliances generally involves the Company and the bank contributing contractual
merchant relationships to the alliance and a cash payment from one owner to the other to achieve the desired ownership percentage for
each. The Company and the bank contract a long-term processing service agreement as part of the negotiation process. This agreement
governs the Company’ s provision of transaction processing services to the alliance.
The Company negotiated all agreements with the alliance banks. Therefore, all transactions between the Company and its
alliances were conducted at arm’ s length; nevertheless, accounting guidance defines a transaction between the Company and an equity
method investee as a related party transaction requiring separate disclosure in the financial statements of the Company. Accordingly,
the revenue associated with these related party transactions are presented on the face of the Consolidated Statements of Operations.
All members of the Company’ s Board of Directors are affiliated with KKR. In addition, First Data has a management agreement
with affiliates of KKR pursuant to which such entities or their affiliates provide management services to the Company. Pursuant to
such agreement, the Company pays an aggregate annual base management fee and reimburses out-of-pocket expenses incurred in
connection with the provision of services pursuant to the agreement. The agreement provides that the Company will pay fees in
connection with certain subsequent financing, acquisition, disposition and change of control transactions, as well as a termination fee
based on the net present value of future payment obligations under the management agreement, in the event of an initial public
offering or under certain other circumstances. The agreement also includes customary exculpation and indemnification provisions in
favor of KKR and its affiliates. The Company also paid fees to an affiliate of KKR for services in extending maturities under its senior
secured lending facility and issuing new secured notes.
Refer to Note 10 to the Company’ s Consolidated Financial Statements in Item 8 of this Form 10-K for additional information
regarding transactions with related parties.
New Accounting Guidance
In July 2012, the Financial Accounting Standards Board issued guidance related to testing indefinite-lived intangibles for
impairment. Under the amended guidance, an entity has the option of first assessing qualitative factors to determine whether events
and circumstances indicate that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its
carrying amount. If it is determined that the fair value is more likely than not greater than the carrying amount, then quantitative
impairment testing is unnecessary. The Company adopted the amendments for its 2012 annual impairment test. After performing a
qualitative assessment, the Company proceeded to a quantitative impairment test.
Forward-Looking Statements
Certain matters the Company discusses in this Annual Report on Form 10-K and in other public statements may constitute
forward-looking statements. You can identify forward-looking statements because they contain words such as “believes,” “expects,”
“may,” “will,” “should,” “seeks,” “intends,” “plans,” “estimates,” or “anticipates” or similar expressions which concern the
Company’ s strategy, plans, projections or intentions. Examples of forward-looking statements include, but are not limited to, all
statements the Company makes relating to revenue, EBITDA, earnings, margins, growth rates and other financial results for future
periods. Forward-looking statements are based on the Company’ s current expectations and assumptions regarding its business, the
economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent
uncertainties, risks and changes in circumstances that are difficult to predict. The Company’ s actual results may differ materially from
those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of
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