First Data 2012 Annual Report Download - page 66

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Operations. The amount of the reserves attributable to entities consolidated by the Company was $23.4 million and $31.6 million as of
December 31, 2012 and 2011, respectively.
The majority of the TeleCheck Services, Inc. (“TeleCheck”)
b
usiness involves the guarantee of checks received by merchants. I
f
the check is returned, TeleCheck is required to purchase the check from the merchant at its face value and pursue collection from the
check writer. A provision for estimated check returns, net of anticipated recoveries, is recorded at the transaction inception based on
recent history. The following table presents the accrued warranty and recovery balances:
Accrued warranties are included in “Other current liabilities” and accrued recoveries are included in “Accounts receivable” in
the Consolidated Balance Sheets. The maximum potential future payments under the guarantees were estimated by the Company to be
approximately $1.3 billion as of December 31, 2012 which represented an estimate of the total uncleared checks at that time.
Income Taxes
The Company and its domestic subsidiaries file a consolidated U.S. income tax return with their parent, First Data
Holdings, Inc. (“Holdings”). The Company’s foreign operations file income tax returns in their local jurisdictions. Income taxes are
computed in accordance with current accounting guidance and reflect the net tax effects of temporary differences between the
financial reporting carrying amounts of assets and liabilities and the corresponding income tax amounts. The Company has deferred
tax assets and liabilities and maintains valuation allowances where it is more likely than not that all or a portion of deferred tax assets
will not be realized. To the extent the Company determines that it will not realize the benefit of some or all of its deferred tax assets,
then these deferred tax assets will be adjusted through the Company’s provision for income taxes in the period in which this
determination is made.
The Company recognizes the tax benefits from uncertain tax positions only when it is more likely than not, based on the
technical merits of the position, that the tax position will be sustained upon examination, including the resolution of any related
appeals or litigation. The tax benefits recognized in the consolidated financial statements from such a position are measured as the
largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.
Cash and Cash Equivalents
Investments (other than those included in settlement assets) with original maturities of three months or less (that are readily
convertible to cash) are considered to be cash equivalents and are stated at cost, which approximates market value. Cash and cash
equivalents that were restricted from use due to regulatory requirements are included in “Other long-term assets” in the Consolidated
Balance Sheets and were immaterial as of December 31, 2012 and 2011.
Accounts Receivable and Leasing Receivables
Accounts receivable balances are stated net of allowance for doubtful accounts. Historically, the Company has not incurred
significant write-offs. The Company records allowances for doubtful accounts when it is probable that the accounts receivable balance
will not be collected. Long-term accounts receivable balances are included in “Other long-term assets” in the Consolidated Balance
Sheets.
The Company has receivables associated with its point-of-sale (“POS”) terminal leasing businesses. Leasing receivables are
included in “Accounts receivable” and “Other long-term assets” in the Consolidated Balance Sheets. The Company recognizes interest
income on its leasing receivables using the effective interest method. Interest income from leasing receivables is included in “Product
Sales and Other” in the Consolidated Statements of Operations. For direct financing leases, the interest rate used incorporates initial
direct costs included in the net investment in the lease. For sales type leases, initial direct costs are expensed as incurred.
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As of December 31,
(in millions) 2012 2011
Accrued warranty balances $10.9 $11.4
Accrued recovery balances $ 24.8 $ 26.8