First Data 2012 Annual Report Download - page 92

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In December 2011, the Company exchanged substantially all of its aggregate principal amounts of $3.0 billion of its 12.625%
senior notes due 2021 for publicly tradable notes having substantially identical terms and guarantees, except that the exchange notes
will be freely tradable.
In December 2010, the Company exchanged $3.0 billion of its 9.875% senior notes due 2015 and $3.0 billion of its 10.550%
senior PIK notes due 2015 for $2.0 billion of 8.25% senior second lien notes due 2021, $1.0 billion of 8.75%/10.00% PIK toggle
senior second lien notes due 2022 and $3.0 billion of 12.625% senior notes due 2021.
There were no expenditures, other than professional fees, or receipts of cash associated with the registration statement or
exchange offer described above.
During 2012, 2011 and 2010, the Company entered into capital leases, net of trade-ins, totaling approximately $55 million, $106
million and $65 million, respectively.
As discussed in Note 3 of these Consolidated Financial Statements, the Company acquired 100% of Clover Network, Inc. and
recorded a $20 million liability for the contingent consideration due to outside investors based upon the net present value of the
Company’ s estimate of the future payments.
Also discussed in Note 3 of these Consolidated Financial Statements, the Company acquired the remaining approximately 30
percent noncontrolling interest in Omnipay for approximately 37.1 million euro, of which 19.0 million euro ($25.1 million) was paid
in April 2012 with the remainder to be paid in April 2013.
In November 2011, the Company contributed the assets of its transportation business to an alliance in exchange for a 30%
interest in the alliance. Refer to Note 18 of these Consolidated Financial Statements for additional information.
Refer to Note 13 of these Consolidated Financial Statements for information concerning the Company’ s stock-based
compensation plans.
Note 10: Related Party Transactions
Merchant Alliances
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.
Management Agreement
First Data has a management agreement with affiliates of KKR (the “Management Agreement”) pursuant to which KKR
provides management, consulting, financial and other advisory services to the Company. Pursuant to the Management Agreement,
KKR receives an aggregate annual management fee and reimbursement of out-of-pocket expenses incurred in connection with the
provision of services. The Management Agreement has an initial term expiring on December 31, 2019, provided that the term will be
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