First Data 2013 Annual Report Download - page 32

Other income (expense).
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   
Investment gains and (losses) $2.4 $(7.7) $ —
Derivative financial instruments gains and (losses) (24.4)(91.4)58.2
Divestitures, net (5.4) — 57.4
Non-operating foreign currency gains and (losses) (19.5)4.8 5.3
Other — — 3.2
Other income (expense) $ (46.9)$(94.3)$124.1
Investment gains and (losses). The net investment losses in 2012 relate primarily to the impairment of a strategic investment.
Derivative financial instruments gains and (losses). The net loss in 2013 was due to fair value adjustments for interest rate swaps and cross currency
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
interest rate swaps entered into during 2012 and 2011.
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.
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 a tax expense of 14.3% in 2013 and tax benefits of
29.8% in 2012 and 44.6% in 2011. The effective tax rate calculation includes, in pre-tax income, earnings from affiliates accounted for under the equity
method of accounting, that are considered pass through entities for income tax purposes.
The effective tax rate in 2013 was less than the statutory rate primarily due to valuation allowances being recorded in certain tax jurisdictions, where
deferred tax benefits are not recognized on pre-tax losses, while tax expense is recognized in jurisdictions with pre-tax earnings. The 2013 rate was also
negatively impacted by immaterial prior period adjustments. These negative adjustments were partially offset by the Company not having to record tax
expense attributable to the noncontrolling interest portion of pre-tax income from pass through entities and state tax benefits. The 2013 effective income tax rate
was negatively impacted by approximately 11 percentage points as a result of the current year cumulative correction of immaterial prior year errors.
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. These negative adjustments were partially offset by the Company not having to record tax
expense attributable to the noncontrolling interest portion of pre-tax income from pass through entities, favorable adjustments related to unremitted earnings
from foreign entities, a decrease in the Company’s liability for unrecognized tax benefits and state tax benefits. The 2012 effective income tax rate was
negatively impacted by approximately 9 percentage points as a result of the current year cumulative correction of immaterial prior year errors.
The effective tax rate benefit in 2011 was greater than the statutory rate due primarily to the Company not having to record tax expense attributable to the
noncontrolling interest portion of pre-tax income from pass through entities , state tax benefits, favorable adjustments related to unremitted earnings from
foreign entities, a decrease in the Company’s liability for unrecognized tax benefits, a net benefit relating to tax effects of foreign exchange gains and losses on
intercompany notes and prior year income tax return true-ups. These positive adjustments were partially offset by an increase in the Company’s valuation
allowance against foreign tax credits and the tax impact of a contribution of the Company’s transportation business in exchange for a 30% interest in an
alliance.
As a result of the Company recording pretax losses in each of the periods, the favorable impacts caused increases to the effective tax rate, while the
unfavorable impacts caused decreases to the effective tax rate.
Subsequent to the merger, and as part of the First Data Holdings, Inc. (“Holdings”) consolidated federal and state groups, the Company has been and
continues to be in a net operating loss position. These net operating losses cause the Company’s deferred tax assets to exceed its deferred tax liabilities as of
December 31, 2013. As a result, the Company has determined that it will not meet the more likely than not threshold to be able to realize the value of its federal
and combined state net operating loss carryforwards and therefore has recorded a partial valuation allowance against these tax loss carryforwards. Further, the
Company is not able to record a
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