First Data 2013 Annual Report Download - page 93

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In December 2011, FDC 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. There were no expenditures,
other than professional fees, or receipts of cash associated with the registration statement or exchange offer described above.
During 2013, 2012 and 2011, the Company entered into capital leases, net of trade-ins, totaling approximately $112 million, $55 million and $106
million, respectively.
As discussed in Note 3 of these Consolidated Financial Statements, the Company acquired 100% of Clover Network, Inc. in 2012 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.
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.
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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.
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First Data has a management agreement with Kohlberg Kravis Roberts & Co. L.P. (“KKR”) and one of its affiliates (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 extended annually thereafter unless the Company
provides prior written notice of its desire not to automatically extend the term. The Management Agreement provides that KKR also is entitled to receive a fee
equal to a percentage of the gross transaction value 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 Management Agreement terminates automatically upon the consummation of an initial public
offering and may be terminated at any time by mutual consent of the Company and KKR. The Management Agreement also contains customary exculpation
and indemnification provisions in favor of KKR and its affiliates. During 2013, 2012 and 2011, the Company incurred $20.1 million, $20.1 million and
$20.0 million, respectively, of management fees.
All members of the Company’s Board of Directors are affiliated with KKR.
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