First Data 2014 Annual Report Download - page 44

Our contingent obligation relates to imprecision in our estimates of required collateral. A provision for this obligation is recorded based primarily on
historical experience of credit losses and other relevant factors such as economic downturns or increases in merchant fraud. The following table presents the
aggregate merchant credit losses incurred compared to total dollar volumes processed:

  
FDC and consolidated and unconsolidated alliances credit losses (in millions) $ 62.9 $ 53.7 $ 50.0
FDC and consolidated alliances credit losses (in millions) 55.3 48.3 43.3
Total dollar volume acquired (in billions) 1,876.1 1,778.9 1,725.4
The reserve recorded on our Consolidated Balance Sheets only relates to the business conducted by our consolidated subsidiaries. The reserve for
unconsolidated alliances is recorded only in the alliances’ respective financial statements. We have not recorded any reserve for estimated losses in excess of
reserves recorded by the unconsolidated alliances nor have we identified needs to do so. The following table presents the aggregate merchant credit loss
reserves:

  
FDC and consolidated and unconsolidated alliances merchant credit loss reserves $ 23.8 $ 26.8
FDC and consolidated alliances merchant credit loss reserves 20.1 24.1
The credit loss reserves, both for us and our unconsolidated alliances, are comprised of amounts for known losses and a provision for losses incurred but not
reported (IBNR). These reserves primarily are determined by performing a historical analysis of chargeback loss experience. Other factors are considered that
could affect that experience in the future. Such items include the general economy and economic challenges in a specific industry or those affecting certain
types of clients. Once these factors are considered, we or the unconsolidated alliance establishes a rate (percentage) that is calculated by dividing the
expected chargeback (credit) losses by dollar volume processed. This rate is then applied against the dollar volume processed each month and charged
against earnings. The resulting reserve balance is then compared to requirements for known losses and estimates for IBNR items. Historically, this estimation
process has proven to be materially accurate and we believe the recorded reserve approximates the fair value of the contingent obligation.
The majority of the TeleCheck business involves the guarantee of checks received by merchants. If 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 warranty balances
$ 8.5
$ 9.4
Accrued recovery balances
25.3
27.2
We establish an incremental liability (and deferred revenue) for the fair value of the check guarantee. The liability is relieved and revenue is recognized when
the check clears, is presented to TeleCheck, or the guarantee period expires. The majority of the guarantees are settled within 30 days. The incremental
liability was approximately $1 million as of December 31, 2014 and 2013. The following table details the check guarantees of TeleCheck.

  
Aggregate face value of guaranteed checks (in billions) $ 35.8 $ 38.9 $ 42.9
Aggregate amount of checks presented for warranty (in millions) 252.5 285.4 318.8
Warranty losses net of recoveries (in millions) 66.6 66.4 75.9
44