First Data 2014 Annual Report Download - page 58

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“Other income (expense)” line in the Consolidated Statements of Operations during the period of change. Additional discussion of derivative instruments is
provided in Note 5 "Derivative Financial Instruments" of these Consolidated Financial Statements.
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Noncontrolling interests represent the minority shareholders’ share of the net income or loss and equity in consolidated subsidiaries. Substantially all of the
Company’s noncontrolling interests are presented pretax in the Consolidated Statements of Operations as “Net income attributable to noncontrolling
interests and redeemable noncontrolling interest” since the majority of the Company’s non-wholly owned consolidated subsidiaries are flow through entities
for tax purposes. Noncontrolling interests are presented as a component of equity in the Consolidated Balance Sheets and reflect the original investments by
these noncontrolling shareholders in the consolidated subsidiaries, along with their proportionate share of the earnings or losses of the subsidiaries, net of
dividends or distributions. Noncontrolling interests that are redeemable at the option of the holder are presented outside of equity and are carried at their
estimated redemption value. A noncontrolling interest is recorded on the date of acquisition based on the total fair value of the acquired entity and the
noncontrolling interest’s share of that value.
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With respect to the merchant acquiring business, the Company’s merchant customers (or those of its unconsolidated alliances) have the liability for any
charges properly reversed by the cardholder. In the event, however, that the Company is not able to collect such amounts from the merchants due to merchant
fraud, insolvency, bankruptcy or another reason, the Company may be liable for any such reversed charges. The Company’s risk in this area primarily relates
to situations where the cardholder has purchased goods or services to be delivered in the future such as airline tickets.
The Company’s obligation to stand ready to perform is minimal in relation to the total dollar volume processed. The Company requires cash deposits,
guarantees, letters of credit or other types of collateral from certain merchants to minimize this obligation. Collateral held by the Company is classified
within “Settlement assets” and the obligation to repay the collateral if it is not needed is classified within “Settlement obligations” on the Company’s
Consolidated Balance Sheets. The Company also utilizes a number of systems and procedures to manage merchant risk. Despite these efforts, the Company
historically has experienced some level of losses due to merchant defaults.
The Company’s contingent obligation relates to imprecision in its 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. Merchant credit losses are
included in “Cost of services” in the Company’s Consolidated Statements of Operations. The amount of the reserves attributable to entities consolidated by
the Company was $20 million and $24 million as of December 31, 2014 and 2013, respectively.
The majority of the TeleCheck Services, Inc. (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:
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

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Accrued warranty balances
$ 8.5
$ 9.4
Accrued recovery balances
25.3
27.2
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 $1.2 billion as of December 31,
2014 which represented an estimate of the total uncleared checks at that time.
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The Company and its domestic subsidiaries file a consolidated U.S. income tax return with their parent, First Data Holdings, Inc. (FDH). 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
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