Edgar Filing: FIRST DATA CORP

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-11073

LOGO

FIRST DATA CORPORATION

(Exact name of registrant as specified in its charter)

www.firstdata.com


DELAWARE		47-0731996
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6200 SOUTH QUEBEC STREET, GREENWOOD VILLAGE, COLORADO		80111
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (303) 967-8000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.


Title of each class		Number of Shares Outstanding (excluding treasury shares) at September 30, 2007
(Common stock, $.01 par value)		1,000

INDEX


		PAGE NUMBER
PART I FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited):

	Consolidated Statements of Income for the period from September 25, 2007 through September 30, 2007 for the Successor and the period from July 1, 2007 through September 24, 2007, the period from January 1, 2007 through September 24, 2007 and the three and nine months ended September 30, 2006 for the Predecessor	3

	Consolidated Balance Sheets at September 30, 2007 for the Successor and December 31, 2006 for the Predecessor	5

	Consolidated Statements of Cash Flows for the period from September 25, 2007 through September 30, 2007 for the Successor and the period from January 1, 2007 through September 24, 2007 and the nine months ended September 30, 2006 for the Predecessor	6

	Consolidated Statements of Stockholders’ Equity for the period from January 1, 2007 through September 24, 2007 for the Predecessor and the period from September 25, 2007 through September 30, 2007 for the Successor	8

	Notes to Consolidated Financial Statements	9

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3	Quantitative and Qualitative Disclosures About Market Risk	68

Item 4	Controls and Procedures	70

PART II OTHER INFORMATION

Item 1	Legal Proceedings	71

Item 1A	Risk Factors	72

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	78

Item 4	Submission of Matters to a Vote of Security Holders	79

Item 5	Other Information	79

Item 6	Exhibits	80

PART I. FINANCIAL INFORMATION

ITEM 1.

Financial Statements

FIRST DATA CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in millions)


	Successor			Predecessor
	Period from September 25 through September 30,			Period from July 1 through September 24,			Three months ended September 30,
	2007 (a)			2007			2006
Revenues: ^(b)
Transaction and processing service fees:
Merchant services ^(c)	$	50.2		$	694.2		$	693.6
Check services		6.5			97.0			80.0
Card services		32.6			440.6			429.5
Other services		6.5			88.6			88.4
Investment income, net		(0.8	)		(29.1	)		(37.3	)
Product sales and other		12.0			228.9			169.2
Reimbursable debit network fees, postage and other		28.3			415.7			363.8

		135.3			1,935.9			1,787.2

Expenses:
Cost of services		67.9			932.5			781.1
Cost of products sold		5.2			75.1			76.9
Selling, general and administrative		25.9			446.1			298.7
Reimbursable debit network fees, postage and other		28.3			415.7			363.8
Other operating expenses:
Restructuring, net		—			—			12.0
Impairments		—			4.3			1.9
Litigation and regulatory settlements		—			(2.5	)		(42.3	)

		127.3			1,871.2			1,492.1

Operating profit		8.0			64.7			295.1

Other income (expense):
Interest income		3.6			9.9			13.8
Interest expense		(34.6	)		(33.2	)		(72.3	)
Investment gains and (losses)		(21.7	)		(1.1	)		(144.2	)
Divestitures, net		—			2.6			1.4
Debt repayment loss		(6.0	)		—			—

		(58.7	)		(21.8	)		(201.3	)

(Loss) income before income taxes, minority interest, equity earnings in affiliates and discontinued operations		(50.7	)		42.9			93.8
Income taxes		(21.2	)		18.2			4.7
Minority interest		(2.5	)		(36.2	)		(34.8	)
Equity earnings in affiliates		3.3			75.3			77.0

(Loss) income from continuing operations		(28.7	)		63.8			131.3
(Loss) income from discontinued operations, net of taxes of $0, $7.1 and $125.9, respectively		—			(7.1	)		210.9

Net (loss) income	$	(28.7	)	$	56.7		$	342.2


	Successor			Predecessor
	Period from September 25 through September 30,			Period from January 1 through September 24,			Nine months ended September 30,
	2007 (a)			2007			2006
Revenues: ^(b)
Transaction and processing service fees:
Merchant services ^(c)	$	50.2		$	2,063.5		$	1,957.1
Check services		6.5			293.2			238.9
Card services		32.6			1,342.9			1,228.9
Other services		6.5			266.3			258.4
Investment income, net		(0.8	)		(66.9	)		(96.6	)
Product sales and other		12.0			616.4			504.4
Reimbursable debit network fees, postage and other		28.3			1,257.5			1,062.9

		135.3			5,772.9			5,154.0

Expenses:
Cost of services		67.9			2,632.0			2,255.6
Cost of products sold		5.2			230.4			221.2
Selling, general and administrative		25.9			1,089.3			856.1
Reimbursable debit network fees, postage and other		28.3			1,257.5			1,062.9
Other operating expenses:
Restructuring, net		—			7.9			11.6
Impairments		—			20.6			(0.1	)
Litigation and regulatory settlements		—			2.5			(34.8	)
Other		—			(7.7	)		(0.3	)

		127.3			5,232.5			4,372.2

Operating profit		8.0			540.4			781.8

Other income (expense):
Interest income		3.6			30.8			23.8
Interest expense		(34.6	)		(103.6	)		(190.8	)
Investment gains and (losses)		(21.7	)		(2.6	)		45.8
Divestitures, net		—			6.1			8.0
Debt repayment gain/(loss)		(6.0	)		1.4			—

		(58.7	)		(67.9	)		(113.2	)

(Loss) income before income taxes, minority interest, equity earnings in affiliates and discontinued operations		(50.7	)		472.5			668.6
Income taxes		(21.2	)		125.8			164.8
Minority interest		(2.5	)		(105.3	)		(104.0	)
Equity earnings in affiliates		3.3			223.0			207.9

(Loss) income from continuing operations		(28.7	)		464.4			607.7
(Loss) income from discontinued operations, net of taxes of $0, $3.0 and $334.3, respectively		—			(3.6	)		627.2

Net (loss) income	$	(28.7	)	$	460.8		$	1,234.9

^(a)

Includes the results of operations (reflecting the change in fair value of forward starting, deal contingent interest rate swaps) of Omaha Acquisition Corporation for the period prior to its merger with and into First Data Corporation from March 29, 2007 (its formation) through September 24, 2007. Also includes post merger results of First Data Corporation for the period from September 25, 2007 to September 30, 2007.

^(b)	Includes revenue from Western Union and Primary Payment Systems commercial relationships previously eliminated in consolidation of $5.3 million and $15.8 million for the three and nine months ended September 30, 2006, respectively.

^(c)

Includes processing fees, administrative service fees and other fees charged to merchant alliances accounted for under the equity method of $3.6 million for the successor period from September 25, 2007 through September 30, 2007, $54.9 million for the predecessor period from July 1, 2007 through September 24, 2007 and $57.8 million for the three months ended September 30, 2006. Totals for the predecessor periods from January 1, 2007 through September 24, 2007 and the nine months ended September 30, 2006, were $165.1 million and $168.3 million, respectively.

See Notes to Consolidated Financial Statements.

FIRST DATA CORPORATION

CONSOLIDATED BALANCE SHEETS

(in millions, except common stock share amounts)


	Successor			Predecessor
	September 30, 2007			December 31, 2006
	(Unaudited)
ASSETS
Cash and cash equivalents	$	1,676.7		$	1,154.2
Settlement assets		18,532.3			19,149.8
Accounts receivable, net of allowance for doubtful accounts of $0.0 (2007) and $29.0 (2006)		2,402.4			2,150.3
Property and equipment, net of accumulated depreciation of $4.0 (2007) and $1,711.3 (2006)		927.1			768.0
Goodwill		16,000.7			7,359.5
Other intangibles, net of accumulated amortization of $16.3 (2007) and $2,115.9 (2006)		8,865.4			2,577.5
Investment in affiliates		4,457.8			756.5
Other assets		1,105.5			544.9

Total Assets	$	53,967.9		$	34,460.7

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Settlement obligations	$	18,531.9		$	19,166.5
Accounts payable and other liabilities		5,803.2			2,636.8
Borrowings		22,442.8			2,516.2

Total Liabilities		46,777.9			24,319.5

Commitments and contingencies (see Note 10)
Stockholders’ Equity:
Common stock, $.01 par value; authorized and issued 1,000 shares (2007) and authorized 2.0 billion shares and issued 1.1 billion shares (2006)		—			10.7
Additional paid-in capital		7,224.5			9,713.6

Paid-in capital		7,224.5			9,724.3
Retained earnings (loss)		(28.7	)		10,900.6
Accumulated other comprehensive loss		(5.8	)		(16.9	)
Less treasury stock at cost, 0 shares (2007) and 0.3 billion shares (2006)		—			(10,466.8	)

Total Stockholders’ Equity		7,190.0			10,141.2

Total Liabilities and Stockholders’ Equity	$	53,967.9		$	34,460.7

See Notes to Consolidated Financial Statements.

FIRST DATA CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)


	Successor			Predecessor
	Period from September 25 through September 30,			Period from January 1 through September 24,			Nine months ended September 30,
	2007			2007			2006
Cash and cash equivalents at beginning of period, including cash of discontinued operations in 2006		—		$	1,154.2		$	1,180.9

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations	$	(28.7	)		464.4			607.7
Net income (loss) from discontinued operations		—			(3.6	)		627.2
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization		22.8			540.2			522.2
Charges (gains) related to restructuring, impairments, litigation and regulatory settlements, other, investment (gains) and losses, divestitures and debt repayment gain/(loss)		27.7			20.9			(77.4	)
Other non-cash and non-operating items, net		(5.1	)		67.8			(46.1	)
Increase (decrease) in cash, excluding the effects of acquisitions and dispositions, resulting from changes in:
Accounts receivable		7.8			(145.4	)		28.6
Other assets		1.8			5.8			84.8
Accounts payable and other liabilities		53.0			(4.8	)		(139.0	)
Income tax accounts		(21.2	)		69.6			127.8
Excess tax benefit from share-based payment arrangement		—			(219.8	)		(106.4	)

Net cash provided by operating activities from continuing operations		58.1			798.7			1,002.2
Net cash (used in) provided by operating activities from discontinued operations		—			(9.7	)		865.0

Net cash provided by operating activities		58.1			789.0			1,867.2

CASH FLOWS FROM INVESTING ACTIVITIES
Merger, net of cash acquired		(24,974.5	)		—			—
Current year acquisitions, net of cash acquired		—			(690.3	)		(277.6	)
Payments related to other businesses previously acquired		—			(50.0	)		(50.4	)
Proceeds from dispositions, net of expenses paid		—			—			68.5
Additions to property and equipment, net		—			(275.5	)		(108.2	)
Payments to secure customer service contracts, including outlays for conversion, and capitalized systems development costs		—			(123.7	)		(84.5	)
Proceeds from the sale of marketable securities		—			11.8			21.0
Dividends received from discontinued operations		—			—			2,500.0
Cash spun off to Western Union		—			—			(1,327.8	)
Other investing activities		(35.5	)		(9.5	)		290.0

Net cash (used in) provided by investing activities from continuing operations		(25,010.0	)		(1,137.2	)		1,031.0
Net cash used in investing activities from discontinued operations		—			—			(279.5	)

Net cash (used in) provided by investing activities		(25,010.0	)		(1,137.2	)		751.5

CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net		151.2			26.3			602.4
Proceeds from issuance of long-term debt		21,213.5			—			—


	Successor			Predecessor
	Period from September 25 through September 30,			Period from January 1 through September 24,			Nine months ended September 30,
	2007			2007			2006
Principal payments on long-term debt		(1,962.6	)		(126.6	)		(681.1	)
Proceeds from issuance of common stock		7,226.5			187.4			656.7
Excess tax benefit from share-based payment arrangement		—			219.8			106.4
Purchase of treasury shares		—			(371.8	)		(884.8	)
Cash dividends		—			(67.7	)		(137.8	)

Net cash (used in) provided by financing activities from continuing operations		26,628.6			(132.6	)		(338.2	)
Net cash used in financing activities from discontinued operations		—			—			(26.5	)

Net cash (used in) provided by financing activities		26,628.6			(132.6	)		(364.7	)

Change in cash and cash equivalents		1,676.7			(480.8	)		2,254.0

Cash and cash equivalents at end of period, including cash of discontinued operations in 2006	$	1,676.7		$	673.4		$	3,434.9

See Notes to Consolidated Financial Statements.

FIRST DATA CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


	Total			Comprehensive Income (Loss)			Retained Earnings (Loss)			Accumulated Other Comprehensive Income (Loss)			Common Shares	Paid-In Capital		Treasury Stock
(in millions, except per share amounts)	Total			Comprehensive Income (Loss)			Retained Earnings (Loss)						Common Shares	Paid-In Capital		Shares		Cost
Predecessor
Balance, December 31, 2006 (As previously reported)	$	10,141.2					$	10,900.6		$	(16.9	)	1,067.7	$	9,724.3	(314.8	)	$	(10,466.8	)
Adjustment to record adoption of FIN 48		(22.7	)					(22.7	)

Balance, December 31, 2006 (Adjusted)	$	10,118.5					$	10,877.9		$	(16.9	)	1,067.7	$	9,724.3	(314.8	)	$	(10,466.8	)
Comprehensive income
Net income		460.8		$	460.8			460.8
Other comprehensive income (loss):
Unrealized losses on securities		(18.2	)		(18.2	)
Unrealized gains on hedging activities		0.4			0.4
Foreign currency translation adjustment		123.1			123.1

Other comprehensive income					105.3						105.3

Comprehensive income				$	566.1

Purchase of treasury shares		(335.3	)													(11.2	)		(335.3	)
Stock issued for compensation and benefit plans		659.2						(84.0	)						394.1	12.5			349.1
Cash dividends declared ($0.06 per share)		(45.3	)					(45.3	)

Balance, September 24, 2007	$	10,963.2					$	11,209.4		$	88.4		1,067.7	$	10,118.4	(313.5	)	$	(10,453.0	)

Successor
Investment by Parent Company	$	7,224.5											0.0	$	7,224.5
Net loss		(28.7	)	$	(28.7	)	$	(28.7	)
Other comprehensive income (loss):
Unrealized gains on securities		0.3			0.3
Unrealized losses on hedging activities		(6.1	)		(6.1	)

Other comprehensive loss					(5.8	)					(5.8	)

Comprehensive loss				$	(34.5	)


Balance, September 30, 2007	$	7,190.0					$	(28.7	)	$	(5.8	)	0.0	$	7,224.5	—		$	—

See Notes to Consolidated Financial Statements.

FIRST DATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Basis of Presentation

The accompanying Consolidated Financial Statements of First Data Corporation (“FDC” or the “Company”) should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. Significant accounting policies disclosed therein have not changed.

On September 24, 2007, the Company was acquired through a merger transaction by an entity controlled by an affiliate of Kohlberg Kravis Roberts & Co. (“KKR”). The merger resulted in the equity of FDC becoming privately held. Details of the merger are more fully discussed in Note 2. The transaction will be accounted for as a reverse acquisition with Omaha Acquisition Corporation. Although FDC continued as the surviving corporation and same legal entity after the merger, the accompanying consolidated statements of operations, cash flows and stockholders’ equity are presented for two periods: predecessor and successor, which relate to the periods preceding the merger and the period succeeding the merger, respectively. The Company applied purchase accounting to the opening balance sheet and results of operations on September 25, 2007 as the merger occurred at the close of business on September 24, 2007. The merger resulted in a new basis of accounting beginning on September 25, 2007 and the financial reporting periods are presented as follows:

•

The three month period ended September 30, 2007 includes the predecessor period of the Company from July 1, 2007 to September 24, 2007 and the successor period, reflecting the merger of the Company and Omaha Acquisition Corporation, from September 25, 2007 to September 30, 2007.

•

The nine month period ended September 30, 2007 includes the predecessor period of the Company from January 1, 2007 to September 24, 2007 and the successor period, reflecting the merger of the Company and Omaha Acquisition Corporation, from September 25, 2007 to September 30, 2007.

•

The results of operations of Omaha Acquisition Corporation from July 1, 2007 to September 30, 2007 and March 29, 2007 (formation date) to September 30, 2007 are included in the results of operations in the successor period from September 25, 2007 to September 30, 2007 for the respective three and nine month periods. Omaha Acquisition Corporation had no assets, liabilities or results of operations other than those related to two forward starting, deal contingent interest rate swaps entered into prior to consummation of the merger.

•

The 2006 periods presented are predecessor. The Consolidated Financial Statements for all predecessor periods have been prepared using the historical basis of accounting for the Company. As a result of the merger and the associated purchase accounting, the Consolidated Financial Statements of the successor are not comparable to periods preceding the merger.

The accompanying Consolidated Financial Statements are unaudited; however, in the opinion of management, they include all normal recurring adjustments necessary for a fair presentation of the consolidated financial position of the Company at September 30, 2007, the consolidated results of its operations for the predecessor and successor periods for the three and nine months ended September 30, 2007 and 2006 and cash flows for the predecessor and successor periods for the nine months ended September 30, 2007 and 2006. Results of operations reported for interim periods are not necessarily indicative of results for the entire year due in part to the seasonality of certain business units.

Presentation

The Company’s Consolidated Balance Sheet presentation is unclassified due to the short–term nature of its settlement obligations contrasted with the Company’s ability to invest cash awaiting settlement in long–term investment securities. As noted below and over the past six months, the Company has repositioned the majority of its investment portfolio associated with cash awaiting settlement from long-term investments to short-term investments. This was completed in October 2007. The Company will assess whether it should continue with an unclassified Consolidated Balance Sheet presentation.

As a result of the spin-off of Western Union (“the spin-off”) and the sale of subsidiaries Primary Payment Systems (“PPS”), IDLogix and Taxware, LP (“Taxware”) as discussed in Note 15, the Company’s financial statements reflect Western Union, PPS, IDLogix and Taxware as discontinued operations. Their results of operations are treated as income from discontinued operations, net of tax, and separately stated on the Consolidated Statements of Income after income from continuing operations.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ from these estimates.

Official Check and Money Order Wind-down

In the first quarter 2007, the Company announced its intent to wind-down the official check and money order business included within the Integrated Payment Systems (“IPS”) business segment. The official check and money order businesses are conducted by a subsidiary of the Company, Integrated Payment Systems Inc., with separate creditors and whose assets, including the investment portfolio associated with the official checks and money orders, are not intended to be available to creditors of First Data nor its other subsidiaries. The Company expects the wind-down of the majority of the business to take two to three years in order to honor existing customer contracts. In October 2007, the Company completed the repositioning of the investment portfolio associated with this business from long-term municipal bonds to short-term investments, the majority of which are currently short-term municipal bonds. The Company recognized a net gain, including the impact of terminating the associated interest rate swaps, of $3.1 million for the nine-month period ended September 30, 2007 associated with the repositioning of the portfolio of which a loss of $1.3 million was recognized by the successor and a gain of $4.4 million was recognized by the predecessor.

During the first nine months of 2007, the Company converted over 90% of this portfolio’s par value into short-term investments. The Company received proceeds from the sales of portfolio investments of $0.2 billion for the successor period from September 25, 2007 through September 30, 2007, proceeds of $4.6 billion for the predecessor period from July 1, 2007 through September 24, 2007 and proceeds of $11.0 billion for the predecessor period from January 1, 2007 through September 24, 2007. In connection with the portfolio repositioning, the Company is terminating the interest rate swaps used to hedge the portfolio investments at the time the associated investments are sold. The Company terminated interest rate swaps with aggregate notional amounts totaling $4.3 billion during the second quarter 2007, $2.3 billion for the predecessor period from July 1, 2007 through September 24, 2007 and $0.2 billion for the successor period from September 25, 2007 through September 30, 2007. No such terminations occurred during the first quarter 2007.

Revenue Recognition

FDC recognizes revenues from its processing services as such services are performed. Revenue is recorded net of certain costs not controlled by the Company such as credit and offline debit interchange fees and assessments charged by credit card associations which totaled $122.1 million for the successor period from September 25, 2007 through September 30, 2007, $1,760.5 million for the predecessor period from July 1, 2007 through September 24, 2007 and $1,628.8 million for the three months ended September 30, 2006. Totals for the predecessor periods from January 1, 2007 through September 24, 2007 and the nine months ended September 30, 2006, were $5,241.9 million and $4,681.4 million, respectively. Debit network fees related to acquired PIN-based debit transactions are recognized in the “Reimbursable debit network fees, postage and other” revenues and expenses lines of the Consolidated Statements of Income. The debit network fees related to acquired PIN-debit transactions charged by debit networks totaled $16.6 million for the successor period from September 25, 2007 through September 30, 2007, $240.2 million for the predecessor period from July 1, 2007 through September 24, 2007 and $204.1 million for the three months ended September 30, 2006. Totals for the predecessor periods from January 1, 2007 through September 24, 2007 and the nine months ended September 30, 2006, were $719.8 million and $583.7 million, respectively.

Supplemental Cash Flow Information

See Note 12 for information concerning the Company’s issuance of restricted stock awards in 2007.

Significant non-cash transactions during the nine months ended September 30, 2006 included the grant of approximately 0.9 million shares of restricted stock to certain employees in conjunction with the Company’s incentive compensation plan.

In connection with its spin-off, Western Union transferred $1 billion of Western Union notes to FDC. On September 29, 2006, the Company exchanged these Western Union notes for FDC debt (commercial paper) held by investment banks (the “debt-for-debt exchange”).

On September 29, 2006, the holder of a warrant originally issued on November 16, 2000 exercised its right to a cashless exercise of the warrant. The Company issued 359,824 shares of its common stock to the warrant holder in connection with the cashless exercise. The warrant had provided for the purchase of 3,500,000 shares of the Company’s common stock at $40.025 before giving effect to the adjustment for the Company’s spin-off of The Western Union Company.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a fair value hierarchy to be used in generally accepted accounting principles and expands disclosures about fair value measurements. Although this statement does not require any new fair value measurements, the application could change current practice. The statement is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of this statement on its financial position and results of operations.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an Amendment of FASB Statements No. 87, 88, 106, and 132(R).” This statement requires a company to recognize the funded status of a benefit plan as an asset or a liability in its statement of financial position. In addition, a company is required to measure plan assets and benefit obligations as of the date of its fiscal year-end statement of financial position. The Company adopted the recognition provisions and disclosure requirements as of December 31, 2006. The measurement date provision is effective for fiscal years ending after December 15, 2008. The Company does not expect the measurement provisions to have a material impact on its financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115.” This Statement permits entities to measure many financial instruments and certain other items at fair value. This election is made on an instrument-by-instrument basis and is irrevocable. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. This statement is effective for fiscal years beginning after November 15, 2007. At this time, the Company does not anticipate electing the fair value option.

Note 2: Merger

On April 1, 2007, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with New Omaha Holdings L.P., a Delaware limited partnership (“Parent”), and Omaha Acquisition Corporation, a Delaware corporation and a subsidiary of Parent (“Sub”). Parent is controlled by an affiliate of KKR. On September 24, 2007, under the terms of the Merger Agreement, Sub merged with and into the Company (the “merger”) with the Company continuing as the surviving corporation and a subsidiary of New Omaha Holdings Corporation (“Holdings”), a Delaware corporation and a subsidiary of Parent.

As of the effective time of the merger, each issued and outstanding share of common stock of the Company was cancelled and converted into the right to receive $34.00 in cash, without interest (other than shares owned by Parent, Sub or Holdings, which were cancelled and given no consideration). Additionally, vesting of FDC stock options, restricted stock awards and restricted stock units was accelerated upon closing of the merger. As a result, holders of stock options received cash equal to the intrinsic value of the awards based on a market price of $34.00 per share while holders of restricted stock awards and restricted stock units received $34.00 per share in cash, without interest. Vesting of Western Union options, restricted stock awards and restricted stock units held by FDC employees was also accelerated upon closing of the merger.

Immediately following consummation of the merger, Michael D. Capellas was appointed as Chief Executive Officer (“CEO”) of the Company. Capellas succeeded Henry C. “Ric” Duques who announced his intention to retire within two years when he returned as Chairman and CEO in late 2005.

The merger was financed by a combination of the following: borrowings under the Company’s new senior secured credit facilities, new senior unsecured interim loan agreement and new senior subordinated interim loan agreement, and the equity investment of Holdings. The purchase price was approximately $26.4 billion including $123.4 million in capitalized transaction costs. The merger was funded primarily through a $7.2 billion equity contribution from Holdings and $22.0 billion in debt financing discussed more fully in Note 7. Approximately $0.7 billion of the purchase consideration was paid in October 2007.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Preliminary Purchase Price Allocation

The total purchase price was allocated to the Company’s net tangible and identifiable intangible assets (including customer relationships, software and tradenames) based on their estimated fair values as set forth below. Property and equipment were carried forward at historical net balances as a current best estimate of fair value and will be adjusted in a subsequent period upon completion of a valuation. A portion of the preliminary valuation was allocated to the Company’s investments in unconsolidated joint ventures (reflected in the “Investment in affiliates” line below). The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill. The preliminary allocation of the purchase price to identifiable intangible assets was based upon preliminary valuation data from a third party valuation firm and the estimates and assumptions are subject to change. The valuation of fixed assets is expected to commence in the fourth quarter 2007. The Company is also in the process of working through other potential purchase accounting adjustments that may include the assessment of items such as deferred revenue, assumed liabilities, pre-existing debt value and items that may require fair value measurements.


(in millions)
Property and equipment	$	931.1
Identifiable intangible assets		8,881.7
Goodwill		16,000.7
Investment in affiliates		4,459.8
Deferred taxes		(2,634.6	)
Other net liabilities acquired		(1,267.9	)

Total purchase price	$	26,370.8

The preliminary estimated useful life associated with other intangible assets is a weighted average of approximately nine years and the amortization methodology will be determined upon finalization of the valuation. Deferred tax liabilities of $2,634.6 million were recorded related to the allocation of purchase price to intangible assets. Goodwill of $16,000.7 million resulted from the merger, the majority of which is not deductible for tax purposes. The preliminary allocation of goodwill by segment is as follows (in millions):


First Data Commercial Services	$	10,069.2
First Data Financial Institution Services		2,554.5
First Data International		3,295.6
Integrated Payment Systems		—
All Other and Corporate		81.4

	$	16,000.7

Goodwill will be reviewed at least annually for impairment.

Merger Related Restructuring Charges

The Company has commenced initiatives to improve its overall cost structure and enhance its competitive position. These initiatives include reducing overhead spending, consolidating certain business units and consolidating data and command centers. As of September 30, 2007, the Company recognized a liability of approximately $1 million in the “Accounts payable and other liabilities” line of the Consolidated Balance Sheets resulting from merger related restructuring charges. The Company anticipates taking additional significant charges in future periods including the fourth quarter of 2007.

Merger and Other Related Costs

During the period from January 1, 2007 through September 24, 2007, the Company recorded $69.7 million of pretax merger related costs consisting primarily of investment banking, accounting and legal fees. The company also recognized a pretax charge of $175.9 million related to accelerated vesting of all outstanding FDC unvested stock options, restricted stock awards and restricted stock units as well as Western Union unvested stock options, restricted stock awards and restricted stock units held by FDC employees and an additional $19.6 million of associated taxes (excluding all income tax impacts).

Unaudited Pro Forma Condensed Combined Consolidated Statements of Income

The following Unaudited Pro Forma Condensed Combined Consolidated Statements of Income reflect the consolidated results of operations of the Company as if the merger had occurred on January 1, 2007 and 2006. The historical financial information has been adjusted to give effect to events that are (1) directly attributed to the merger, (2) factually supportable,

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

and (3) with respect to the income statement, expected to have a continuing impact on the combined results. Such items include interest expense related to debt issued in conjunction with the merger as well as additional amortization expense associated with the preliminary valuation of intangible assets. This unaudited pro forma information should not be relied upon as necessarily being indicative of the historical results that would have been obtained if the merger had actually occurred on that date, nor of the results that may be obtained in the future.

Unaudited Pro Forma Condensed Combined Consolidated Statements of Income


	Three months ended September 30,						Nine months ended September 30,
	2007			2006			2007			2006
	(in millions)
Revenues:
Transaction and processing service fees	$	1,416.2		$	1,291.5		$	4,061.7		$	3,683.3
Investment income, net		(29.9	)		(37.3	)		(67.7	)		(96.6	)
Product sales and other		240.9			169.2			628.4			504.4
Reimbursable debit network fees, postage and other		444.0			363.8			1,285.8			1,062.9

		2,071.2			1,787.2			5,908.2			5,154.0

Expenses:
Cost of services		1,016.6			914.1			2,978.2			2,658.5
Cost of products sold		80.3			76.9			235.6			221.2
Selling, general and administrative		332.4			302.6			968.0			867.8
Reimbursable debit network fees, postage and other		444.0			363.8			1,285.8			1,062.9
Other operating expenses:
Restructuring, net		—			12.0			7.9			11.6
Impairments		4.3			1.9			20.6			(0.1	)
Litigation and regulatory settlements		(2.5	)		(42.3	)		2.5			(34.8	)
Other		—			—			(7.7	)		(0.3	)

		1,875.1			1,629.0			5,490.9			4,786.8

Operating profit		196.1			158.2			417.3			367.2

Other income (expense):
Interest income		13.5			13.8			34.4			23.8
Interest expense		(522.2	)		(520.1	)		(1,565.7	)		(1,558.2	)
Investment gains and (losses)		(22.8	)		(144.2	)		(24.3	)		45.8
Divestitures, net		2.6			1.4			6.1			8.0
Debt repayment gain		—			—			—			—

		(528.9	)		(649.1	)		(1,549.5	)		(1,480.6	)

Loss before income taxes, minority interest, equity earnings in affiliates and discontinued operations		(332.8	)		(490.9	)		(1,132.2	)		(1,113.4	)
Income taxes		(131.9	)		(222.6	)		(499.5	)		(528.0	)
Minority interest		(38.7	)		(34.8	)		(107.8	)		(104.0	)
Equity earnings in affiliates		57.9			53.9			160.8			137.4

Loss from continuing operations	$	(181.7	)	$	(249.2	)	$	(579.7	)	$	(552.0	)

Note 3: Restructuring, Impairments, Litigation and Regulatory Settlements, Other, Investment Gains and Losses, Divestitures, net and Debt Repayment Gain

Restructuring charges and reversal of restructuring accruals

The Company recorded restructuring charges in 2007 comprised of severance totaling $0.7 million and $10.2 million in the predecessor period from July 1, 2007 through September 24, 2007 and January 1, 2007 through September 24, 2007, respectively. Severance charges resulted from the termination of approximately 370 employees within the Commercial Services and the First Data International segments.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Restructuring charges for first quarter 2007 resulted from efforts to improve the overall efficiency and effectiveness of the sales and sales support teams within the Commercial Services segment. Severance charges resulted from the termination of approximately 230 sales related employees comprising approximately 10% of the segment’s regional sales, cross-sale and sales support organizations. This restructuring plan was completed in the first quarter of 2007. Restructuring charges for the second and third quarter 2007 of the predecessor period resulted from the termination of approximately 140 employees within the First Data International segment. The terminations were associated with data center consolidation and global sourcing initiatives. Similar actions will occur in future periods and are expected to continue into 2009. The Company also reversed $0.7 million and $2.3 million in the predecessor periods from July 1, 2007 through September 24, 2007 and January 1, 2007 through September 24, 2007, respectively, of prior period restructuring accruals related to changes in estimates regarding severance costs from restructuring activities that occurred in 2005 through 2007.

Restructuring charges for the nine months ended September 30, 2006 were comprised of severance totaling $12.8 million and facility closures totaling $1.5 million. The restructuring charges were associated with the realigning of costs and operating structure, a Company initiative to reduce operating costs to the appropriate level in anticipation of the spin-off and certain business restructurings. During the nine months ended September 30, 2006, the Company also reversed $2.7 million of prior period restructuring accruals related to changes in estimates regarding severance costs from restructuring activities that occurred from 2003 through 2005.

The following table summarizes the Company’s utilization of restructuring accruals from January 1, 2007 through September 30, 2007 (in millions):


	Employee Severance			Facility Closure
Remaining accrual at January 1, 2007	$	27.1		$	1.6
Expense provision		10.2			—
Cash payments and other		(24.6	)		(1.0	)
Changes in estimates		(2.3	)		—

Remaining accrual at September 30, 2007	$	10.4		$	0.6

Impairments

During the predecessor period from July 1, 2007 through September 24, 2007, the Company recorded a charge of $4.2 million related to the impairment of fixed assets and software associated with the Company’s government business within All Other and Corporate. The Company recorded minority interest benefit of $1.1 million associated with the impairment. During the first quarter 2007, the Company recorded a charge of $16.3 million related to the impairment of goodwill and intangible assets associated with the wind-down of the Company’s official check and money order business described in Note 1.

Litigation and regulatory settlements

In the predecessor period from July 1, 2007 through September 24, 2007, the Company recorded an additional benefit of $2.5 million related to the Visa settlement that was originally recorded in the three months ended September 30, 2006. In the second quarter 2007, the Company recorded a $5.0 million litigation accrual associated with a judgment against the Company pertaining to a vendor contract issue on a business included in All Other and Corporate.

During the three months ended September 30, 2006, the Company recorded a benefit of approximately $45 million due to a settlement with Visa over the processing of Visa payment card transactions in All Other and Corporate. During the second quarter of 2006, excess litigation accruals in the Commercial Services segment totaling $7.5 million were released. The Company recorded minority interest expense of $3.5 million associated with the release in the Commercial Services segment. The settlement and accrual release were partially offset by a first quarter 2006 settlement of $15.0 million associated with a patent infringement lawsuit against TeleCheck, clearing all past and future claims related to this litigation and a third quarter 2006 charge of $2.7 million related to the settlement of a claim within All Other and Corporate.

Investment Gains and Losses, net

During the predecessor period from January 1, 2007 through September 24, 2007, net investment losses totaling $2.6 million resulted from losses on the sale, valuation and impairment of certain strategic investments and losses that resulted from the recognition of a transition adjustment associated with the January 2001 adoption of Statement of Financial

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) related to the Company’s decision to wind-down the official check and money order business. Partially offsetting these losses were gains resulting from the sale of certain strategic investments. During the successor period from September 25, 2007 through September 30, 2007, the Company recorded total net investment losses of $21.7 million, of which approximately $19 million was due to decreases in the fair value of Sub’s forward starting, deal contingent interest rate swaps prior to the merger and prior to their designation as a hedge.

Net investment losses recorded for the three months ended September 30, 2006 included $153.0 million in investment losses associated with the mark-to-market of interest rate swaps utilized in the Company’s official check business that did not qualify for hedge accounting partially offset by $8.0 million in realized gains associated with these same interest rate swaps. Net investment gains recorded for the nine months ended September 30, 2006 included $24.7 million in investment gains associated with the mark-to-market of interest rate swaps as well as $9.0 million in realized gains associated with these same interest rate swaps. Also benefiting the nine months was a gain on the redemption of MasterCard stock.

Divestitures, net

Net divestiture gains recognized in the predecessor period from January 1, 2007 through September 24, 2007 resulted from the release of excess divestiture accruals due to the expiration of certain contingencies.

During the nine months ended September 30, 2006, the Company recognized gains on the sale of land, corporate aircraft and other assets.

Other

The majority of the benefit recorded during the nine months ended September 30, 2007, related to the release of escheatment accruals originally recorded in the fourth quarter 2005.

Debt repayment gain/(loss)

During the first quarter 2007, the Company recorded a net gain of $1.4 million related to the early repayment of long-term debt at a discount from the principal amount. After consummation of the merger, the Company repurchased a majority of the pre-merger debt and recognized a loss of $6.0 million in the successor period for the cost to execute the associated debt tender.

Note 4: Income Taxes

The Company adopted the provisions of FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109” (“FIN 48”), on January 1, 2007. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”, and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

As a result of the implementation of FIN 48, the Company recorded a reduction to retained earnings of approximately $23 million and an increase to goodwill of approximately $25 million effective January 1, 2007. Also upon adoption of FIN 48, the Company reclassified approximately $140 million of deferred tax liabilities to income taxes payable to conform to the balance sheet presentation requirements of FIN 48. The Company expects the ongoing application of FIN 48 may result in more significant discrete items being recognized from period to period.

The total amount of unrecognized tax benefit at January 1, 2007, which is included in the “Accounts payable and other liabilities” line of the Consolidated Balance Sheets, was $303 million ($266 million net of federal benefit on state income taxes) including $21 million reclassified in the third quarter of 2007 that was not identified at January 1, 2007. Included in the balance of unrecognized tax benefits at January 1, 2007, as adjusted in the third quarter for the foregoing $21 million, were approximately $95 million of tax positions that, if recognized, would affect the effective tax rate. In September 2007, the statute of limitations expired for certain state and federal positions without adjustment, causing the Company’s unrecognized tax benefits to decrease by approximately $31 million, of which $1 million was recognized as a decrease to income tax expense and the remaining $30 million as a decrease to goodwill. The $31 million decrease was comprised of $4 million of federal and $27 million of state tax positions. The Company increased unrecognized tax benefits in the third quarter for uncertainty regarding a federal tax receivable in the amount of $8 million.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

As of September 30, 2007, the Company anticipates that it is reasonably possible that its liability for unrecognized state tax benefits may significantly decrease within the next twelve months related to the expiration of the statutes of limitations for certain states. If the statutes of limitations do expire for these states during the next twelve months without adjustment, this would result in the Company’s unrecognized state tax benefits decreasing by approximately $8 million, of which $4 million would be recognized as a decrease to income tax expense and the remaining $4 million as a decrease to goodwill.

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s tax positions will significantly increase or decrease within the next twelve months. These changes may be the result of the Company’s ongoing audits or the settlement of outstanding issues. At this time, an estimate of the range of the reasonably possible outcomes cannot be made.

The Company recognizes interest related to unrecognized tax benefits and penalties in the “Income taxes” line item of the Consolidated Statements of Income. The Company had approximately $45 million of interest and penalties accrued at January 1, 2007 which are not included in the opening balance of $303 million of unrecognized tax benefits. Accrued interest and penalties are included in the “Accounts payable and other liabilities” line of the Consolidated Balance Sheets.

The Company or one or more of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. As of January 1, 2007, the Company is no longer subject to income tax examination by the U.S. federal tax jurisdiction for years before 2002. State and local examinations are substantially complete through 1998.

Prior to the spin-off transaction, Western Union was part of the FDC consolidated, unitary and combined income tax returns (“combined tax returns”) through September 29, 2006. As contemplated in certain agreements associated with the spin-off transaction, the Company is indemnified by Western Union for certain taxes attributable to operations of Western Union with respect to periods before the spin-off date of September 29, 2006. Although the Company is indemnified by Western Union, the Company remains the primary obligor to the tax authorities with respect to such combined tax return liabilities related to Western Union. Accordingly, as of September 30, 2007, FDC had approximately $121 million of uncertain income tax liabilities, including interest and penalties, recorded related to Western Union operations with a corresponding receivable from Western Union, included in the “Accounts receivable” line of the Consolidated Balance Sheet, to reflect the indemnification for such liabilities. The Western Union contingent liability is in addition to the FDC liability for unrecognized tax benefits discussed above.

Note 5: Acquisitions

In January 2007, the Company acquired Size Technologies, Inc., a provider of loyalty, stored value and transaction marketing solutions. Size Technologies is reported as part of the First Data Commercial Services segment.

In February 2007, the Company acquired the assets of Datawire Communication Networks, Inc. (“Datawire”), an internet-based transaction delivery company. Datawire is reported as part of the First Data Commercial Services segment.

In March 2007, the Company acquired Intelligent Results, a customer data analytics and decision management software provider. Intelligent Results is reported as part of All Other and Corporate.

In March 2007, the Company acquired Instant Cash Services^® (“Instant Cash”), a debit card and ATM payment processing service provider for community banks, credit unions, thrifts and non-financial institutions. A majority of Instant Cash is reported as part of the First Data Financial Institution Services segment and the remaining portion is reported as part of the First Data Commercial Services segment.

In June 2007, the Company acquired FundsXpress, a provider of online banking and bill payment services. FundsXpress is reported as part of the First Data Financial Institution Services segment.

In August 2007, the Company acquired POLCARD SA (“POLCARD”), a merchant acquirer and card issuer processor in Poland. POLCARD will be reported as part of the First Data International segment.

The aggregate cash paid during the nine months ended September 30, 2007, net of cash acquired, for the acquisitions was approximately $690 million. The aggregate preliminary purchase price allocation for these acquisitions resulted in $294 million in identifiable intangible assets, which are being amortized over five to ten years, trade names of $1 million that are

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

being amortized over three years, and goodwill of $368 million. The Company anticipates that the preliminary purchase price allocation noted above, when considered as part of the merger purchase price allocation as described in Note 2 above, will remain approximately the same.

The pro forma impact of all 2007 acquisitions on net income was not material.

In October 2007, the Company acquired Deecal International, a specialist software solutions provider for commercial payments in Dublin. Deecal International will be reported as part of the First Data International segment.

In October 2007, the Company purchased the interests in its First Data Government Solutions subsidiary owned by minority interest holders.

In November 2007, the Company acquired Check Forte Processamento de Dados Ltda. (“Check Forte”), a payment transaction processing company in Brazil. Check Forte will be reported as part of the First Data International segment.

Note 6: Investments in Affiliates

Operating results include the Company’s proportionate share of income from affiliates, which consist of unconsolidated investments and joint ventures accounted for under the equity method of accounting. The most significant of these affiliates are related to the Company’s merchant bank alliance program.

A merchant bank alliance, as it pertains to investments accounted for under the equity method, is a joint venture between FDC and a financial institution that combines the processing capabilities and management expertise of the Company with the visibility and distribution channel of the bank. The joint ventures acquire credit and debit card transactions from merchants. The Company provides processing and other services to the joint ventures and charges fees to the joint venture primarily based on contractual pricing. These fees have been separately identified on the face of the Consolidated Statements of Income.

At September 30, 2007, there were nine affiliates accounted for under the equity method of accounting, comprised of five merchant alliances and four strategic investments in companies in related markets. The majority of the equity earnings relate to the Chase Paymentech alliance. The Company’s co-owner of the Chase Paymentech alliance has the right to terminate the alliance because control of the Company changed on September 24, 2007. The Company is in discussions with its Chase Paymentech co-owner as to the future structure of their relationship.

A summary of financial information for the merchant alliances and other affiliates accounted for under the equity method of accounting is as follows:


(in millions)	September 30, 2007		December 31, 2006
Total Assets	$	8,010.6	$	7,006.8
Total Liabilities	$	6,847.3	$	5,994.3



	Successor		Predecessor
(in millions)	Period from September 25, 2007 through September 30, 2007		Period from July 1, 2007 through September 24, 2007		Three months ended September 30, 2006
Net operating revenues	$	26.9	$	397.3	$	377.8
Operating expenses		15.0		220.3		208.8

Operating income	$	11.9	$	177.0	$	169.0

Net income	$	11.4	$	172.2	$	160.6

FDC equity earnings	$	3.3	$	75.3	$	77.0

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


	Successor		Predecessor
(in millions)	Period from September 25, 2007 through September 30, 2007		Period from January 1, 2007 through September 24, 2007		Nine months ended September 30, 2006
Net operating revenues	$	26.9	$	1,193.8	$	1,073.0
Operating expenses		15.0		667.5		632.9

Operating income	$	11.9	$	526.3	$	440.1

Net income	$	11.4	$	506.1	$	419.6
FDC equity earnings	$	3.3	$	223.0	$	207.9

The primary components of assets and liabilities are settlement-related accounts as described in Note 6 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

The formation of a merchant joint venture alliance accounted for under the equity method of accounting generally involves each of the Company and/or a financial institution contributing merchant contracts to the alliance and a cash payment from one owner to the other to achieve the desired ownership percentage. The asset amounts reflected above are owned by the alliances and other equity method investees and do not include any of such payments made by the Company. As discussed in Note 2, a portion of the preliminary purchase price related to the merger was allocated to the Company’s investments in unconsolidated joint ventures. The amount by which the total of the Company’s investments in its joint ventures exceeded its proportionate share of the joint ventures’ net assets totaled $4,146.9 million and $538.5 million at September 30, 2007 and December 31, 2006, respectively. The non-goodwill portion of this amount is considered an identifiable intangible asset that is amortized accordingly.

Note 7: Borrowings

Borrowings consisted of the following at September 30, 2007 and December 31, 2006:


(in millions)	Successor		Predecessor
(in millions)	September 30, 2007		December 31, 2006
Short-Term Borrowings:
Capital lease obligations	$	49.4	$	46.6
Other short-term debt		72.1		89.9
Senior secured revolving credit facility		200.0		––
Senior secured term loan facility due 2014		127.5		––
3.375% Notes due 2008		68.0		499.5
Medium-term note		25.6		85.4
Long-Term Borrowings:
Medium-term note		13.6		40.4
3.90% Notes due 2009		15.3		102.7
4.50% Notes due 2010		21.4		158.7
5.625% Notes due 2011		41.5		156.6
4.70% Notes due 2013		19.0		478.8
4.85% Notes due 2014		6.7		375.1
4.95% Notes due 2015		11.0		399.7
Senior secured term loan facility due 2014		12,647.5		—
Senior unsecured cash-pay term loan facility due 2015		3,750.0		—
Senior unsecured PIK term loan facility due 2015^(a)		2,750.0		—
Senior subordinated unsecured credit facility due 2016		2,500.0		—
Capital lease obligations		121.1		128.4
Other long-term borrowings		3.1		6.3
Adjustments to carrying value for mark-to-market of interest rate swaps		—		(51.9	)

	$	22,442.8	$	2,516.2

(a)	Payment In-Kind (“PIK”)

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The Company had a $1.5 billion commercial paper program that was supported by a $1.5 billion revolving credit facility, both of which were terminated in conjunction with the merger.

The Company has lines of credit associated with First Data Deutschland which totaled approximately 160 million euro, or approximately $226 million, as of September 30, 2007. The Company had $71.8 million outstanding against these lines of credit as of September 30, 2007.

The Company also has lines of credit associated with Cashcard Australia, Ltd. (“Cashcard”) which are periodically used to fund ATM settlement activity. As of September 30, 2007, the lines of credit totaled approximately 162 million Australian dollars, or approximately $141 million. The Company did not have any borrowings outstanding against the lines of credit for Cashcard as of September 30, 2007.

The Company has two credit facilities associated with POLCARD which are periodically used to fund settlement activity. As of September 30, 2007, the facilities totaled approximately 65 million Polish zloty, or approximately $24 million. The Company did not have any borrowings outstanding against the facilities for POLCARD as of September 30, 2007.

Debt Repurchases

In January 2007, the Company repurchased $32.4 million of its 4.7% senior notes due August 1, 2013, $30.2 million of its 4.85% senior notes due October 1, 2014, and $28.0 million of its 4.95% senior notes due June 15, 2015. In conjunction with the debt repurchases, the Company de-designated as a hedge a portion of the associated interest rate swaps so that the portion of the swaps remaining designated as fair value hedges corresponded to the remaining principal amount of the corresponding debt instruments. The Company recognized a $1.4 million pretax gain upon the debt repurchase.

On September 24, 2007, in conjunction with the merger, the Company repurchased debt as follows:


(in millions)	Principal Amount Repurchased
Medium-term note due 2007	$	59.8
Medium-term note due 2008		26.9
3.375% Notes due 2008		431.9
3.90% Notes due 2009		87.5
4.50% Notes due 2010		137.3
5.625% Notes due 2011		115.7
4.70% Notes due 2013		428.6
4.85% Notes due 2014		338.3
4.95% Notes due 2015		360.9

	$	1,986.9

In combination with the September debt repurchases, the Company terminated the interest rate swaps associated with these debt instruments. The Company incurred a fee of $6.0 million in connection with this debt repurchase.

Debt Issuances

The senior unsecured cash-pay term loan facility, senior unsecured PIK term loan facility and senior subordinated unsecured credit facility are discussed more fully below and represent bridge financing (the “bridge facilities”). The Company expects that it will issue note securities to replace these bridge facilities on or before one year from the transaction date. In October 2007, $2.2 billion of the senior unsecured cash-pay term loan facility was repaid upon issuance of 9.875% senior unsecured cash pay notes due 2015.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

On September 24, 2007, the Company entered into several new debt instruments in conjunction with the merger. Details of each instrument are described below. Fees totaling $578.0 million associated with the issuance of the new debt instruments were capitalized as deferred financing costs and were reported in the “Other assets” line of the Consolidated Balance Sheet. Approximately $112.5 million of these fees were incurred on the bridge facilities. The terms of the bridge facilities provide for the repayment of all or a diminishing portion of the fees, depending upon timing, if the bridge facilities are refinanced in less than a year. The Company will incur additional underwriting fees when the bridge facilities are refinanced. The deferred financing costs are being amortized over a weighted-average period of six years.

Senior Secured Revolving Credit Facility and Senior Secured Term Loan Facility

The Company entered into a $2.0 billion senior secured revolving credit facility with a term of six years. The Company drew $200.0 million against the senior secured revolving credit facility at the time of the merger. The Company also entered into a $13.0 billion senior secured term loan facility with a term of seven years. A portion of the senior term loan facility is available in the form of a delayed draw term loan facility in an amount approximately equal to existing notes remaining outstanding after the tender offers described above were completed. The delayed draw term loan facility may be drawn as the remaining notes are repaid. As of September 30, 2007 the Company had $12.8 billion outstanding against the senior secured term loan facility, $1.0 billion of which was denominated in euros (709.2 million euro).

Interest is payable at a rate equal to, at the Company’s option, either (a) LIBOR for deposits in the applicable currency plus an applicable margin or (b) the higher of (1) the prime rate of Credit Suisse and (2) the federal funds effective rate plus 0.50%, plus an applicable margin. The Company, however, made an irrevocable election to pay interest for the senior secured term loan facility solely under option (a). In combination with the debt issuance, the Company designated as accounting hedges two five-year interest rate swaps related to the senior secured term loan facility with notional amounts of $2.0 billion and $1.0 billion to receive interest at variable rates equal to LIBOR and pay interest at fixed rates of 4.978% and 5.2475%, respectively. In October 2007, the Company entered into interest rate swaps with an additional $3.0 billion of notional value.

The interest rate margin noted above may be reduced subject to the Company attaining certain leverage ratios. In addition to paying interest on the outstanding principal amounts, the Company is required to pay commitment fees for the unutilized commitments. The initial commitment fee rates are 0.50% per year for the senior secured revolving credit facility and 0.75% per year on the delayed draw portion of the senior secured term loan facility. The commitment fee rate related to the senior secured revolving credit facility may be reduced subject to the Company reducing its leverage to specified ratios.

The Company will be required to pay equal quarterly installments in aggregate annual amounts equal to 1% of the original funded principal amount of the senior secured term loan facility, with the balance being payable on the final maturity date. Principal amounts outstanding under the senior secured revolving credit facility are due and payable in full at maturity.

The senior secured credit facilities contain certain mandatory prepayment requirements, such as excess cash flow in certain circumstances, and certain prepayment penalties related to the senior secured term loan facility. Voluntary prepayments are allowed under certain circumstances. The Company may prepay outstanding loans under the senior secured revolving credit facility at any time.

All obligations under the senior secured revolving credit facility and senior secured term loan facility are unconditionally guaranteed by substantially all existing and future, direct and indirect, wholly owned, material domestic subsidiaries of the Company other than Integrated Payment Systems, Inc. The senior secured facilities contain a number of covenants that, among other things, restrict the Company’s ability to incur additional indebtedness, create liens, enter into sale and leaseback transactions, engage in mergers or consolidations, sell or transfer assets, pay dividends and distributions or repurchase the Company’s capital stock, make investments, loans or advances, prepay certain indebtedness, make certain acquisitions, engage in certain transactions with affiliates, amend material agreements governing certain indebtedness and change its lines of business. The senior secured facilities also require the Company to maintain a maximum senior secured leverage ratio and contain certain customary affirmative covenants and events of default, including a change of control beginning at the one year anniversary of debt issuance. The Company is in compliance with all applicable covenants as of September 30, 2007.

Senior Unsecured Cash-pay Term Loan Facility and Senior Unsecured PIK Term Loan Facility

The Company entered into a $3.8 billion senior unsecured cash-pay term loan facility and a $2.8 billion senior unsecured PIK term loan facility with terms of one year with a seven year option discussed below (“senior unsecured credit facilities”). Interest for the first six-month period is payable at a rate equal to LIBOR plus 3.5% for the cash-pay term loan facility and LIBOR plus 4.5% for the PIK term loan facility (“initial rates”). Interest for the three-month period commencing after the initial six-month period is payable at the

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

initial rates plus 0.50%. Thereafter, subject to certain caps, the interest rates will be increased by 0.50% at the beginning of each three-month period subsequent to the initial nine-month period, for so long as the loans are outstanding. For so long as the Company is not in default, the maximum interest rates the Company may pay related to these facilities are 9.875% for the senior unsecured cash-pay term loan facility and 10.55% for the senior unsecured PIK term loan facility. The increase in interest rates is related to these facilities being bridge facilities and, as discussed above, the Company expects to refinance the borrowings under the bridge facilities. As noted above and in October 2007, $2.2 billion of the senior unsecured cash-pay term loan facility was repaid upon issuance of 9.875% senior unsecured cash pay notes due 2015.

Interest on the senior unsecured PIK term loan up to and including September 30, 2011 will be paid entirely by increasing the principal amount of the outstanding loan or by issuing senior unsecured PIK debt. Beginning October 1, 2011, such interest will be payable in cash.

If any borrowings under the senior unsecured credit facilities remain outstanding on the one-year anniversary (the “initial maturity date”) of the closing of the senior unsecured credit facilities, the lenders will have the option to exchange the initial loans for senior cash-pay notes or senior PIK notes with a term of seven years.

The senior unsecured credit facilities contain certain mandatory redemption requirements, such as “excess cash flow,” in certain circumstances. Voluntary repayments are allowed and are subject to certain costs.

All obligations under the senior unsecured credit facilities will be jointly and severally guaranteed on a senior basis by each of the Company’s domestic subsidiaries that guarantee obligations under the Company’s senior secured credit facilities described above. The senior unsecured credit facilities contain a number of covenants that, among other things, restrict the Company’s ability to incur additional indebtedness, create liens, engage in mergers or consolidations, sell or transfer assets and subsidiary stock, pay dividends and distributions or repurchase its capital stock, make certain investments, loans or advances, prepay certain indebtedness, enter into agreements that restrict the payment of dividends by subsidiaries or the repayment of intercompany loans and advances and engage in certain transactions with affiliates. In addition, the senior unsecured credit facilities impose certain requirements as to future subsidiary guarantors and contain certain customary affirmative covenants consistent with those in the senior secured credit facilities described above, to the extent applicable, and certain customary events of default. The Company is in compliance with all applicable covenants as of September 30, 2007.

Senior Subordinated Unsecured Credit Facility

The Company entered into a senior subordinated unsecured credit facility providing senior subordinated unsecured financing of $2.5 billion consisting of a $2.5 billion senior subordinated unsecured term loan facility with a term of one year with a seven and a half year option discussed below. Interest for the first six-month period is payable at a rate equal to LIBOR plus 4.75% (“initial rate”). Interest for the three-month period commencing after the initial six-month period is payable at the initial rate plus 0.50%. Thereafter, subject to certain caps, the interest rate will be increased by 0.50% at the beginning of each three-month period subsequent to the initial nine-month period for so long as the senior subordinated loan is outstanding. For so long as the Company is not in default, the maximum interest rates the Company may pay related to this facility is 11.250%. The increase in interest rates is related to this facility being a bridge facility and, as discussed above, the Company expects to refinance the borrowings under the bridge facility.

If any borrowings under the senior subordinated unsecured credit facility remain outstanding on the one-year anniversary of the closing of the senior subordinated unsecured credit facility, the lenders will have the option to exchange the initial subordinated loan for senior subordinated notes with a term of seven and a half years that the Company will issue under a senior subordinated indenture.

The senior subordinated unsecured credit facility contains certain mandatory redemption requirements. Voluntary repayments are allowed and are subject to certain costs.

All obligations under the senior subordinated unsecured credit facility will be jointly and severally guaranteed on a senior subordinated basis by each of the Company’s domestic subsidiaries that guarantee obligations under the Company’s senior secured credit facilities described above. The senior subordinated unsecured credit facility contains a number of covenants similar to those described for the senior unsecured credit facilities noted above. The Company is in compliance with all applicable covenants as of September 30, 2007.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Maturities

Aggregate annual maturities of long-term debt are $57.6 million in 2008, $171.8 million in 2009, $155.2 million in 2010, $169.1 million in 2011, $126.6 million in 2012 and $21,219.9 million in all periods thereafter.

Note 8: Comprehensive Income

The components of comprehensive income (loss) are as follows (in millions):


	Successor			Predecessor
	Period from September 25 through September 30,			Period from July 1 through September 24,			Three months ended September 30,
	2007			2007			2006
Net income (loss)	$	(28.7	)	$	56.7		$	342.2
Foreign currency translation adjustment		—			55.0			37.5
Unrealized gain (loss) on hedging activities		(6.1	)		(0.3	)		0.5
Unrealized gain on securities		0.3			0.2			109.1
Spin-off of Western Union (a)		—			—			58.8

Total comprehensive income (loss)	$	(34.5	)	$	111.6		$	548.1


	Successor			Predecessor
	Period from September 25 through September 30,			Period from January 1 through September 24,			Nine months ended September 30,
	2007			2007			2006
Net income (loss)	$	(28.7	)	$	460.8		$	1,234.9
Foreign currency translation adjustment		—			123.1			87.4
Unrealized gain (loss) on hedging activities		(6.1	)		0.4			1.4
Unrealized gain (loss) on securities		0.3			(18.2	)		66.7
Spin-off of Western Union (a)		—			—			62.2

Total comprehensive income (loss)	$	(34.5	)	$	566.1		$	1,452.6

(a)	Amount shown for Western Union for 2006 represents the change in other comprehensive income for that period.

The repositioning of the IPS investment portfolio discussed in Note 1 resulted in the Company recognizing a net pretax loss from the sale of investments of $1.3 million for the successor period from September 25, 2007 through September 30, 2007, a net pretax loss of $10.4 million for the predecessor period from July 1, 2007 through September 24, 2007 and a net pretax gain of $4.4 million for the predecessor period from January 1, 2007 through September 24, 2007, net of the impact of terminating any associated interest rate swaps, which were recognized in the “Investment income” line of the Consolidated Statements of Income. Net gains and losses on other securities realized during the three and nine months ended September 30, 2007 and 2006 were immaterial.

Note 9: Segment Information

For a detailed discussion of the Company’s principles regarding its operating segments refer to Note 17 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

The following table presents the Company’s operating segment results for the successor period from September 25, 2007 through September 30, 2007, the predecessor period from July 1, 2007 through September 24, 2007, the predecessor period from January 1, 2007 through September 24, 2007 and the predecessor periods for the three and nine months ended September 30, 2006:

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


Successor
Period from September 25, 2007 through September 30, 2007 (in millions)	First Data Commercial Services			First Data Financial Institution Services		First Data International			Integrated Payment Systems			All Other and Corporate			Totals
Revenues:
Transaction and processing service fees	$	47.0		$	20.5	$	23.8		$	1.0		$	5.1		$	97.4
Investment income, net		0.8			—		0.3			1.8			—			2.9
Product sales and other		6.1			0.5		4.6			—			0.7			11.9
Reimbursable debit network fees, postage and other		16.8			10.9		0.6			0.1			0.1			28.5
Equity earnings in affiliates ^(a)		4.9			—		0.3			—			0.1			5.3
Interest income		0.1			—		0.3			—			3.2			3.6

Total segment reporting revenues	$	75.7		$	31.9	$	29.9		$	2.9		$	9.2		$	149.6

Internal revenue and pretax equivalency	$	0.4		$	0.6	$	0.1		$	4.0		$	0.3		$	5.4
External revenue		75.3			31.3		29.8			(1.1	)		8.9			144.2
Depreciation and amortization		11.3			6.2		4.1			—			1.2			22.8
Operating profit (loss)		11.2			2.1		3.1			1.3			(1.4	)		16.3
Investment and debt repayment losses		(0.4	)		—		(0.3	)		(0.5	)		(26.5	)		(27.7	)

Predecessor
Period from July 1, 2007 through September 24, 2007 (in millions)	First Data Commercial Services			First Data Financial Institution Services		First Data International			Integrated Payment Systems			All Other and Corporate			Totals
Revenues:
Transaction and processing service fees	$	661.5		$	288.7	$	301.7		$	14.1		$	74.8		$	1,340.8
Investment income, net		12.6			—		4.7			8.4			—			25.7
Product sales and other		99.4			18.5		68.2			0.1			42.7			228.9
Reimbursable debit network fees, postage and other		244.2			163.0		8.2			1.6			1.1			418.1
Equity earnings in affiliates ^(a)		74.9			—		7.6			—			1.0			83.5
Interest income		1.2			—		4.9			0.2			3.6			9.9

Total segment reporting revenues	$	1,093.8		$	470.2	$	395.3		$	24.4		$	123.2		$	2,106.9

Internal revenue and pretax equivalency	$	6.0		$	8.4	$	1.2		$	56.8		$	5.2		$	77.6
External revenue		1,087.8			461.8		394.1			(32.4	)		118.0			2,029.3
Depreciation and amortization		72.0			37.2		53.3			1.0			11.7			175.2
Operating profit (loss)		293.7			85.4		35.4			(0.5	)		(245.1	)		168.9
Restructuring, impairments, litigation and regulatory settlements, and investment gains and (losses)		(0.2	)		—		(0.7	)		—			(2.0	)		(2.9	)

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


Predecessor
Three months ended September 30, 2006 (in millions)	First Data Commercial Services			First Data Financial Institution Services			First Data International			Integrated Payment Systems			All Other and Corporate			Totals
Revenues:
Transaction and processing service fees	$	656.3		$	297.2		$	262.5		$	16.9		$	88.2		$	1,321.1
Investment income, net		14.0			—			2.3			8.7			—			25.0
Product sales and other		100.0			9.9			48.6			0.3			12.4			171.2
Reimbursable debit network fees, postage and other		209.2			148.1			7.2			0.1			1.9			366.5
Equity earnings in affiliates ^(a)		76.6			—			8.0			—			—			84.6
Interest income		0.5			—			3.3			0.2			9.8			13.8

Total segment reporting revenues	$	1,056.6		$	455.2		$	331.9		$	26.2		$	112.3		$	1,982.2

Internal revenue and pretax equivalency	$	7.0		$	12.1		$	0.5		$	65.2		$	11.8		$	96.6
External revenue		1,049.6			443.1			331.4			(39.0	)		100.5			1,885.6
Depreciation and amortization		77.2			38.8			45.2			4.0			11.7			176.9
Operating profit (loss)		294.1			96.3			32.1			(1.5	)		(36.0	)		385.0
Restructuring, impairments, litigation and regulatory settlements and investment gains and (losses)		(3.8	)		(3.1	)		(5.5	)		(144.8	)		41.4			(115.8	)

Predecessor
Period from January 1, 2007 through September 24, 2007 (in millions)	First Data Commercial Services			First Data Financial Institution Services			First Data International			Integrated Payment Systems			All Other and Corporate			Totals
Revenues:
Transaction and processing service fees	$	1,968.4		$	894.5		$	883.7		$	44.0		$	244.4		$	4,035.0
Investment income, net		40.4			—			12.2			57.2			—			109.8
Product sales and other		290.6			48.1			203.4			0.5			73.9			616.5
Reimbursable debit network fees, postage and other		732.6			499.5			25.6			4.6			3.3			1,265.6
Equity earnings in affiliates ^(a)		220.8			—			24.8			—			3.0			248.6
Interest income		2.7			0.1			14.9			0.6			12.5			30.8

Total segment reporting revenues	$	3,255.5		$	1,442.2		$	1,164.6		$	106.9		$	337.1		$	6,306.3

Internal revenue and pretax equivalency	$	17.5		$	27.6		$	3.5		$	183.2		$	22.2		$	254.0
External revenue		3,238.0			1,414.6			1,161.1			(76.3	)		314.9			6,052.3
Depreciation and amortization		229.1			115.8			156.4			4.2			34.7			540.2
Operating profit (loss)		816.2			280.8			111.1			24.2			(345.5	)		886.8
Restructuring, impairments, litigation and regulatory settlements, other, investment gains and (losses), debt repayment gain and (loss)		(0.9	)		0.1			(7.0	)		(15.2	)		(1.5	)		(24.5	)

Predecessor
Nine months ended September 30, 2006 (in millions)	First Data Commercial Services			First Data Financial Institution Services			First Data International			Integrated Payment Systems			All Other and Corporate			Totals
Revenues:
Transaction and processing service fees	$	1,878.8		$	882.7		$	702.7		$	50.1		$	261.5		$	3,775.8
Investment income, net		38.3			—			8.1			40.4			—			86.8
Product sales and other		295.9			19.5			136.3			0.4			57.3			509.4
Reimbursable debit network fees, postage and other		599.2			449.8			18.2			0.2			3.2			1,070.6
Equity earnings in affiliates ^(a)		208.4			—			21.6			—			—			230.0
Interest income		0.7			—			7.9			0.2			15.0			23.8

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


Nine months ended September 30, 2006 (in millions)	First Data Commercial Services			First Data Financial Institution Services			First Data International		Integrated Payment Systems			All Other and Corporate			Totals
Total segment reporting revenues	$	3,021.3		$	1,352.0		$	894.8	$	91.3		$	337.0		$	5,696.4

Internal revenue and pretax equivalency	$	19.9		$	37.3		$	2.8	$	192.9		$	35.7		$	288.6
External revenue		3,001.4			1,314.7			892.0		(101.6	)		301.3			5,407.8
Depreciation and amortization		231.1			115.0			130.2		11.6			34.3			522.2
Operating profit (loss)		786.0			275.1			94.8		5.2			(88.7	)		1,072.4
Restructuring, impairments, litigation and regulatory settlements, other and investment gains and (losses)		(6.7	)		(1.4	)		1.7		33.7			42.1			69.4

A reconciliation of reportable segment amounts to the Company’s consolidated balances is as follows (in millions):


	Successor			Predecessor
	Period from September 25 through September 30,			Period from July 1 through September 24,			Three months ended September 30,
(in millions)	2007			2007			2006
Revenues:
Total reported segments	$	140.4		$	1,983.7		$	1,869.9
All other and corporate		9.2			123.2			112.3

Subtotal		149.6			2,106.9			1,982.2

Equity earnings in affiliates ^(a)		(5.3	)		(83.5	)		(84.6	)
Interest income		(3.6	)		(9.9	)		(13.8	)
Eliminations ^(b)		(5.4	)		(77.6	)		(96.6	)

Consolidated	$	135.3		$	1,935.9		$	1,787.2

(Loss)/income before income taxes, minority interest, equity earnings in affiliates and discontinued operations:
Total reported segments	$	17.7		$	414.0		$	421.0
All other and corporate		(1.4	)		(245.1	)		(36.0	)

Subtotal		16.3			168.9			385.0

Interest expense		(34.6	)		(33.2	)		(72.3	)
Minority interest from segment operations^(c)		2.5			37.5			35.1
Equity earnings in affiliates		(3.3	)		(75.3	)		(77.0	)
Restructuring, net		—			—			(12.0	)
Impairments		—			(4.3	)		(1.9	)
Litigation and regulatory settlements		—			2.5			42.3
Other		—			—			—
Investment gains and (losses)		(21.7	)		(1.1	)		(144.2	)
Divestitures, net		—			2.6			1.4
Debt repayment loss		(6.0	)		—			—
Eliminations ^(b)		(3.9	)		(54.7	)		(62.6	)

Consolidated	$	(50.7	)	$	42.9		$	93.8

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


	Predecessor
	Period from January 1 through September 24,			Nine months ended September 30,
(in millions)	2007			2006
Revenues:
Total reported segments	$	5,969.2		$	5,359.4
All other and corporate		337.1			337.0

Subtotal		6,306.3			5,696.4

Equity earnings in affiliates ^(a)		(248.6	)		(230.0	)
Interest income		(30.8	)		(23.8	)
Eliminations ^(b)		(254.0	)		(288.6	)

Consolidated	$	5,772.9		$	5,154.0

Income before income taxes, minority interest, equity earnings in affiliates and discontinued operations:
Total reported segments	$	1,232.3		$	1,161.1
All other and corporate		(345.5	)		(88.7	)

Subtotal		886.8			1,072.4

Interest expense		(103.6	)		(190.8	)
Minority interest from segment operations^(c)		107.3			101.2
Equity earnings in affiliates		(223.0	)		(207.9	)
Restructuring, net		(7.9	)		(11.6	)
Impairments		(20.6	)		0.1
Litigation and regulatory settlements		(2.5	)		34.8
Other		7.7			0.3
Investment gains and (losses)		(2.6	)		45.8
Divestitures, net		6.1			8.0
Debt repayment gain		1.4			—
Eliminations ^(b)		(176.6	)		(183.7	)

Consolidated	$	472.5		$	668.6

^(a)	Excludes equity losses that were recorded in expense and the amortization related to the excess of the investment balance over the Company’s proportionate share of the investee’s net book value.

^(b)	Represents elimination of an adjustment to record Integrated Payment Systems segment investment income and its related operating profit on a pretax equivalent basis and elimination of intersegment revenue.

^(c)	Excludes minority interest attributable to items excluded from segment operations as well as minority interest related to interest expense and income taxes.

Segment assets are as follows (in millions):


	Successor		Predecessor
	September 30, 2007		December 31, 2006
Assets:
First Data Commercial Services	$	26,103.8	$	13,235.7
First Data Financial Institution Services		5,804.4		2,385.9
First Data International		6,646.8		3,548.2
Integrated Payment Systems		12,754.0		14,422.9
All Other and Corporate		2,658.9		868.0

Consolidated	$	53,967.9	$	34,460.7

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10: Commitments and Contingencies

On or about April 3 and 4, 2003, two purported class action complaints were filed on behalf of the public holders of Concord’s common stock (excluding shareholders related to or affiliated with the individual defendants). The defendants in those actions were certain current and former officers and directors of Concord. The complaints generally alleged breaches of the defendants’ duty of loyalty and due care in connection with the defendants’ alleged attempt to sell Concord without maximizing the value to shareholders in order to advance the defendants’ alleged individual interests in obtaining indemnification agreements related to litigation against Concord and its directors alleging Concord’s financial statements were materially misleading and other derivative litigation. The complaints sought class certification, injunctive relief directing the defendants’ conduct in connection with an alleged sale or auction of Concord, reasonable attorneys’ fees, experts’ fees and other costs and relief the Court deems just and proper. On or about April 2, 2003, an additional purported class action complaint was filed by Barton K. O’Brien. The defendants were Concord and certain of its current and former officers and directors. This complaint contained allegations regarding the individual defendants’ alleged insider trading and alleged violations of securities and other laws and asserted that this alleged misconduct reduced the consideration offered to Concord shareholders in the merger between Concord and a subsidiary of the Company (the “Concord Merger”). The complaint sought class certification, attorneys’ fees, experts’ fees, costs and other relief the Court deems just and proper. Moreover, the complaint also sought an order enjoining consummation of the Concord Merger, rescinding the Concord Merger if it is consummated and setting it aside or awarding rescissory damages to members of the putative class, and directing the defendants to account to the putative class members for unspecified damages. These complaints were consolidated in a second amended consolidated complaint filed September 19, 2003 into one action (In Re: Concord EFS, Inc. Shareholders Litigation) in the Shelby County Circuit for the State of Tennessee.

On October 15, 2003, the plaintiffs In Re: Concord EFS, Inc. Shareholders Litigation moved for leave to file a third amended consolidated complaint similar to the previous complaints but also alleging that the proxy statement disclosures relating to the antitrust regulatory approval process were inadequate. A motion to dismiss was filed on June 22, 2004 alleging that the claims should be denied and are moot since the Concord Merger has occurred. On October 18, 2004, the Court heard arguments on the plaintiff’s motion to amend complaint and defendant’s motion to dismiss. On September 12, 2006, the Court granted the plaintiff’s motion to file a third amended complaint. In early November 2006, Concord filed a motion to dismiss the third amended complaint. On June 28, 2007, a hearing was held on Concord’s motion to dismiss the third amended complaint. No order has been issued on this motion yet. The Company intends to vigorously defend the action and an estimate of possible losses, if any, cannot be made at this time.

On July 2, 2004, Pamela Brennan, Terry Crayton, and Darla Martinez filed a class action complaint on behalf of themselves and all others similarly situated in the United States District Court for the Northern District of California against the Company, its subsidiary Concord EFS, Inc., and various financial institutions (“Brennan”). Plaintiffs claim that the defendants violated antitrust laws by conspiring to artificially inflate foreign ATM fees that were ultimately charged to ATM cardholders. Plaintiffs seek a declaratory judgment, injunctive relief, compensatory damages, attorneys’ fees, costs and such other relief as the nature of the case may require or as may seem just and proper to the court. Five similar suits were filed and served in July, August and October 2004, two in the Central District of California (Los Angeles), two in the Southern District of New York, and one in the Western District of Washington (Seattle). The plaintiffs sought to have all of the cases consolidated by the Multi District Litigation panel. That request was denied by the panel on December 16, 2004 and all cases were transferred to the Northern District Court of California and assigned to a single judge. All cases other than Brennan were stayed. Subsequently, a seventh lawsuit was filed in the District of Alaska, which thereafter was also transferred to the Northern District of California and assigned to the same judge.

In Brennan, on May 4, 2005, the Court ruled on Defendants’ Motion to Dismiss and Motion for Judgment on the Pleadings. The Court did not dismiss the complaint, except for a technical dismissal of the claims against First Data Corporation, Bank One Corporation and JPMorgan Chase. On May 25, 2005, the plaintiffs filed an amended complaint which clarified the basis for alleging that the holding companies, First Data Corporation, Bank One Corporation and JPMorgan Chase, were liable. On July 21, 2005, Concord filed a motion for summary judgment seeking to foreclose claims arising after February 1, 2001—the date that Concord acquired the STAR network. On August 22, 2005, the Court also consolidated all of the ATM interchange cases pending against the defendants in Brennan which will now be referred to collectively as the “ATM Fee Antitrust Litigation.” On September 14, 2006, a hearing on Concord’s Motion for Summary Judgment was held. On November 30, 2006, the Court issued an order that terminated the pending motion and requested

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

further discovery on the limited issue of procompetitive justifications for the fixed ATM interchange by March 1, 2007. A hearing was held on the plaintiff’s motion to compel on May 23, 2007, at which time the Court directed the defendants to file a motion for summary judgment. On June 25, 2007, the Court entered an order on the motion to compel. On August 3, 2007, the Company filed a motion for summary judgment seeking to dismiss plaintiffs’ per se claims, arguing that there are procompetitive justifications for the ATM interchange. The hearing on this motion is scheduled for February 28, 2008. The Company intends to vigorously defend the action and an estimate of possible losses, if any, cannot be made at this time.

Six purported class action lawsuits have been filed against the Company and its directors challenging the process by which the Company agreed to enter into the April 1, 2007 Agreement and Plan of Merger (the “Merger Agreement”) with New Omaha Holdings L.P., a Delaware limited partnership, and its wholly-owned subsidiary Omaha Acquisition Corporation, a Delaware corporation. New Omaha Holdings L.P. is controlled by an affiliate of KKR. These purported class action complaints generally allege the members of the Company’s Board of Directors breached their fiduciary duties of care and loyalty by entering into the Merger Agreement without regard to the fairness of the transaction to the Company’s shareholders or the maximization of shareholder value. The complaints also allege that the Company and/or KKR aided and abetted the directors’ breaches. The complaints generally seek class certification, an order enjoining consummation of the pending merger, rescinding the pending merger if it is consummated and setting it aside or awarding rescissory damages to members of the class, directing the defendants to exercise their fiduciary duties and account to the class members for unspecified damages, imposing a constructive trust in favor of the class for benefits improperly received by the defendants, and awarding costs and disbursements, including reasonable attorneys’ fees, experts’ fees and other costs, and relief the Court deems just and proper. On May 8, 2007, May 10, 2007 and June 14, 2007, the six cases were consolidated into two cases. On July 30, 2007, the parties to these two consolidated cases entered into a memorandum of understanding. Under the terms of the memorandum, the Company, the other named defendants, and plaintiffs have agreed to settle the consolidated actions subject to court approval. The Company and the other defendants deny the allegations in both consolidated actions, and deny having committed, or having aided and abetted, any violation of law or breach of duty. The memorandum provides for dismissal of the Colorado actions with prejudice upon approval of a stipulation of settlement by the Colorado court, to be followed by consensual dismissal with prejudice of the Delaware actions. Pursuant to the terms of the memorandum, the Company acknowledged that the consolidated actions resulted in a decision to provide additional information to shareholders in the definitive proxy statement concerning the pending merger, and agreed to pay certain attorneys’ fees, costs, and expenses incurred by plaintiffs. The Company does not make any admission that such supplemental disclosures are material. The memorandum will be null and void and of no force and effect if final court approval of the stipulation of settlement and dismissal of the Colorado and Delaware actions with prejudice does not occur for any reason. In addition, defendants have the right to withdraw from the settlement prior to the settlement hearing if an action released by the settlement is commenced prior to final court approval and not dismissed or stayed in light of the settlement. The Company believes the complaints are without merit and intends to vigorously defend them in the event a settlement is not finalized.

In May 2002, DataTreasury Corporation (“DataTreasury”) commenced action in the United States District Court for the Eastern District of Texas (the “Court”) against the Company and its wholly owned subsidiaries First Data Merchant Services Corporation, TeleCheck Services, Inc. d/b/a Telecheck International, Inc., and Microbilt Corporation (subsequently merged into TASQ Technology, Inc.), (collectively, the “First Data Defendants”), alleging infringement of United States Patent No. 5,910,988 (the “988 Patent”) and Patent No. 6,032,137 (the “137 Patent”). The complaint sought a declaration that the 988 Patent and the 137 Patent were valid and enforceable, injunctive relief, unidentified damages, pre-judgment interest, treble damages, costs of suit and attorneys’ fees. The 988 Patent and the 137 Patent generally relate to remote data acquisition, encryption, centralized processing and storage. DataTreasury voluntarily dismissed the action filed with the Court and refiled the complaint on November 7, 2002 in the United States District Court for the Northern District of Texas asserting that the First Data Defendants infringed the 988 Patent and the 137 Patent. The complaint seeks a declaration that the 988 Patent and the 137 Patent are valid and enforceable, injunctive relief, unidentified damages, prejudgment interest, treble damages, costs of suit and attorneys’ fees. On November 15, 2002, the First Data Defendants filed a motion which was granted that the case be transferred to the Court. On March 1, 2005, the Court ruled on claim construction. DataTreasury filed amended infringement contentions in September 2005. On November 5, 2005, the First Data Defendants filed ex parte requests for reexamination of the 988 Patent and the 137 Patent with the United States Patent and Trademark Office (the “USPTO”), which was granted. The First Data Defendants filed their final invalidity contentions in December 2005. The First Data Defendants filed a motion for summary judgment for patent invalidity on January 4, 2006. On September 12, 2005, DataTreasury filed a second complaint with the Court asserting that the Company’s wholly owned subsidiaries Remitco, LLC (“Remitco”) and Integrated Payment Systems Inc. infringed the 988 Patent and the 137 Patent. DataTreasury seeks a declaration that the 988 Patent and the 137 Patent are valid and enforceable, injunctive relief, unidentified damages, prejudgment interest, treble damages, costs of suit and attorneys’ fees. On November 21, 2006, the Court consolidated the

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

two cases. On July 24, 2007, counsel for the parties agreed among other procedural matters to abate the case until 60 days after the issuance of reexamination certificates by the USPTO for both the 988 Patent and the 137 Patent or 60 days after the Remitco document production is completed, at which time DataTreasury will serve amended infringement contentions. In accordance with the agreement of the counsel for the parties, the Court entered an order denying as moot the pending Joint Motion for Entry of a Docket Control Order and refrained from entering a new schedule. On October 3, 2007, the USPTO issued a Certificate of Reexamination on the 988 Patent. On October 16, 2007, the USPTO issued a Notice of Intent of Issue of a Reexamination Certificate for the 137 Patent. The Company intends to vigorously defend the action and an estimate of possible losses, if any, cannot be made at this time.

On February 24, 2006, DataTreasury filed a complaint with the United States District Court for the Eastern District of Texas, Marshall Division, naming more than 50 defendants, including the Company and its wholly owned subsidiaries Telecheck Services, Inc. and Remitco, for the infringement of Patent No. 5,930,778 (the “778 Patent”). The complaint seeks a declaration that the 778 Patent is valid and enforceable, injunctive relief, unidentified damages, prejudgment interest, treble damages, costs of suit and attorneys’ fees. The 778 patent generally relates to the clearing of financial instruments. On September 25, 2007, all defendants entered into a stipulation, which, pursuant to the court’s order, will result in a stay of the case pending the outcome of a pending re-examination of the 778 patent. The Company intends to vigorously defend the action and an estimate of possible losses, if any, cannot be made at this time.

In the normal course of business, the Company is subject to claims and litigation, including indemnification obligations to purchasers of former subsidiaries. Management of the Company believes that such matters will not have a material adverse effect on the Company’s results of operations, liquidity or financial condition.

In addition, the Company has certain guarantees imbedded in leases and other agreements wherein the Company is required to relieve the counterparty in the event of changes in the tax code or rates. The Company believes the fair value of such guarantees is insignificant due to the likelihood and extent of the potential changes.

Note 11: Employee Benefit Plans

The following table provides the components of net periodic benefit expense from continuing operations for the Company’s defined benefit pension plans:


	Successor			Predecessor
	Period from September 25 through September 30,			Period from July 1 through September 24,			Three months ended September 30,
(in millions)	2007			2007			2006
Service costs	$	0.2		$	2.6		$	2.9
Interest costs		0.6			8.7			8.2
Expected return on plan assets		(0.6	)		(8.9	)		(8.4	)
Amortization		—			2.0			2.3

Net periodic benefit expense from continuing operations	$	0.2		$	4.4		$	5.0

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


	Successor			Predecessor
	Period from September 25 through September 30,			Period from January 1 through September 24,			Nine months ended September 30,
(in millions)	2007			2007			2006
Service costs	$	0.2		$	8.0		$	8.5
Interest costs		0.6			26.9			24.1
Expected return on plan assets		(0.6	)		(27.7	)		(24.6	)
Amortization		—			6.3			6.8

Net periodic benefit expense from continuing operations	$	0.2		$	13.5		$	14.8

The Company estimates pension plan contributions for 2007 to be approximately $30.4 million. During the successor period from September 25, 2007 through September 30, 2007, $0.5 million was contributed to the United Kingdom plan. During the predecessor period from January 1, 2007 through September 24, 2007, $1.4 million was contributed to the U.S. plan and $21.4 million was contributed to the United Kingdom plan. No additional contributions are expected to the U.S. plan over the remainder of 2007.

Note 12: Stock-Based Compensation

Successor Equity Plans

In the fourth quarter 2007, the Company will establish stock incentive plans for certain management employees of FDC and its affiliates (“stock plans”). These stock plans will be at the Holdings level which owns 100% of FDC’s equity interests. The stock plans may take the form of stock options, restricted stock, stock appreciation rights and other stock-based awards. The expense associated with these plans will be recorded by FDC.

Predecessor Equity Plans

For a detailed description of the Company’s pre-merger stock compensation plans, refer to Note 15 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Total stock-based compensation expense recognized in the Consolidated Statements of Income resulting from stock options, non-vested restricted stock awards, non-vested restricted stock units as well as the employee stock purchase plan (“ESPP”) was $195.4 million for the predecessor period from July 1, 2007 through September 24, 2007, $247.4 million for the predecessor period from January 1, 2007 through September 24, 2007 and $14.5 million and $53.4 million for the three and nine months ended September 30, 2006, respectively. Included in the predecessor periods is $175.9 million of stock-based compensation expense incurred during the period from July 1, 2007 through September 24, 2007 due to the accelerated vesting of stock options, restricted stock awards and restricted stock units as the result of change in control provisions upon closing of the merger. Stock-based compensation expense is recognized in the “Cost of services” and “Selling, general and administrative” line items of the Consolidated Statements of Income.

As discussed in Note 2, vesting of FDC stock options, restricted stock awards and restricted stock units was accelerated upon closing of the merger. As a result, holders of stock options received cash equal to the intrinsic value of the awards based on a market price of $34.00 per share while holders of restricted stock awards and restricted stock units received $34.00 per share in cash, without interest and the associated options and restricted stock were cancelled. Vesting of Western Union options, restricted stock awards and restricted stock units held by FDC employees was also accelerated upon closing of the merger. The acceleration of the vesting period resulted in a corresponding acceleration of expense recognition associated with the above noted awards.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Stock Options and Employee Stock Purchase Plan Rights

The fair value of FDC stock options granted and ESPP rights for the respective periods in the tables below were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:


	Stock Options ¹
	Three months ended September 30,			Nine months ended September 30,			Period from January 1 through September 24,
	2006			2006			2007
Risk-free interest rate		4.80	%		4.62	%		4.65	%
Dividend yield		0.55	%		0.58	%		0.49	%
Volatility		22.50	%		23.48	%		23.42	%
Expected term (in years)		5			5			5
Fair value	$	6		$	7		$	7

1	There were no stock options granted during the predecessor period from July 1 through September 24, 2007.


	ESPP ¹
	Three months ended September 30,			Nine months ended September 30,			Period from January 1 through September 24,
	2006			2006			2007
Risk-free interest rate		5.03	%		4.85	%		4.75	%
Dividend yield		0.55	%		0.56	%		0.47	%
Volatility		22.92	%		22.96	%		23.85	%
Expected term (in years)		0.25			0.25			0.25
Fair value	$	5		$	5		$	6

¹	The ESPP was terminated as of June 30, 2007.

A summary of FDC stock option activity for the predecessor period from January 1 through September 24, 2007 is as follows (options in millions):


	2007
	Options		Weighted-Average Exercise Price
Outstanding at January 1	47.1		$	21
Granted	7.0		$	25
Exercised	(7.7	)	$	19
Cancelled / Forfeited*	(46.4	)	$	22

Outstanding at September 24	—

Restricted Stock Awards and Restricted Stock Units

A summary of FDC restricted stock award and restricted stock unit activity for the predecessor period from January 1 through September 24, 2007 is as follows (awards/units in millions):


	2007
	Awards/Units		Weighted-Average Grant-Date Fair Value
Non-vested at January 1	1.1		$	24
Granted	3.7		$	25
Vested	(0.4	)	$	27
Cancelled / Forfeited*	(4.4	)	$	25

Non-vested at September 24	—

*	As noted above, vesting of the stock options, restricted stock awards and restricted stock units was accelerated upon the closing of the merger and then cancelled with a right to receive cash.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 13: Nonderivative and Derivative Financial Instruments

Two events occurred during the year that caused a significant change in the use of derivatives. As discussed in Note 1, in February 2007, the Company announced its intent to gradually exit the official check and money order businesses. As of September 30, 2007, nearly all of the long-term instruments associated with these businesses were converted into more liquid instruments of shorter duration. In conjunction with the repositioning of the portfolio, the Company terminated a majority of the associated interest rate swaps that qualified as fair value hedges of the investments. At September 30, 2007, the Company had $629.9 million of notional amount of interest rate swaps remaining related to the portfolio. These swaps were terminated in October 2007 upon the sale of the related investments.

As noted in Note 2 and on September 24, 2007, the Company was acquired through a merger by an entity controlled by an affiliate of KKR. As a result of the merger on September 24, 2007, the Company repurchased a majority of its outstanding debt through a tender offer. The interest rate swaps associated with this debt were terminated at the time the debt was repurchased. Certain mirror swaps that were entered into at the time of the debt repurchases in 2006 remain outstanding. On September 24, 2007, the Company issued approximately $22 billion of variable rate debt (though interest rates on $9 billion of the debt are subject to certain caps) and swapped $3.0 billion of this variable rate debt to fixed rates. An additional $3.0 billion of this variable rate debt was swapped to fixed rates in October 2007. Of the $22 billion in debt, approximately $1 billion is euro denominated. The Company anticipates refinancing approximately $9 billion of the variable rate debt with fixed rate debt in subsequent periods. In October 2007, the Company repaid $2.2 billion of this variable rate debt and issued $2.2 billion of fixed rate debt.

As of September 30, 2007, the Company uses derivative instruments to mitigate (i) cash flow risks with respect to changes in interest rates (forecasted interest payments on variable rate debt), foreign currency rates (forecasted transactions denominated in foreign currency) and market price risk related to an equity security, (ii) fair value risk related to changes in interest rates (long-term investments), and (iii) to protect the initial net investment in certain foreign subsidiaries and/or affiliates with respect to changes in foreign currency rates. Not all of these derivatives qualified for hedge accounting as discussed in more detail below.

DERIVATIVES NOT QUALIFYING FOR HEDGE ACCOUNTING

At the time of the merger all previous hedge accounting designations were nullified because of the merger. The Company redesignated certain of the previous derivatives in the same hedging relationships to continue to qualify for hedge accounting. The remaining derivative instruments continue to function as economic hedges but were not designated to qualify for hedge accounting. At September 30, 2007, those derivative instruments not designated as accounting hedges include foreign currency forward contracts to hedge forecasted foreign currency sales, a cross-currency swap contract to hedge foreign currency exposure from an intercompany loan, a costless collar to hedge the anticipated cash flows from the future sale of an equity security, and several interest rate swaps associated with the remaining long-term investments held by the official check business discussed above. These forwards and swaps on an individual and aggregate basis are immaterial to the financial statements. The periodic change in the mark-to-market of the derivative instruments not designated as accounting hedges is recorded immediately in the income statement.

In the third quarter 2007, prior to the consummation of the merger, Sub entered into two forward starting, deal contingent interest rate swaps. Such swaps did not qualify for hedge accounting until consummation of the merger as discussed below in “Cash Flow Hedges”. From the date the swaps were entered into until designated as hedges on September 24, 2007, the swaps were marked-to-market which resulted in a charge of approximately $19 million. This amount was recorded as a successor transaction in “Investment gains and losses” in the Consolidated Statements of Income.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

DERIVATIVES THAT QUALIFY FOR HEDGE ACCOUNTING

Hedge of a Net Investment in a Foreign Operation

Two cross currency swaps that were designated as net investment hedges prior to the merger were redesignated at the merger date as hedges of net investments in foreign operations. Since the existing derivative instruments were not at zero fair value at the time of redesignation, the redesignated hedging relationship will result in some ineffectiveness which will be recognized immediately in the income statement. The effective portion of the change in fair value of the cross currency swaps is recognized in the Consolidated Statements of Stockholders’ Equity. As of September 30, 2007, the aggregate notional amount of the Australian dollar cross currency swap was 115.0 million Australian dollars and the euro cross currency swap was 7.2 million euros. As of September 30, 2007, the net gains and/or losses the Company realized in other comprehensive income (“OCI”) in the successor period in the Consolidated Statements of Stockholders’ Equity associated with the net investment hedges was immaterial.

Cash Flow Hedges

In the third quarter 2007, prior to the consummation of the merger, Sub entered into two forward starting, deal contingent interest rate swaps. At the merger date such interest rate swaps were designated as cash flow hedges of the variability in the interest payments on a specified $3.0 billion portion of the approximate $12.8 billion variable rate senior secured term loan due to changes in the LIBOR interest rate (the benchmark interest rate). Since these swaps were entered into prior to the date of their designation and they were not at zero fair value on that date, the hedging relationships will result in some ineffectiveness. The effective portion of changes in fair value of these hedges is recorded temporarily in the Consolidated Statements of Stockholders’ Equity as a component of OCI and then recognized in the Consolidated Statements of Income in the same period or periods during which the payment of variable interest associated with the floating rate debt is recorded in earnings. Any ineffective portions of changes in fair value are recognized in the Consolidated Statements of Income, in “Investment gains and losses”, during the period of change. The amount of ineffectiveness recognized in earnings during the successor period from September 25, 2007 to September 30, 2007 related to these cash flow hedges was immaterial. The amount of losses in OCI related to the hedged transactions that is expected to be reclassified into the Consolidated Statements of Income during the 12 months ending September 30, 2008 is immaterial.

Fair Value Hedges

As noted above in Note 2 and in connection with the merger, the Company terminated the interest rate swaps associated with its debt in connection with the repurchase of the underlying debt. Additionally, the Company either terminated the interest rate swaps associated with the long-term investment portfolio of the official check and money order businesses prior to the merger or did not redesignate the hedge accounting relationships at the merger date for any interest rate swaps that have not yet been terminated. Subsequent to the September 24, 2007 merger, the Company has no outstanding fair value hedges that qualified for hedge accounting.

Fair value of financial instruments

The table below provides the carrying amount of certain nonderivative financial instruments and derivative financial instruments. The carrying value of these instruments approximates the fair value since these instruments were either marked-to-market or entered into at, or near, September 30, 2007.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


September 30, 2007 (in millions)	Carrying Value
Nonderivative financial instruments:
Long-term investment securities	$	848.8
Long-term debt		21,900.2
Derivative financial instruments:
Interest rate swaps related to certain long-term investment securities, net		(4.9	)
Interest rate swaps related to variable rate debt		(30.4	)
Foreign currency forward contracts		(2.5	)
Foreign currency swaps related to net investments in foreign entities		(15.7	)
Other foreign currency swaps		(2.2	)
Costless collars related to investment in certain equity securities		(1.1	)

Note 14: Related Parties

The discussion of the merchant alliances remains unchanged from that presented in Note 12 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. The investments held by the Company in investment funds managed by a member of its Board of Directors prior to the merger is no longer a related party transaction since subsequent to the merger this individual is not affiliated with FDC. Subsequent to the merger, certain members of the Company’s Board of Directors are affiliated with KKR.

In connection with the consummation of the merger, First Data entered into a management agreement with affiliates of KKR pursuant to which such entities or their affiliates will provide management services to the Company. Pursuant to such agreement, the Company will pay an aggregate annual management fee of $20 million, which amount is expected to increase annually by 5% beginning in 2008, and will reimburse out-of-pocket expenses incurred in connection with the provision of services pursuant to the agreement. In addition and pursuant to such agreement, the Company paid aggregate transaction fees of approximately $260 million in connection with services provided by such entities in connection with the merger. The agreement also provides that the Company will pay fees 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 agreement also includes customary exculpation and indemnification provisions in favor of KKR and its affiliates.

Note 15: Discontinued Operations

The Company’s financial statements reflect NYCE Corporation (“NYCE”), PPS, IDLogix, Western Union and Taxware as discontinued operations. The results of operations of these entities are treated as income from discontinued operations, net of tax, and separately stated on the Consolidated Statements of Income below income from continuing operations.

NYCE was divested in 2004, PPS and IDLogix were divested in July 2006, Western Union was spun-off in September 2006 and Taxware was divested in November 2006.

Losses from discontinued operations for the predecessor periods from July 1, 2007 through September 24, 2007 and from January 1, 2007 through September 24, 2007 relate to certain tax account true-ups and discrete tax items related to Western Union.

During the first quarter of 2006, an adjustment to the NYCE sales price was finalized resulting in an additional charge of $1.6 million, which was presented in discontinued operations, and was $1.0 million net of taxes.

Discontinued operations for the three and nine months ended September 30, 2006 includes, in addition to results of operations, non-recurring separation costs of $35.7 million and $46.5 million, respectively, related to the spin-off of Western

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Union, which consist principally of investment banker fees, external legal and accounting fees to affect the spin-off, costs to separate information systems and consulting costs incurred to assist in managing the spin-off. Furthermore, discontinued operations include interest expense of $9.9 million and $32.7 million for the three and nine months ended September 30, 2006, respectively, allocated based upon a percentage of net assets in accordance with EITF No. 87-24 “Allocation of Interest to Discontinued Operations.” Also, certain corporate expenses were allocated to discontinued operations in accordance with EITF 87-24 but were limited to specifically identified costs and other costs, such as corporate shared services, which support segment operations. These costs represent those that have historically been allocated to and recorded by the Company’s operating segments as an expense with the exception of the addition of certain share-based compensation expenses and pension benefit not previously allocated.

The following table presents the summarized results of discontinued operations for the three and nine months ended September 30, 2006 (in millions):


	Three months ended September 30, 2006			Nine months ended September 30, 2006
	Three months ended September 30, 2006			Nine months ended September 30, 2006
Revenue	$	1,141.4		$	3,345.4
Expenses		831.0			2,376.2

Operating profit		310.4			969.2
Other income (expense)		23.8			(15.1	)

Income before income taxes, minority interest and equity earnings in affiliates		334.2			954.1
Income taxes		125.9			334.3
Minority interest, net of tax		(0.6	)		(2.0	)
Equity earnings in affiliates		3.2			9.4

Income from discontinued operations	$	210.9		$	627.2

FIRST DATA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

ITEM 2.

Overview

First Data Corporation (“FDC” or “the Company”), with headquarters in Greenwood Village, Colorado, operates electronic commerce businesses providing services that include merchant transaction processing and acquiring services; credit, retail and debit card issuing and processing services; official check issuance; and check guarantee and verification services. FDC operates in four business segments: First Data Commercial Services, First Data Financial Institution Services, First Data International and Integrated Payment Systems (“IPS”). Western Union was a separate operating segment prior to its spin-off in September 2006 at which point it was reflected in discontinued operations.

For a detailed discussion regarding the Company’s segments, the businesses within each segment, the business strategies of the Company and each segment, business trends affecting the Company and certain risks inherent in the Company’s business, see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Merger

On April 1, 2007, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with New Omaha Holdings L.P., a Delaware limited partnership (“Parent”), and Omaha Acquisition Corporation, a Delaware corporation and a subsidiary of Parent (“Sub”). Parent is controlled by affiliates of Kohlberg Kravis Roberts & Co. (“KKR”). On September 24, 2007, under the terms of the Merger Agreement, Sub merged with and into the Company (“the merger”) with the Company continuing as the surviving corporation and a subsidiary of New Omaha Holdings Corporation (“Holdings”), a Delaware corporation and a subsidiary of Parent.

Immediately following consummation of the merger, Michael D. Capellas was appointed as Chief Executive Officer (“CEO”) of the Company. Capellas succeeds Henry C. “Ric” Duques who announced his intention to retire within two years when he returned as Chairman and CEO in late 2005.

The merger was financed by a combination of the following: borrowings under the Company’s new senior secured credit facilities, new senior unsecured interim loan agreement and new senior subordinated interim loan agreement, and the equity investment of Holdings. See the Company’s Consolidated Financial Statements in this quarterly report on Form 10-Q Note 2 for detailed discussion of purchase price and transaction costs, and Note 7 for a detailed discussion regarding the tender of previously existing debt as well as the debt issued in conjunction with the merger.

The Company applied purchase accounting to the opening balance sheet and results of operations on September 25, 2007 as the merger occurred at the close of business on September 24, 2007. The purchase accounting adjustments had a material impact on the successor period presented due most significantly to the amortization of intangible assets and will have a material impact on future earnings. The Company’s purchase accounting is in its preliminary stages. The value assigned at September 30, 2007 to intangible assets is based on preliminary valuation data from a third party valuation firm and is expected to change. The valuation of fixed assets is expected to commence in the fourth quarter 2007. The Company is also in the process of working through other potential purchase accounting adjustments that may include the assessment of items such as deferred revenue, assumed liabilities, pre-existing debt value and items that may require fair value measurements.

The Company has implemented a “100 day plan” to provide strategic direction for the Company under new leadership. The plan includes generating organic growth through improved sales effectiveness, accelerating new product innovations and continued targeted international expansion. The plan also captures efficiencies related to the simplification of domestic and international operations and other near term cost saving initiatives as well as certain reductions in personnel. The reduction in personnel and associated costs are expected to be significant and occur principally in the fourth quarter 2007.

FIRST DATA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Presentation

This Management Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) excludes the accounts of Parent and Holdings described in the Merger discussion above. FDC continued as the surviving corporation and the accompanying Consolidated Financial Statements included elsewhere in this quarterly report on Form 10-Q are presented for two periods for 2007: Predecessor and Successor results, which primarily relate to the periods preceding the merger and the period succeeding the merger, respectively. Note that the successor period also contains the results of Sub’s operations from March 29, 2007 (formation date) to September 30, 2007. Sub had no assets, liabilities or results of operations other than those related to two forward starting contingent interest rate swaps entered into prior to consummation of the merger that were entered into to hedge a portion of the debt incurred to finance the merger. The discussion in this MD&A is presented on a combined basis of the predecessor and successor periods for 2007. The 2007 predecessor and successor results are presented but are not discussed separately. The Company believes that the discussion on a combined basis is more meaningful as it allows the results of operations to be analyzed to a comparable period in 2006.

Official Check and Money Order Wind-down

In the first quarter 2007, the Company announced its intent to wind-down the official check and money order business included within the IPS business segment. The official check and money order businesses are conducted by a subsidiary of the Company, Integrated Payment Systems Inc., with separate creditors and whose assets, including the investment portfolio associated with the official checks and money orders, are not intended to be available to creditors of First Data nor its other subsidiaries. The Company expects the wind-down of the majority of the business to take two to three years in order to honor existing customer contracts. In October 2007, the Company completed the repositioning of the investment portfolio associated with this business from long-term municipal bonds to short-term investments, the majority of which are currently short-term municipal bonds. The Company converted over 90% of this portfolio’s par value into short-term investments through September 30, 2007 and recognized a loss from the sale of these investments, net of the impact of terminating the associated interest rate swaps, of $11.7 million for the three months ended September 30, 2007, and a gain of $3.1 million for the nine months ended September 30, 2007, respectively. The above recognized losses and gains were included in the “Investment income” line of the Consolidated Statements of Income. In the first quarter 2007, the Company recognized a $16.3 million impairment charge related to goodwill and intangible assets associated with the wind-down.

2007 Financial Summary

Significant financial and other measures for the three and nine months ended September 30, 2007 included:

•

Total revenues increased 16% and 15% from the three and nine-month periods ended September 30, 2006, respectively, with Commercial Services segment revenue growing 11% and 10%, Financial Institution Services segment revenue growing 10% and 9%, and the International segment’s revenue growing 28% and 33% for the same periods, respectively.

•

In the three and nine months ended September 30, 2007 compared to the same periods in 2006, domestic merchant transactions increased 12% to 7.3 billion and 12% to 20.9 billion, respectively; domestic debit issuer transactions increased 9% to 2.7 billion and 13% to 7.8 billion, respectively; and international transactions increased 15% to 1.4 billion and 20% to 3.9 billion, respectively.

•

Consolidated EBITDA, representing a measure for debt covenant compliance determination purposes, for the three and nine months ended September 30, 2007 was $765.7 million and $2,132.8 million, respectively. A table describing Consolidated EBITDA and a reconciliation to income from continuing operations is presented in Capital Resources and Liquidity. Management believes that Consolidated EBITDA is useful to investors to provide additional information regarding items impacting covenant compliance under the Company’s new credit facilities.

2007 Acquisitions

•

In March 2007, the Company acquired Intelligent Results, a customer data analytics and decision management software provider. Intelligent Results is reported as part of All Other and Corporate.

FIRST DATA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

•

In June 2007, the Company acquired FundsXpress, a provider of online banking and bill payment services. FundsXpress is reported as part of the First Data Financial Institution Services segment.

•

On August 1, 2007 the Company acquired POLCARD SA (“POLCARD”), a merchant acquirer and card issuer processor in Poland. POLCARD is reported as part of the First Data International segment.

•

In October 2007, the Company purchased the interests in its First Data Government Solutions subsidiary owned by minority interest holders.

•

In October 2007, the Company acquired Deecal International, a specialist software solutions provider for commercial payments in Dublin, Ireland. Deecal International will be reported as part of the First Data International segment.

Companywide Initiatives

The Company began executing upon its U.S. data center consolidation initiative in the second quarter 2007. The Company plans to reduce its U.S. data centers to 3 from the current total of 12. Command centers will be reduced to 2 from the current total of 7. The estimated cost in 2007 related to this U.S. initiative is expected to be approximately $45 million consisting of approximately $24 million in capital expenditures and approximately $21 million of direct project costs. The Company expects to incur costs associated with this initiative through the second half of 2009, when the project is expected to be completed. The Company’s domestic platform consolidation and domestic global sourcing initiatives are under development though execution of global sourcing initiatives began in the third quarter of 2007.

Internationally, the Company closed a second European data center in the third quarter of 2007, and anticipates the closing of a third in the fourth quarter 2007. First Data International is also in the process of consolidating its operating platforms. The most significant international platform consolidation that is under way is the migration of clients from the Equasion card processing platform to the VisionPLUS card processing platform. The Company expects to continue to incur these costs into 2009, when the project is expected to be completed. Additionally, First Data International has begun global sourcing initiatives through restructuring actions described below. Other restructuring activities were associated with data center consolidation as previously described. These restructuring activities are presented on the “Restructuring, net” line in the Consolidated Statements of Income.

Direct incremental costs incurred to execute the companywide initiatives that are not classified as either restructuring or impairment and that are not salaries and benefits of existing, continuing employees are compiled and reported within All Other and Corporate. Such amounts recorded in All Other and Corporate in the three months ended September 30, 2007 were $6 million relating to international data center and platform consolidation and $8 million for domestic data center consolidation. For the nine months ended September 30, 2007, these amounts were $13 million for international and $16 million for domestic, respectively.

Results of Operations

The following discussion for both consolidated results and segment results refers to the three and nine months ended September 30, 2007 versus the same periods in 2006. As noted above in the “Presentation” discussion, the results of operation will be discussed on a combined basis for 2007. The predecessor and successor breakout is presented for information purposes only. Consolidated results should be read in conjunction with segment results, which provide more detailed discussions concerning certain components of the Consolidated Statements of Income. All significant intercompany accounts and transactions have been eliminated.

FIRST DATA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Consolidated Results


	Combined					Predecessor
	Three months ended September 30,										Change
(in millions)	2007			% of Total Revenue		2006			% of Total Revenue		Amount		%
Revenues:
Transaction and processing service fees	$	1,416.2		68	%	$	1,291.5		73	%	$	124.7	10	%
Investment income, net		(29.9	)	(1	)%		(37.3	)	(2	)%		7.4	20	%
Product sales and other		240.9		12	%		169.2		9	%		71.7	42	%
Reimbursable debit network fees, postage and other		444.0		21	%		363.8		20	%		80.2	22	%

	$	2,071.2		100	%	$	1,787.2		100	%	$	284.0	16	%

Expenses:
Cost of services	$	1,000.4		48	%	$	781.1		44	%	$	219.3	28	%
Cost of products sold		80.3		4	%		76.9		4	%		3.4	4	%
Selling, general and administrative		472.0		23	%		298.7		17	%		173.3	58	%
Reimbursable debit network fees, postage and other		444.0		21	%		363.8		20	%		80.2	22	%
Other operating expenses, net		1.8		0	%		(28.4	)	(2	)%		30.2	NM

	$	1,998.5		96	%	$	1,492.1		83	%	$	506.4	34	%


	Combined					Predecessor
	Nine months ended September 30,										Change
(in millions)	2007			% of Total Revenue		2006			% of Total Revenue		Amount		%
Revenues:
Transaction and processing service fees	$	4,061.7		68	%	$	3,683.3		71	%	$	378.4	10	%
Investment income, net		(67.7	)	(1	)%		(96.6	)	(2	)%		28.9	30	%
Product sales and other		628.4		11	%		504.4		10	%		124.0	25	%
Reimbursable debit network fees, postage and other		1,285.8		22	%		1,062.9		21	%		222.9	21	%

	$	5,908.2		100	%	$	5,154.0		100	%	$	754.2	15	%

Expenses:
Cost of services	$	2,699.9		46	%	$	2,255.6		43	%	$	444.3	20	%
Cost of products sold		235.6		4	%		221.2		4	%		14.4	7	%
Selling, general and administrative		1,115.2		19	%		856.1		17	%		259.1	30	%
Reimbursable debit network fees, postage and other		1,285.8		22	%		1,062.9		21	%		222.9	21	%
Other operating expenses, net		23.3		0	%		(23.6	)	0	%		46.9	NM

	$	5,359.8		91	%	$	4,372.2		85	%	$	987.6	23	%

FIRST DATA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)


	Successor					Predecessor
	Period from September 25 through September 30,					Period from July 1 through September 24,					Period from January 1 through September 24,
(in millions)	2007			% of Total Revenue		2007			% of Total Revenue		2007			% of Total Revenue
Revenues:
Transaction and processing service fees	$	95.8		70	%	$	1,320.4		69	%	$	3,965.9		68	%
Investment income, net		(0.8	)	0	%		(29.1	)	(2	)%		(66.9	)	(1	)%
Product sales and other		12.0		9	%		228.9		12	%		616.4		11	%
Reimbursable debit network fees, postage and other		28.3		21	%		415.7		21	%		1,257.5		22	%

	$	135.3		100	%	$	1,935.9		100	%	$	5,772.9		100	%

Expenses:
Cost of services	$	67.9		50	%	$	932.5		49	%	$	2,632.0		46	%
Cost of products sold		5.2		4	%		75.1		4	%		230.4		4	%
Selling, general and administrative		25.9		19	%		446.1		23	%		1,089.3		19	%
Reimbursable debit network fees, postage and other		28.3		21	%		415.7		21	%		1,257.5		22	%
Other operating expenses, net		0.0		0	%		1.8		0	%		23.3		0	%

	$	127.3		94	%	$	1,871.2		97	%	$	5,232.5		91	%

NM- Not Meaningful

The following provides highlights of revenue and expense growth for the three and nine months ended September 30, 2007 compared to the same periods in 2006, while a more detailed discussion is included in the “Segment Results” section below:

Operating revenues overview

Transaction and processing service fees – Revenue increased due to the following: First Data Commercial Services segment from growth of existing clients resulting from increased transaction volumes as well as an increase in Electronic Check Acceptance (“ECA”) processing revenue; First Data Financial Institution Services segment from acquisitions and growth of existing clients partially offset by price compression; and First Data International segment from acquisitions, growth of new and existing clients and benefit from foreign currency exchange rate movements partially offset by lost business.

Investment income, net – The loss improved during the three and nine months due to decreased commissions paid to official check agents resulting from pricing reductions as part of the wind down of the official check and money order business as well as decreased interest rates. Partially offsetting this improvement in the three month period was a decrease due to losses recognized on the sale of investments and hedges as part of the repositioning of the IPS portfolio in conjunction with the wind-down of the official check and money order business. Also benefiting the nine month period were net gains recognized in the first six months of 2007 on the sale of investments and hedges from this same repositioning of the IPS official check and money order portfolio.

Product sales and other – Increased for the three and nine months due to an increase in royalty income, the impact of acquisitions and increased contract termination fees.

Reimbursable debit network fees, postage and other – Increased revenue and the corresponding expense were due to increases in debit network fees resulting from the continued growth of PIN-debit transaction volumes as well as rate increases imposed by the debit networks. Postage revenue increased due to new business and an increase in postage rates in May 2007, offset partially by lost business.

Operating expenses overview

Cost of services – Increased largely due to employee related expenses, the impact of acquisitions and increased net warranty expense. The employee related expenses represented just under half of the increase for the three month period and resulted

FIRST DATA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

most significantly from the accelerated vesting of stock options and restricted stock awards and units upon the change of control (see “Merger” above). For the nine-month period there was also an increase due to the presentation of certain independent sales organizations (“ISO”) commission payments on a gross basis in 2007 versus a net presentation against transaction and processing service fee revenue in the first six months of 2006. Cost of services, as a percentage of transaction and processing service fee revenue, increased as a result of the items noted above.

The impact from the accelerated vesting of stock options, restricted stock awards and restricted stock units was approximately $106 million and impacted the growth rate by 14 percentage points and 5 percentage points for the three and nine-months ended September 30, 2007, respectively. Purchase accounting, mostly amortization of identifiable intangible assets, was approximately $9 million and impacted the growth rate by 1 percentage point and less than 1 percentage point for the three and nine months ended September 30, 2007, respectively.

Cost of products sold – Increased due to costs associated with the sale and leasing of terminals offset partially by a decrease in costs associated with software sales.

Selling, general and administrative – Increased due to the impact of merger related costs including legal, accounting, other advisory fees and accelerated vesting of stock options and restricted stock awards and units upon the change of control. Also contributing to the increase were platform consolidation expenses related to the First Data International segment, data center consolidation costs in the U.S., and to a lesser extent, an increase in other employee related expenses. Partially offsetting this increase were gains on foreign currency exchange rate movements recognized in the three and nine-months ended September 30, 2007 as well as various costs incurred in 2006 in connection with re-aligning the operating structure of the Company after the spin-off of Western Union. Selling, general and administrative expenses, as a percentage of transaction and processing service fee revenue, increased as a result of the items noted above.

The impact from the accelerated vesting of stock options, restricted stock awards and restricted stock units was approximately $70 million and impacted the growth rate by 24 percentage points and 8 percentage points for the three and nine months ended September 30, 2007, respectively. Consulting, legal and professional service fees related to the merger were approximately $54 million and $70 million in the three and nine months ended September 30, 2007, respectively, and impacted the growth rate by 18 percentage points and 8 percentage points for the same periods.

Other operating expenses, net

Other operating expenses related to restructuring, impairments, litigation and regulatory settlements and other totaled a net charge of $1.8 million and a net benefit of $28.4 million for the three months ended September 30, 2007 and 2006, respectively, and a net charge of $23.3 million and a net benefit of $23.6 million for the corresponding nine-month periods, respectively. These items are presented on the Consolidated Statements of Income under those respective descriptions.

2007 Activities

The Company recorded restructuring charges comprised of severance totaling $0.7 million and $10.2 million for the three and nine months ended September 30, 2007. A first quarter 2007 charge resulted from efforts to improve the overall efficiency and effectiveness of the sales and sales support teams within the Commercial Services segment. This action resulted in the termination of approximately 230 sales related employees comprising approximately 10% of the segment’s regional sales, cross-sale and sales support organizations. Second and third quarter 2007 charges resulted from the termination of approximately 140 employees within the First Data International segment. The terminations were associated with the data center consolidation and global sourcing initiatives. Similar actions will occur in future periods and are expected to continue into 2009. The Company estimates cost savings resulting from 2007 restructuring activities of approximately $12 million in 2007 and approximately $21 million on an annual basis. Partially offsetting the charges are reversals of prior period restructuring accruals of $0.7 million and $2.3 million for the three and nine months ended September 30, 2007, respectively.

The following table summarizes the Company’s utilization of restructuring accruals from continuing operations for the nine months ended September 30, 2007 (in millions):

FIRST DATA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)


	Employee Severance			Facility Closure
Remaining accrual at January 1, 2007	$	27.1		$	1.6
Expense provision		10.2			—
Cash payments and other		(24.6	)		(1.0	)
Changes in estimates		(2.3	)		—

Remaining accrual at September 30, 2007	$	10.4		$	0.6

During the first quarter 2007, the Company recorded a charge of $16.3 million related to the impairment of goodwill and intangible assets associated with the wind-down of the Company’s official check and money order business. During the second quarter 2007, the Company recorded a $5.0 million litigation accrual associated with a judgment against the Company pertaining to a vendor contract issue in All Other and Corporate and released a portion of the domestic escheatment accrual made in the fourth quarter 2005 which is reflected in Other. The release was prompted by reaching resolution with a large majority of all the states as to the Company’s escheatment liability. The Company believes any remaining uncertainty is adequately accrued. During the third quarter 2007, within All Other and Corporate, the Company recorded a charge of $4.2 million related to the impairment of fixed assets and software associated with its government business. The Company recorded minority interest benefit of $1.1 million associated with the impairment. The Company also recorded a benefit of $2.5 million related to the Visa settlement that was originally recorded in the third quarter 2006.

2006 Activities

As a result of a Company initiative to reduce operating costs to the appropriate level after the Western Union spin-off and certain business restructurings, the Company recorded restructuring charges comprised of severance totaling $12.8 million and facility closures of $1.5 million for the nine months ended, September 30, 2006. The Company reversed $0.8 million and $2.7 million of prior period restructuring accruals during the three and nine months ended September 30, 2006.

In the third quarter of 2006, the Company recorded a benefit of approximately $45 million in All Other and Corporate due to a settlement with Visa over the processing of Visa payment card transactions. During the second quarter of 2006, excess litigation accruals in the Commercial Services segment totaling $7.5 million were released. The Company recorded minority interest expense of $3.5 million associated with the release in the Commercial Services segment. The settlement and accrual release were partially offset by a first quarter 2006 settlement of $15.0 million associated with a patent infringement lawsuit against TeleCheck, clearing all past and future claims related to this litigation, and a third quarter charge of $2.7 million related to the settlement of a claim within All Other and Corporate.

Interest income

Interest income decreased for the three months ended September 30, 2007 compared to the same period in 2006 most significantly due to an increase in cash in the third quarter 2006 resulting from the issuance of commercial paper to enable a debt-for-debt exchange as well as to fund the repayment of notes between the Company and Western Union both in connection with the spin-off of Western Union. Interest income increased for the nine months ended September 30, 2007 due to acquisitions as well as higher average cash balances in the first two quarters of 2007 partially offset by the third quarter decrease discussed above.

Interest expense

Interest expense decreased for the three and nine months ended September 30, 2007 compared to the same periods in 2006 most significantly as a result of the debt for debt exchange related to the Western Union spin-off and the repayments of debt in September, November and December 2006 and January 2007. Partially offsetting this decrease was an increase in interest expense subsequent to the merger date due to the significant increase in debt as a result of the merger.

Investment gains and losses, net

The majority of the lower investment losses, net, for the three months ended September 30, 2007 as compared to September 30, 2006, and the move from an investment gain in 2006 to an investment loss in 2007 for the nine months ended September 30, 2006 and 2007, respectively, is due to the Company recognizing a net investment charge of $145.0 million and a net investment gain of $33.7 million in the three and nine months ended September 30, 2006, respectively, associated with interest rate swaps not qualifying for hedge accounting. During the three and nine months ended September 30, 2007,

FIRST DATA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

net investment losses resulted from a loss on the sale and impairment of certain strategic investments and in the third quarter specifically, a loss of approximately $19 million due to decreases in the fair value of Omaha Acquisition Corporation’s forward starting contingent interest rate swaps prior to the merger and prior to their designation as a hedge.

Divestitures, net

During the nine months ended September 30, 2007, the Company recognized benefits resulting from the release of excess divestiture accruals due to the expiration of certain contingencies. During the nine months ended September 30, 2006, the Company recognized gains on the sale of land, corporate aircraft and other assets.

Debt repayment gain /(loss)

Income taxes

FDC’s effective tax rate on pretax income from continuing operations was a benefit of 9.2% and an expense of 19.4% for the three and nine months ended September 30, 2007, and 3.4% and 21.3% for the three and nine months ended September 30, 2006, respectively. The non-taxable interest income from the IPS municipal bond portfolio significantly impacted the effective tax rate from continuing operations, reducing the statutory rate by approximately 113 percentage points and 21 percentage points for the three and nine months ended September 30, 2007, respectively, and 28 percentage points and 15 percentage points for the same periods in 2006. The calculation of the effective tax rate includes most of the equity earnings in affiliates and minority interest in pretax income because these items relate principally to entities that are considered pass-through entities for income tax purposes. The decrease in the effective tax rate for the three and nine months ended September 30, 2007 compared to the same periods in 2006 resulted most significantly from the above noted non-taxable interest income being a larger portion of pretax income in 2007. Partially offsetting the effect of the non-taxable income and causing an increase to the effective tax rate were non-deductible expenses associated with the merger and a net tax expense associated with the income tax return to provision true-ups for 2006 as well as an adjustment to the income taxes payable account pertaining to an under accrual of taxes in prior years.

As a subsidiary of Holdings subsequent to the merger and a member of a new U.S. consolidated group for income tax purposes, the Company expects to be in a net operating loss position in the near term future. The Company anticipates being able to record an income tax benefit related to future operating losses due to the existence of significant deferred tax liabilities established in connection with purchase accounting. However, the Company may not be able to record a benefit related to losses in certain countries, requiring the establishment of valuation allowances. Additionally, the Company and its subsidiaries will continue to incur income taxes in foreign jurisdictions. Generally, these foreign income taxes result in a foreign tax credit in the US to the extent of any US income taxes on the income upon repatriation. However, due to the Company’s anticipated net operating loss position, the Company may not be able to provide a benefit for its potential foreign tax credits which would increase its effective tax rate. The Company also will continue to incur income taxes in states for which it files returns on a separate Company basis.

The additional taxes recognized as part of discontinued operations in the quarter ended September 30, 2007 related to 2006 income tax return to provision true-ups and other tax items associated with operations discontinued in 2006.

Minority interest

Most of the minority interest expense relates to the Company’s consolidated merchant alliances. Minority interest expense increased for the three and nine months ended September 30, 2007 compared to the same periods in 2006 due most significantly to the growth of the consolidated merchant alliances.

Minority interest expense for the first nine months of 2006 included additional expense due to the reversal of a 2004 litigation accrual in the Commercial Services segment offset by an increase in the relevant subsidiary earnings.

Equity earnings in affiliates

The increase in equity earnings in affiliates for the three and nine months ended September 30, 2007 compared to the same periods in 2006 resulted most significantly from increased merchant transaction volume in the merchant alliances. Earnings of an alliance were also improved due to a beneficial change in its portfolio mix and lower processing rates.

FIRST DATA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Segment Results

For a detailed discussion of the Company’s principles regarding its operating segments, refer to “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

First Data Commercial Services Segment Results


	Combined					Predecessor
	Three months ended September 30,										Change
(in millions)	2007			% of Segment Revenue		2006			% of Segment Revenue		Amount			%
Revenues:
Transaction and processing service fees	$	606.9		52	%	$	578.5		56	%	$	28.4		5	%
Check services		101.6		9	%		77.8		7	%		23.8		31	%
Product sales and other		105.5		9	%		100.0		9	%		5.5		6	%
Reimbursable debit network fees, postage and other		261.0		22	%		209.2		20	%		51.8		25	%
Equity earnings in affiliates		79.8		7	%		76.6		7	%		3.2		4	%
Other revenue		14.7		1	%		14.5		1	%		0.2		1	%

Total revenue	$	1,169.5		100	%	$	1,056.6		100	%	$	112.9		11	%

Operating profit	$	304.9				$	294.1				$	10.8		4	%
Operating margin		26	%				28	%				(2	)pts
Key indicators:
Domestic merchant transactions ^(a)		7,265.5					6,470.6					794.9		12	%

	Combined					Predecessor
	Nine months ended September 30,										Change
(in millions)	2007			% of Segment Revenue		2006			% of Segment Revenue		Amount			%
Revenues:
Transaction and processing service fees	$	1,721.7		52	%	$	1,644.9		54	%	$	76.8		5	%
Check services		293.7		9	%		233.9		8	%		59.8		26	%
Product sales and other		296.7		9	%		295.9		10	%		0.8		0	%
Reimbursable debit network fees, postage and other		749.4		22	%		599.2		20	%		150.2		25	%
Equity earnings in affiliates		225.7		7	%		208.4		7	%		17.3		8	%
Other revenue		44.0		1	%		39.0		1	%		5.0		13	%

Total revenue	$	3,331.2		100	%	$	3,021.3		100	%	$	309.9		10	%

Operating profit	$	827.4				$	786.0				$	41.4		5	%
Operating margin		25	%				26	%				(1	)pt
Key indicators:
Domestic merchant transactions ^(a)		20,933.2					18,623.6					2,309.6		12	%

FIRST DATA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Successor

Predecessor

Period from September 25

through September 30,

Period from July 1

through September 24,

Period from January 1

through September 24,

(in millions)

2007

% of Segment
Revenue

2007

% of Segment

Revenue

2007

% of Segment
Revenue

Revenues:

Transaction and processing service fees

40.7

566.2