Edgar Filing: FIRST DATA CORP

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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 March 31, 2011

¨	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.)

5565 GLENRIDGE CONNECTOR, N.E., SUITE 2000, ATLANTA, GEORGIA		30342
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (404) 890-2000

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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

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 issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at April 30, 2011
Common Stock, $0.01 par value per share		1,000 shares

INDEX


		PAGE NUMBER
PART I FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited):
	Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010		3
	Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010		4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010		5
	Consolidated Statements of Equity for the three months ended March 31, 2011 and 2010		6
	Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2011 and 2010		7
	Notes to Consolidated Financial Statements		8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
Item 3	Quantitative and Qualitative Disclosures About Market Risk		44
Item 4	Controls and Procedures		44

PART II OTHER INFORMATION

Item 1	Legal Proceedings		45
Item 1A	Risk Factors		45
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		45
Item 3	Defaults Upon Senior Securities		45
Item 4	Reserved		45
Item 5	Other Information		45
Item 6	Exhibits		45

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

FIRST DATA CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended March 31,
(in millions)	2011		2010
Revenues:
Transaction and processing service fees:
Merchant related services ^(a)	$	833.0	$	792.4
Check services		84.0		90.5
Card services ^(a)		429.6		433.2
Other services		136.4		132.1
Product sales and other ^(a)		196.9		194.8
Reimbursable debit network fees, postage and other		864.3		759.1

		2,544.2		2,402.1

Expenses:
Cost of services (exclusive of items shown below)		716.5		755.5
Cost of products sold		90.8		75.3
Selling, general and administrative		411.7		378.7
Reimbursable debit network fees, postage and other		864.3		759.1
Depreciation and amortization		341.8		351.3
Other operating expenses:
Restructuring, net		12.6		12.5
Litigation and regulatory settlements		—		(0.3)

		2,437.7		2,332.1

Operating profit		106.5		70.0

Interest income		1.9		2.0
Interest expense		(442.3)		(448.9)
Other income (expense)		(26.3)		8.2

		(466.7)		(438.7)

Loss before income taxes and equity earnings in affiliates		(360.2)		(368.7)
Income tax benefit		(148.0)		(138.1)
Equity earnings in affiliates		27.7		22.2

Net loss		(184.5)		(208.4)
Less: Net income attributable to noncontrolling interests		32.6		31.7

Net loss attributable to First Data Corporation	$	(217.1)	$	(240.1)

(a)	Includes processing fees, administrative service fees and other fees charged to merchant alliances accounted for under the equity method of $35.7 million for the three months ended March 31, 2011 and $30.1 million for the comparable period in 2010.

See Notes to Consolidated Financial Statements.

FIRST DATA CORPORATION

CONSOLIDATED BALANCE SHEETS


(in millions, except common stock share amounts)	March 31, 2011 (Unaudited)		December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	335.5	$	509.5
Accounts receivable, net of allowance for doubtful accounts of $22.9 (2011) and $20.3 (2010)		1,979.1		2,169.6
Settlement assets		6,384.7		6,694.0
Other current assets		433.2		413.4
Total current assets		9,132.5		9,786.5

Property and equipment, net of accumulated depreciation of $719.9 (2011) and $691.6 (2010)		986.0		952.0

Goodwill		17,419.1		17,296.9
Customer relationships, net of accumulated amortization of $2,683.0 (2011) and $2,490.5 (2010)		5,065.7		5,223.7
Other intangibles, net of accumulated amortization of $1,075.3 (2011) and $975.8 (2010)		1,934.7		1,931.0
Investment in affiliates		1,202.9		1,208.2
Long-term settlement assets		322.8		365.1
Other long-term assets		777.3		780.7

Total assets	$	36,841.0	$	37,544.1

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	198.9	$	180.9
Short-term and current portion of long-term borrowings		206.9		270.5
Settlement obligations		6,708.4		7,058.9
Other current liabilities		1,170.4		1,353.7

Total current liabilities		8,284.6		8,864.0

Long-term borrowings		22,579.2		22,438.8
Long-term deferred tax liabilities		929.0		1,013.7
Other long-term liabilities		1,049.5		1,139.6

Total liabilities		32,842.3		33,456.1

Commitments and contingencies (See Note 7)
Redeemable noncontrolling interest		45.1		28.1
First Data Corporation stockholder’s equity:
Common stock, $.01 par value; authorized and issued 1,000 shares (2011 and 2010)		—		—
Additional paid-in capital		7,380.9		7,395.1

Paid-in capital		7,380.9		7,395.1
Accumulated loss		(6,381.0)		(6,163.9)
Accumulated other comprehensive loss		(480.5)		(636.9)

Total First Data Corporation stockholder’s equity		519.4		594.3

Noncontrolling interests		3,434.2		3,465.6

Total equity		3,953.6		4,059.9

Total liabilities and equity	$	36,841.0	$	37,544.1

See Notes to Consolidated Financial Statements.

FIRST DATA CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three months ended March 31,
(in millions)	2011		2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(184.5)	$	(208.4)
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization (including amortization netted against equity earnings in affiliates and revenues)		367.1		379.2
Charges related to other operating expenses and other income (expense)		38.9		4.0
Other non-cash and non-operating items, net		(11.3)		56.6
Increase (decrease) in cash, excluding the effects of acquisitions and dispositions, resulting from changes in:
Accounts receivable, current and long-term		204.8		108.8
Other assets, current and long-term		56.9		75.9
Accounts payable and other liabilities, current and long-term		(200.7)		(405.6)
Income tax accounts		(162.8)		(181.1)

Net cash provided by (used in) operating activities		108.4		(170.6)

CASH FLOWS FROM INVESTING ACTIVITIES
Current period acquisitions, net of cash acquired		(0.2)		(0.4)
Payments related to other businesses previously acquired		—		(1.3)
Proceeds from dispositions, net of expenses paid and cash disposed		—		21.2
Additions to property and equipment		(56.6)		(32.8)
Payments to secure customer service contracts, including outlays for conversion, and capitalized systems development costs		(52.4)		(48.5)
Other investing activities		1.4		18.0

Net cash used in investing activities		(107.8)		(43.8)

CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net		(78.9)		289.0
Debt modification and related financing costs		(18.6)		—
Principal payments on long-term debt		(14.9)		(56.5)
Distributions and dividends paid to noncontrolling interests and redeemable noncontrolling interests		(66.1)		(24.8)
Redemption of Parent’s redeemable common stock		(0.2)		—
Cash dividends		—		(4.7)

Net cash (used in) provided by financing activities		(178.7)		203.0

Effect of exchange rate changes on cash and cash equivalents		4.1		5.8

Change in cash and cash equivalents		(174.0)		(5.6)

Cash and cash equivalents at beginning of period		509.5		737.0

Cash and cash equivalents at end of period	$	335.5	$	731.4

See Notes to Consolidated Financial Statements.

FIRST DATA CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


					First Data Corporation Shareholder
Three months ended March 31, 2011 (in millions)	Total		Comprehensive Income (Loss)		Accumulated Loss		Accumulated Other Comprehensive Income (Loss)		Common Shares		Paid-In Capital		Noncontrolling Interests
Balance, December 31, 2010	$	4,059.9			$	(6,163.9)	$	(636.9)		0.0	$	7,395.1	$	3,465.6
Dividends and distributions paid to noncontrolling interests		(56.7)												(56.7)
Comprehensive loss:
Net (loss) income^(a)		(192.0)	$	(192.0)		(217.1)								25.1
Other comprehensive income, net of taxes:
Unrealized losses on securities		(0.6)		(0.6)				(0.6)
Unrealized gains on hedging activities		26.8		26.8				26.8
Foreign currency translation adjustment		130.6		130.6				130.4						0.2
Pension liability adjustment		(0.2)		(0.2)				(0.2)

Other comprehensive income				156.6

Comprehensive loss			$	(35.4)

Adjustment to redemption value of redeemable noncontrolling interests		(18.9)										(18.9)
Stock compensation expense and other		4.7										4.7

Balance, March 31, 2011	$	3,953.6			$	(6,381.0)	$	(480.5)		0.0	$	7,380.9	$	3,434.2


Three months ended March 31, 2010 (in millions)
Balance, December 31, 2009	$	5,100.1			$	(5,127.3)	$	(681.7)		0.0	$	7,394.3	$	3,514.8
Dividends and distributions paid to noncontrolling interests		(23.3)												(23.3)
Comprehensive loss:
Net (loss) income^(a)		(216.9)	$	(216.9)		(240.1)								23.2
Other comprehensive loss, net of taxes:
Unrealized losses on securities		(0.1)		(0.1)				(0.1)
Unrealized gains on hedging activities		9.7		9.7				9.7
Foreign currency translation adjustment		(120.1)		(120.1)				(114.0)						(6.1)
Pension liability adjustment		2.1		2.1				2.1

Other comprehensive loss				(108.4)

Comprehensive loss			$	(325.3)

Adjustment to redemption value of redeemable noncontrolling interests		(7.9)										(7.9)
Stock compensation expense and other		5.8										5.8
Cash dividends paid by First Data Corporation to Parent		(4.7)				(4.7)

Balance, March 31, 2010	$	4,744.7			$	(5,372.1)	$	(784.0)		0.0	$	7,392.2	$	3,508.6

(a)

The total net loss presented in the Consolidated Statements of Equity for the three months ended March 31, 2011 and 2010 is $7.5 million and $8.5 million, respectively, greater than the amount presented on the Consolidated Statements of Operations due to the net income attributable to the redeemable noncontrolling interests not included in equity.

See Notes to Consolidated Financial Statements.

FIRST DATA CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three months ended March 31,
(in millions)	2011		2010
Net loss^(a⁾	$	(192.0)	$	(216.9)
Other comprehensive income (loss), net of tax:
Unrealized losses on securities		(0.6)		(0.1)
Unrealized gains on hedging activities		26.8		9.7
Foreign currency translation adjustment		130.6		(120.1)
Pension liability adjustment		(0.2)		2.1

Total other comprehensive income (loss), net of tax		156.6		(108.4)

Comprehensive loss		(35.4)		(325.3)
Less: Comprehensive income attributable to noncontrolling interests		25.3		17.1

Comprehensive loss attributable to First Data Corporation	$	(60.7)	$	(342.4)

(a)

The net loss presented in the Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2011 and 2010 is $7.5 million and $8.5 million, respectively, greater than the amounts presented on the Consolidated Statements of Operations due to the net income attributable to the redeemable noncontrolling interests not included in equity.

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, 2010. Significant accounting policies disclosed therein have not changed.

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 as of March 31, 2011, the consolidated results of its operations, cash flows, changes in equity and comprehensive income (loss) for the three months ended March 31, 2011 and 2010. 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.

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.

Presentation

Depreciation and amortization presented as a separate line item on the Company’s Consolidated Statements of Operations does not include amortization of initial payments for new contracts which is recorded as a contra-revenue within “Transaction and processing service fees.” Also not included is amortization related to equity method investments which is netted within the “Equity earnings in affiliates” line. The following table presents the amounts associated with such amortization (in millions):


	Three months ended March 31,
	2011		2010
Amortization of initial payments for new contracts	$	9.6	$	9.6
Amortization related to equity method investments	$	15.7	$	18.3

Revenue Recognition

The Company recognizes revenues from its processing services as such services are performed. Revenue is recorded net of certain costs such as credit and offline debit interchange fees and assessments charged by credit card associations. Debit network fees related to acquired personal identification number based debit (“PIN-debit”) transactions are recognized in the “Reimbursable debit network fees, postage and other” revenue and expense lines of the Consolidated Statements of Operations. The following table presents the amounts associated with processing services revenue (in millions):


	Three months ended March 31,
	2011		2010
Interchange fees and assessments	$	4,474.3	$	4,069.6
Debit network fees	$	725.7	$	604.7

New Accounting Guidance

There were no new accounting pronouncements for the three months ended March 31, 2011 that were expected to have a material effect on the operations of the Company.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2: Supplemental Financial Information

Supplemental Statement of Operations Information

The following table details the components of “Other income (expense)” on the Consolidated Statements of Operations (in millions):


	Three months ended March 31,
	2011		2010
Investment gains	$	—	$	1.8
Derivative financial instruments losses		(11.3)		(24.7)
Divestitures, net		—		20.0
Non-operating foreign currency (losses) and gains		(15.0)		11.1

Other income (expense)	$	(26.3)	$	8.2

Supplemental Cash Flow Information

During the three months ended March 31, 2011 and 2010, the principal amount of FDC’s senior PIK (Payment In-Kind) notes due 2015 increased by $35.6 million and $176.6 million, respectively, resulting from the “payment” of accrued interest expense. Beginning October 1, 2011, the interest on FDC’s senior PIK notes due 2015 will be required to be paid in cash and the first such payment will be due in March 2012.

During the three months ended March 31, 2011 and 2010, the Company entered into capital leases totaling approximately $99 million and $37 million, respectively.

Refer to Note 9 of these Consolidated Financial Statements for information concerning the Company’s stock-based compensation plans.

Note 3: Restructuring

Restructuring Charges and Reversal of Restructuring Accruals

A summary of net pretax benefits (charges), incurred by segment, for each period is as follows (in millions):


			Pretax Benefit (Charge)
Three months ended March 31, 2011	Approximate Number of Employees		Retail and Alliance Services		Financial Services		International		All Other and Corporate		Totals
Restructuring charges		260	$	(1.5)	$	(5.2)	$	(6.5)	$	(1.2)	$	(14.4)
Restructuring accrual reversal				0.7		-		0.7		0.4		1.8

Total pretax charge, net of reversals			$	(0.8)	$	(5.2)	$	(5.8)	$	(0.8)	$	(12.6)


			Pretax Benefit (Charge)
Three months ended March 31, 2010	Approximate Number of Employees		Retail and Alliance Services		Financial Services		International		All Other and Corporate		Totals
Restructuring charges		140	$	(0.7)	$	(5.4)	$	(6.4)	$	(4.1)	$	(16.6)
Restructuring accrual reversal				0.2		0.2		2.3		1.4		4.1

Total pretax charge, net of reversals			$	(0.5)	$	(5.2)	$	(4.1)	$	(2.7)	$	(12.5)

The Company recorded restructuring charges during the three months ended March 31, 2011 and 2010 in connection with management’s alignment of the business with strategic objectives. Similar initiatives are expected to occur in future periods resulting in additional restructuring charges. Restructuring charges in 2010 also resulted from domestic site consolidations.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table summarizes the Company’s utilization of restructuring accruals for the three months ended March 31, 2011 (in millions):


	Employee Severance		Facility Closure
Remaining accrual as of January 1, 2011	$	38.7	$	0.2
Expense provision		14.4		-
Cash payments and other		(16.6)		-
Changes in estimates		(1.7)		(0.1)

Remaining accrual as of March 31, 2011	$	34.8	$	0.1

Note 4: Borrowings

Senior Secured Revolving Credit Facility

As of March 31, 2011, FDC’s senior secured revolving credit facility had commitments from nondefaulting financial institutions to provide $1,769.4 million of credit. Up to $500 million of the senior secured revolving credit facility is available for letters of credit, of which $50.8 million and $51.9 million were issued as of March 31, 2011 and December 31, 2010, respectively. FDC had no borrowings outstanding against this facility as of or during the three months ended March 31, 2011 or as of December 31, 2010. At March 31, 2011, $1,718.6 million remained available under this facility after considering the letters of credit outstanding.

Other Short-Term Borrowings

As of March 31, 2011 and December 31, 2010, FDC had approximately $383 million and $428 million available, respectively, under short-term lines of credit and other arrangements with foreign banks and alliance partners primarily to fund settlement activity. These arrangements are primarily associated with international operations and are in various functional currencies, the most significant of which are the Australian dollar, the Polish zloty and the euro. Certain of these arrangements are uncommitted (approximately $95 million and $151 million) but FDC had $94.7 million and $150.6 million of borrowings outstanding against them as of March 31, 2011 and December 31, 2010, respectively. The total amounts outstanding against short-term lines of credit and other arrangements were $108.5 million and $180.3 million as of March 31, 2011 and December 31, 2010, respectively.

Senior Secured Term Loan Facility

The original terms of FDC’s senior secured term loan facility required the Company to pay equal quarterly installments in aggregate annual amounts equal to 1% of the original principal amount. However, in August 2010, in conjunction with a debt modification, proceeds from the issuance of senior notes were used to prepay a portion of the principal balances of FDC’s senior secured term loans which satisfied the future quarterly principal payments until September 2014. Therefore, the Company made no principal payments during the three months ended March 31, 2011. During the three months ended March 31, 2010, the Company paid $32.1 million of principal on the senior secured term loan facility in accordance with the original provisions, of which $29.7 million related to the U.S. dollar denominated loan and $2.4 million related to the euro denominated loan.

10.55% Senior PIK (Payment In-Kind) Notes

The terms of FDC’s 10.55% senior PIK notes due 2015 require that interest on the notes for the period up to and including September 30, 2011 be paid entirely by increasing the principal amount of the outstanding notes or by issuing senior PIK notes. During the three months ended March 31, 2011 and 2010, FDC increased the principal amount of these notes by $35.6 million and $176.6 million, respectively, in accordance with this provision.

Debt Modification and Related Financing Costs

During the three months ended March 31, 2011, the Company paid $18.6 million in fees that were recorded in 2010 related to the December 2010 debt exchange.

Debt Modifications effected subsequent to March 31, 2011

Modifications and Amendments to the Senior Secured Credit Facilities. On March 24, 2011, FDC executed a 2011 Extension Amendment (the “Amendment Agreement”) relating to its credit agreement, dated as of September 24, 2007, as amended and restated as of September 28, 2007, as further amended as of August 10, 2010, among FDC, the several lenders from time to time parties thereto and Credit Suisse AG, as administrative agent (the “Credit Agreement”). The Credit Agreement, as amended pursuant to the Amendment Agreement, is referred to herein as the “Amended Credit Agreement.”

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The effectiveness of the Amendment Agreement was subject to certain conditions, including, among other things, FDC having issued senior secured notes yielding gross cash proceeds in an amount not less than $750 million, the net cash proceeds of which shall have been used to repay term loans under FDC’s Credit Agreement within 90 days of the date of executing the Amendment Agreement (see “Debt Offering” below). The senior secured notes were issued, as discussed further below, and the Amended Credit Agreement became effective on April 13, 2011.

Among other things, the Amendment Agreement:

(i) resulted in the extension of the maturity date of $1.0 billion of the Company’s revolving credit commitments (the “Revolver Extension”) under the Amended Credit Agreement to the earliest of: (x) June 24, 2015, if on such date the aggregate outstanding principal amount of FDC’s 9.875% senior notes due 2015 and 10.55% senior PIK notes due 2015 exceeds $750.0 million, (y) December 31, 2015, if on such date the aggregate outstanding principal amount of FDC’s 11.25% senior subordinated notes due 2016 exceeds $750.0 million and (z) September 24, 2016;

(ii) resulted in the extension of the maturity date of approximately $5.0 billion of term loans (consisting of approximately $4.5 billion of dollar denominated term loans and an amount of euro denominated term loans the dollar equivalent of which is approximately $0.5 billion (the “Term Loan Extension”)) under the Amended Credit Agreement to March 24, 2018;

(iii) provided for an increase in the interest rate applicable to the revolving credit loans subject to the Revolver Extension and the term loans subject to the Term Loan Extension (i) to a rate equal to, at FDC’s option, either (x) LIBOR for deposits in the applicable currency plus 400 basis points or (y) with regard to dollar denominated borrowings, a base rate plus 300 basis points;

(iv) provided for an increase in the commitment fee payable on the undrawn portion of the revolving credit commitments subject to the Revolver Extension to 75 basis points; and

(v) provided FDC with the ability to reduce the revolving credit commitments subject to the Revolver Extension while maintaining the revolving credit commitments not subject to the Revolver Extension in their original amount.

Accordingly, when the Amended Credit Agreement became effective, the Company immediately effected a permanent reduction of the revolving credit commitments that are subject to the Revolver Extension in an amount equal to $251.1 million, reducing the total commitments under the facility from nondefaulting financial institutions to $1,518.3 million.

Debt Offering. On April 13, 2011, FDC issued and sold $750 million aggregate principal amount of 7.375% senior secured notes due June 15, 2019. Interest on the notes will be payable semi-annually on June 15 and December 15 of each year, commencing on December 15, 2011. In accordance with the terms of FDC’s Amended Credit Agreement, FDC used the net proceeds from the offering of approximately $735 million to repay a portion of its outstanding senior secured term loans, including $0.3 billion of the $5.0 billion that was extended until 2018 under the Amendment Agreement discussed above.

FDC may redeem the Notes, in whole or in part, at any time on or after June 15, 2015 at a price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest to the redemption date and a make-whole premium. Thereafter, FDC may redeem the notes, in whole or in part, at established redemption prices. In addition, on or prior to June 15, 2014, FDC may redeem up to 35% of the aggregate principal amount of notes with the net cash proceeds from certain equity offerings at established redemption prices.

The notes will rank equally and ratably with all of FDC’s existing and future senior indebtedness and will be senior to any of FDC’s subordinated indebtedness. The notes will be guaranteed on a senior secured basis by each domestic subsidiary that guarantees FDC’s senior secured credit facilities.

The notes and guarantees also will be secured by first-priority liens, subject to permitted liens, on FDC’s and its subsidiary guarantors’ assets, subject to certain exceptions, that will from time to time secure FDC’s senior secured credit facilities and other first-lien indebtedness on a first-priority basis. The notes will share equally in the collateral securing FDC’s senior secured credit facilities.

Related Financing Costs. During the second quarter, in connection with the debt modification and amendments and the debt offering discussed above, the Company recorded approximately $40 million in fees.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5: Segment Information

For a detailed discussion of the Company’s principles regarding its operating segments 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, 2010.

The following tables present the Company’s operating segment results for the three months ended March 31, 2011 and 2010:


Three months ended March 31, 2011 (in millions)	Retail and Alliance Services		Financial Services		International		All Other and Corporate		Totals
Revenues:
Transaction and processing service fees	$	664.1	$	331.5	$	323.7	$	32.2	$	1,351.5
Product sales and other		100.7		6.1		84.5		7.6		198.9
Equity earnings in affiliates ^(a)		—		—		7.1		—		7.1

Total segment reporting revenues	$	764.8	$	337.6	$	415.3	$	39.8	$	1,557.5

Internal revenue	$	4.4	$	10.7	$	2.2	$	—	$	17.3
External revenue		760.4		326.9		413.1		39.8		1,540.2
Depreciation and amortization		155.7		86.7		74.0		12.4		328.8
Segment EBITDA		285.5		136.7		91.7		(46.1)		467.8
Other operating expenses and other income (expense) excluding divestitures		(0.3)		(5.2)		(5.7)		(27.7)		(38.9)
Three months ended March 31, 2010 (in millions)	Retail and Alliance Services		Financial Services		International		All Other and Corporate		Totals
Revenues:
Transaction and processing service fees	$	651.6	$	338.3	$	301.1	$	38.9	$	1,329.9
Product sales and other		85.6		7.8		83.8		19.3		196.5
Equity earnings in affiliates ^(a)		—		—		6.8		—		6.8

Total segment reporting revenues	$	737.2	$	346.1	$	391.7	$	58.2	$	1,533.2

Internal revenue	$	4.2	$	8.5	$	2.2	$	—	$	14.9
External revenue		733.0		337.6		389.5		58.2		1,518.3
Depreciation and amortization		168.4		84.0		73.9		14.7		341.0
Segment EBITDA		249.3		133.1		78.1		(36.2)		424.3
Other operating expenses and other income (expense) excluding divestitures		(3.4)		(4.9)		(4.1)		(11.6)		(24.0)

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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


	Three months ended March 31,
(in millions)	2011		2010
Segment Revenues:
Total reported segments	$	1,517.7	$	1,475.0
All Other and Corporate		39.8		58.2
Adjustment to reconcile to Adjusted revenue:
Official check and money order revenues ^(b)		(2.9)		(9.9)
Eliminations of intersegment revenues		(17.3)		(14.9)

Adjusted revenue		1,537.3		1,508.4

Adjustment to reconcile to Consolidated revenues:
Adjustments for non-wholly-owned entities ^(c)		48.0		52.4
Official check and money order revenues ^(b)		2.9		9.9
ISO commission expense		91.7		72.3
Reimbursable debit network fees, postage and other		864.3		759.1

Consolidated revenues	$	2,544.2	$	2,402.1

Segment EBITDA:
Total reported segments	$	513.9	$	460.5
All Other and Corporate		(46.1)		(36.2)

Adjusted EBITDA		467.8		424.3

Adjustments to reconcile to “Net loss attributable to First Data Corporation”:
Adjustments for non-wholly-owned entities ^(c)		13.2		10.2
Depreciation and amortization		(341.8)		(351.3)
Interest expense		(442.3)		(448.9)
Interest income		1.9		2.0
Other items ^(d)		(44.4)		(4.0)
Income tax benefit		148.0		138.1
Stock based compensation		(4.1)		(5.3)
Official check and money order EBITDA ^(b)		0.1		6.4
Technology and savings initiatives		(6.3)		(5.8)
KKR related items		(9.2)		(5.8)

Net loss attributable to First Data Corporation	$	(217.1)	$	(240.1)

(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 for the International segment.

(b)	Represents an adjustment to exclude the official check and money order businesses from revenue and EBITDA due to the Company’s wind down of these businesses.

(c)	Represents the net adjustment to reflect First Data’s proportionate share of alliance revenue and EBITDA within the Retail and Alliance Services segment and amortization related to equity method investments not included in segment EBITDA.

(d)	Includes restructuring, litigation and regulatory settlements, and impairments as applicable to the periods presented and “Other income (expense)” as presented in the Consolidated Statements of Operations.

Segment assets are as follows (in millions):


	March 31, 2011		December 31, 2010
Assets:
Retail and Alliance Services	$	23,910.3	$	24,673.8
Financial Services		4,871.3		4,982.2
International		5,430.1		5,186.7
All Other and Corporate		2,629.3		2,701.4

Consolidated	$	36,841.0	$	37,544.1

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

A reconciliation of reportable segment depreciation and amortization amounts to the Company’s consolidated balances in the Consolidated Statements of Cash Flows is as follows (in millions):


	Three months ended March 31,
	2011		2010
Depreciation and amortization:
Total reported segments	$	316.4	$	326.3
All Other and Corporate		12.4		14.7

		328.8		341.0

Adjustments to reconcile to consolidated depreciation and amortization:
Adjustments for non-wholly-owned entities		28.7		28.6
Amortization of initial payments for new contracts		9.6		9.6

Total consolidated depreciation and amortization	$	367.1	$	379.2

Note 6: Redeemable Noncontrolling Interest

The following table presents a summary of the redeemable noncontrolling interest activity (in millions):



	2011		2010
Balance as of January 1	$	28.1	$	226.9
Distributions		(9.4)		(1.5)
Share of income		7.5		8.5
Adjustment to redemption value of redeemable noncontrolling interest		18.9		7.9

Balance as of March 31	$	45.1	$	241.8

Note 7: Commitments and Contingencies

The Company is involved in various legal proceedings. Accruals have been made with respect to these matters, where appropriate, which are reflected in the Company’s consolidated financial statements. The Company may enter into discussions regarding settlement of these matters, and may enter into settlement agreements, if it believes settlement is in the best interest of the Company. The matters discussed below, if decided adversely to or settled by the Company, individually or in the aggregate, may result in liability material to the Company’s financial condition and/or results of operations.

Legal

On July 2, 2004, a class action complaint was filed against the Company, its subsidiary Concord EFS, Inc., and various financial institutions. 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 (referred to collectively as the “ATM Fee Antitrust Litigation”). The Court granted judgment in favor of the defendants, dismissing the case on September 17, 2010. On October 14, 2010, the plaintiffs appealed the summary judgment. The Company continues to believe the complaints are without merit and intends to vigorously defend them.

There are asserted claims against the Company where an unfavorable outcome is considered to be reasonably possible. These claims can generally be categorized in the following three areas: (1) patent infringement which results from claims that the Company is using technology that has been patented by another party; (2) Merchant customer matters often associated with alleged processing errors or disclosure issues and claims that one of the subsidiaries of the Company has violated a federal or state requirement regarding credit reporting or collection in connection with its check verification guarantee, and collection activities; and (3) other matters which may include issues such as employment. The Company’s estimates of the possible ranges of losses in excess of any amounts accrued are $0 to $2 million for patent infringement, $0 to $20 million for merchant customer matters and $0 to $4 million for other matters, resulting in a total estimated range of possible losses of $0 to $26 million for all of the matters described above.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Other

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.

Note 8: Employee Benefit Plans

The following table provides the components of net periodic benefit expense for the Company’s defined benefit pension plans (in millions):


	Three months ended March 31,
	2011		2010
Service costs	$	0.8	$	0.8
Interest costs		9.9		10.1
Expected return on plan assets		(11.6)		(10.2)
Amortization		0.3		0.6

Net periodic benefit expense	$	(0.6)	$	1.3

The Company estimates pension plan contributions for 2011 to be approximately $30 million. During the three months ended March 31, 2011, approximately $8 million was contributed to the United Kingdom plan and no contributions were made to the U.S. plan.

Note 9: Stock Compensation Plans

The Company recognizes stock-based compensation expense related to stock options and non-vested restricted stock awards and units that were granted prior to plan modifications made in May 2010. Due to the nature of call rights associated with options and restricted stock awards and units granted subsequent to the plan modifications in 2010, the Company will recognize expense related to such awards only upon certain liquidity or employment termination events.

Total stock-based compensation expense recognized in the “Selling, general and administrative” line item of the Consolidated Statements of Operations was as follows (in millions):


	Three months ended March 31,
	2011		2010
Total stock-based compensation expense (pretax)	$	4.5	$	5.3

Stock Options

During the three months ended March 31, 2011 additional time-based and performance-based options were granted under the stock plan. The time-based options granted vest equally over a three to five year period and performance-based options vest based upon the Company achieving certain EBITDA targets.

As of March 31, 2011 there was approximately $115 million of total unrecognized compensation expense, net of estimated forfeitures, related to non-vested stock options. Approximately $27 million will be recognized over a weighted-average period of approximately 2.7 years while approximately $88 million will only be recognized upon the occurrence of certain liquidity or employment termination events.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The fair value of Holdings stock options granted for the three months ended March 31, 2011 were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:


	Three months ended March 31, 2011
Risk-free interest rate		2.92%
Dividend yield		—
Volatility		54.83%
Expected term (in years)		7
Fair value of stock	$	3
Fair value of options	$	2

A summary of Holdings stock option activity for the three months ended March 31, 2011 is as follows (options in millions):


	2011
	Options	Weighted-Average Exercise Price
Outstanding at January 1	70.0	$	3
Granted	6.2	$	3
Cancelled / Forfeited	(1.4)	$	3

Outstanding at March 31	74.8	$	3

Restricted Stock Awards and Restricted Stock Units

Restricted stock awards were granted under the stock plan during the three months ended March 31, 2011. As of March 31, 2011 there was approximately $33 million of total unrecognized compensation expense, net of estimated forfeitures, related to restricted stock. Approximately $2 million will be recognized over a weighted-average period of approximately 2.2 years while approximately $31 million will only be recognized upon the occurrence of certain liquidity or employment termination events.

A summary of Holdings restricted stock award and restricted stock unit activity for the three months ended March 31, 2011 is as follows (awards/units in millions):


	2011 Awards/Units	Weighted-Average Grant-Date Fair Value
Non-vested at January 1	8.4	$	3
Granted	2.7	$	3
Cancelled / Forfeited	(0.2)	$	3

Non-vested at March 31	10.9	$	3

Note 10: Investment Securities

The majority of the Company’s investment securities are a component of settlement assets and represent the investment of funds received by FDC from the sale of payment instruments (official checks and financial institution money orders) by authorized agents. The Company’s investment securities included in current settlement assets primarily consists of money market funds, discounted commercial paper, corporate, state, and municipal bonds maturing within one year, and time deposits. The Company’s long-term settlement assets are primarily comprised of student loan auction rate securities (“SLARS”) and corporate bonds. Realized gains and losses and other-than-temporary impairments (“OTTI”) on investments classified as settlement assets are recorded in the “Product sales and other” line item of the Consolidated Statements of Operations. The Company carried other investments including equity securities and shares of a money market fund which are carried at fair value and included in the “Other current assets” and “Other long-term assets” line items of the Consolidated Balance Sheets. Realized gains and losses on these investments are recorded in the “Other income (expense)” line item of the Consolidated Statements of Operations described in Note 2.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The principal components of the Company’s investment securities are as follows (in millions):


	Cost ^(a)		Gross Unrealized Gain		Gross Unrealized (Loss) excluding OTTI ^(b)		OTTI Recognized in OCI^(b)(c)		Fair Value ^(d)
As of March 31, 2011
Student loan auction rate securities	$	220.3	$	0.5	$	(1.7)	$	—	$	219.1
Corporate bonds		149.5		0.1		(0.3)		—		149.3
Other securities:
Cost method investments		24.4		—		—		—		24.4
Other		15.6		0.6		(0.0)		—		16.2

Total other		40.0		0.6		(0.0)		—		40.6

Totals	$	409.8	$	1.2	$	(2.0)	$	—	$	409.0


As of December 31, 2010
Student loan auction rate securities	$	341.1		—		—	$	—	$	341.1
Corporate bonds		63.0	$	0.1	$	(0.1)		—		63.0
Other securities:
Cost method investments		24.5		—		—		—		24.5
Other		0.6		0.1		—		—		0.7

Total other		25.1		0.1		—		—		25.2

Totals	$	429.2	$	0.2	$	(0.1)	$	—	$	429.3

(a)	Represents amortized cost for debt securities.

(b)	“OTTI” refers to other-than-temporary impairments.

(c)	Represents the fair value adjustment for debt securities excluding that attributable to credit losses.

(d)	Represents cost for cost method investments.

The following table presents the gross unrealized losses and fair value of the Company’s investments with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in millions):


As of March 31, 2011	Less than 12 months				More than 12 months				Total Fair Value		Total Unrealized Losses
As of March 31, 2011	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Total Fair Value		Total Unrealized Losses
Student loan auction rate securities	$	79.9	$	(1.7)		—		—	$	79.9	$	(1.7)
Corporate bonds	$	137.8	$	(0.3)		—		—	$	137.8	$	(0.3)

	Less than 12 months				More than 12 months				Total Fair Value		Total Unrealized Losses
As of December 31, 2010	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Total Fair Value		Total Unrealized Losses
Corporate bonds	$	45.8	$	(0.1)		—		—	$	45.8	$	(0.1)

During the three months ended March 31, 2011, the Company sold and redeemed SLARS with an amortized cost basis of $120.8 million, resulting in net realized losses of $2.2 million.

All of the above investments, with the exception of cost method investments, were classified as available-for-sale. The Company uses specific identification to determine the cost of a security sold and the amount of gains and losses reclassified out of other comprehensive income (“OCI”) into the Consolidated Statements of Operations. Unrealized gains and losses on investments carried at fair value are included as a separate component of OCI, net of any related tax effects.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table presents additional information regarding available-for-sale securities (in millions):


	For the three months ended March 31,
	2011		2010
Proceeds from sales^(a)	$	118.6	$	19.0
Gross realized gains included in earnings as a result of sales^(a)		0.5		5.0
Gross realized (losses) included in earnings as a result of sales^(a)		(2.7)		—
Impairments included in earnings		—		(0.3)
Net unrealized gains or (losses) included in OCI, net of tax		(2.0)		(0.3)
Net gains or (losses) reclassified out of OCI into earnings, net of tax		(1.4)		(0.2)

(a)	Includes activity resulting from sales, redemptions, liquidations and related matters. Gains and losses are recorded in the “Product sales and other” or “Other income (expense)” line items of the Consolidated Statements of Operations.

The following table presents maturity information for the Company’s investments in debt securities as of March 31, 2011 (in millions):


	Fair Value
Due within one year	$	61.7
Due after one year through five years		103.1
Due after five years through 10 years		29.5
Due after 10 years		189.7

Total debt securities	$	384.0

The Company also maintained investments in non-marketable securities, held for strategic purposes (collectively referred to as “cost method investments”) which are carried at cost and included in “Other long-term assets” in the Company’s Consolidated Balance Sheets. These investments are evaluated for impairment upon an indicator of impairment such as events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. As of March 31, 2011 there were no indicators of impairment. Where there are no indicators of impairment present, the Company estimates the fair value for the cost method investments only if it is practicable to do so. As of March 31, 2011, it was deemed impracticable to estimate the fair value on $19.0 million of cost method assets due to the lack of sufficient data upon which to develop a valuation model and the costs of obtaining an independent valuation in relation to the size of the investments. Realized pretax gains and losses associated with these investments are recognized in the “Other income (expense)” line item of the Consolidated Statements of Operations described in Note 2.

Note 11: Derivative Financial Instruments

Risk Management Objectives and Strategies

The Company is exposed to various financial and market risks, including those related to changes in interest rates and foreign currency exchange rates that exist as part of its ongoing business operations. The Company utilizes certain derivative financial instruments to enhance its ability to manage these risks.

As of March 31, 2011, the Company uses derivative instruments (i) to mitigate cash flow risks with respect to changes in interest rates (forecasted interest payments on variable rate debt), (ii) to mitigate fair value risk with respect to changes in the fair value of fixed rate debt and (iii) to protect the initial net investment in certain foreign subsidiaries and/or affiliates with respect to changes in foreign currency exchange rates.

Derivative instruments are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Company applies strict policies to manage each of these risks, including prohibition against derivatives trading, derivatives market-making or any other speculative activities. Although certain derivatives do not qualify for hedge accounting, they are maintained for economic hedge purposes and are not considered speculative.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The Company’s policy is to minimize its cash flow and net investment exposures related to adverse changes in interest rates and foreign currency exchange rates. The Company’s objective is to engage in risk management strategies that provide adequate downside protection.

Accounting for Derivative Instruments and Hedging Activities

The Company recognizes all derivatives in the “Other long-term assets”, “Other current liabilities” and “Other long-term liabilities” captions in the Consolidated Balance Sheets at their fair values. The Company has designated certain of its interest rate swaps as cash flow hedges of forecasted interest rate payments related to its variable rate debt and a cross-currency swap as a foreign currency hedge of its net investment in a foreign subsidiary. Other interest rate swaps, cross-currency swaps and forward contracts on various foreign currencies no longer qualify or have not been designated as accounting hedges and do not receive hedge accounting treatment.

With respect to derivative instruments that are afforded hedge accounting, the effective portion of changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge is recorded in OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair value of a net investment hedge that qualifies for hedge accounting are recorded as part of the cumulative translation adjustment in OCI. Any ineffectiveness associated with the aforementioned cash flow hedges, as well as any change in the fair value of a derivative that is not designated as a hedge, is recorded immediately in “Other income (expense)” in the Consolidated Statements of Operations.

The Company formally documents all relationships between hedging instruments and the underlying hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to forecasted transactions and net investment hedges to the underlying investment in a foreign subsidiary or affiliate. The Company formally assesses, both at inception of the hedge and on an ongoing basis, whether the hedge is highly effective in offsetting changes in cash flows or foreign currency exposure of the underlying hedged items. The Company also performs an assessment of the probability of the forecasted transactions on a periodic basis. If it is determined that a derivative ceases to be highly effective during the term of the hedge or if the forecasted transaction is no longer probable, the Company will discontinue hedge accounting prospectively for such derivative.

Credit Risk

The Company monitors the financial stability of its derivative counterparties and all counterparties remain highly-rated (in the “A” category or higher). The credit risk inherent in these agreements represents the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. The Company performs a review at inception of the hedge, as circumstances warrant, and at least on a quarterly basis of the credit risk of these counterparties. The Company also monitors the concentration of its contracts with individual counterparties. The Company’s exposures are in liquid currencies (primarily in U.S. dollars, Euros and Australian dollars), so there is minimal risk that appropriate derivatives to maintain the hedging program would not be available in the future.

Derivatives Not Qualifying For Hedge Accounting

As of March 31, 2011, the Company had certain derivative instruments that functioned as economic hedges but no longer qualify or were not designated to qualify for hedge accounting. Such instruments included cross-currency swaps to mitigate foreign currency exposure on intercompany loans, interest rate swaps to mitigate the exposure on interest payments on variable rate debt to fluctuations in interest rates, and an interest rate swap to mitigate the fair value risk associated with fixed rate debt issued in April 2011.

During the first quarter of 2011, the Company entered into an interest rate swap with a notional value of $750.0 million which expires on June 15, 2019. Also during the first quarter of 2011, the Company held a foreign exchange rate collar with a notional value of $1.9 million that expired on March 31, 2011.

As of March 31, 2011, the Company held cross-currency swaps not qualifying for hedge accounting with a notional value of 91.1 million euro (approximately $128.3 million). The notional value of the interest rate swaps that do not qualify for hedge accounting was $2.25 billion.

The periodic change in the mark-to-market of the derivative instruments not designated as accounting hedges is recorded immediately in the “Other income (expense)” line of the Consolidated Statements of Operations. For information on the location and amounts of derivative fair values in the Consolidated Balance Sheets and derivative gains and losses in the Consolidated Statements of Operations, see the tabular information presented below.

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. As of March 31, 2011, the Company held a cross-currency swap that was designated as a hedge of a net investment in a foreign operation with an aggregate notional amount of 115.0 million Australian dollars (approximately $117.8 million).

Cash flow hedges. As of March 31, 2011, the Company held interest rate swaps which were designated as cash flow hedges of the variability in the interest payments on $3.5 billion of the approximate $12.0 billion of variable rate senior secured term loan. Although these hedges remain highly effective on an ongoing basis in offsetting the variability in the interest payments, any ineffectiveness is recognized immediately in the Consolidated Statements of Operations.

At March 31, 2011, the maximum length of time over which the Company is hedging its exposure is approximately 1.5 years. The Company follows the hypothetical derivative method to measure hedge ineffectiveness which resulted mostly from the hedges being off-market at the time of designation. Ineffectiveness associated with these hedges is recognized immediately in the Consolidated Statements of Operations. The amount of losses in OCI related to the hedged transactions as of March 31, 2011 that is expected to be reclassified into the Consolidated Statements of Operations within the next 12 months is approximately $75.9 million.

For information on the location and amounts of derivative fair values in the Consolidated Balance Sheets and derivative gains and losses in the Consolidated Statements of Operations, see the tabular information presented below.

Fair Value of Derivative Instruments

Fair Value of Derivative Instruments in the Consolidated Balance Sheets


	As of March 31, 2011
(in millions)	Assets^(a)		Liabilities^(b)
Derivatives designated as hedging instruments
Interest rate contracts		—	$	(219.2)
Foreign exchange contracts		—		(26.2)

Total derivatives designated as hedging instruments		—	$	(245.4)


Derivatives not designated as hedging instruments
Interest rate contracts		—	$	(92.0)
Foreign exchange contracts	$	2.8		(2.2)

Total derivatives not designated as hedging instruments		2.8		(94.2)

Total derivatives	$	2.8	$	(339.6)


	As of December 31, 2010
(in millions)	Assets^(a)		Liabilities^(b)
Derivatives designated as hedging instruments
Interest rate contracts		—	$	(252.2)
Foreign exchange contracts		—		(21.3)

Total derivatives designated as hedging instruments		—	$	(273.5)


Derivatives not designated as hedging instruments
Interest rate contracts		—	$	(105.0)
Foreign exchange contracts	$	7.7		(0.9)

Total derivatives not designated as hedging instruments		7.7		(105.9)

Total derivatives	$	7.7	$	(379.4)

(a)	Derivative assets are included in the “Other long-term assets” line of the Consolidated Balance Sheets.

(b)	Derivative liabilities are included in the “Other current liabilities” and “Other long-term liabilities” lines of the Consolidated Balance Sheets.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The Effect of Derivative Instruments on the Consolidated Statements of Operations


	Three months ended March 31,
	2011						2010
(in millions, pretax)	Interest Rate Contracts			Foreign Exchange Contracts			Interest Rate Contracts			Foreign Exchange Contracts
Derivatives in cash flow hedging relationships:
Amount of gain or (loss) recognized in OCI (effective portion)	$	19.5			—		$	(23.9	)		—
Amount of gain or (loss) reclassified from accumulated OCI into income ^(a)	$	(19.0	)		—		$	(39.5	)		—
Amount of gain or (loss) recognized in income (ineffective portion) ^(b)	$	(1.1	)		—		$	(2.2	)		—

Derivatives in net investment hedging relationships:
Amount of gain or (loss) recognized in OCI (effective portion)		—		$	(4.9	)		—			—
Amount of gain or (loss) recognized in income (ineffective portion) ^(b)		—			—			—		$	(2.8	)
Derivatives not designated as hedging instruments
Amount of gain or (loss) recognized in income ^(b)	$	(3.9	)	$	(6.3	)	$	(26.8	)	$	7.1

(a)

Gain (loss) is recognized in the “Interest expense” line of the Consolidated Statements of Operations.

(b)

Gain (loss) is recognized in the “Other income (expense)” line of the Consolidated Statements of Operations.

Accumulated Derivatives Gains and Losses

The following table summarizes activity in other comprehensive income for the three months ended March 31, 2011 related to derivative instruments classified as cash flow hedges and a net investment hedge held by the Company (in millions, after tax):


	Three months ended March 31, 2011
Accumulated loss included in other comprehensive income (loss) at beginning of the period	$	(181.3)
Less: Reclassifications into earnings from other comprehensive income (loss)		11.9

		(169.4)
Net gain in fair value of derivatives ^(a)		11.8

Accumulated loss included in other comprehensive income (loss) at end of the period	$	(157.6)

(a)	Gains and losses are included in unrealized (losses) gains on hedging activities and in foreign currency translation adjustment on the Consolidated Statements of Equity.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 12: Fair Value Measurement

Fair Value of Financial Instruments

Carrying amounts for certain of the Company’s financial instruments (cash and cash equivalents and short-term borrowings) approximate fair value due to their short maturities. Accordingly, these instruments are not presented in the following table. The following table provides the estimated fair values of the remaining financial instruments (in millions):


As of March 31, 2011	Carrying Value		Fair Value ^(a)
Financial instruments:
Settlement assets:
Short-term investment securities	$	61.3	$	61.3
Long-term investment securities	$	322.8	$	322.8
Other long-term assets:
Long-term investment securities	$	0.5	$	0.5
Cost method investments	$	24.4	$	24.4
Derivative financial instruments	$	2.8	$	2.8
Other current liabilities:
Derivative financial instruments	$	4.4	$	4.4
Long-term borrowings:
Long-term borrowings	$	22,579.2	$	22,478.4
Other long-term liabilities:
Derivative financial instruments	$	335.2	$	335.2

(a)	Represents cost for cost method investments. Refer to Note 10 of these Consolidated Financial Statements for a more detailed discussion of cost method investments.

The estimated fair values of investment securities and derivative financial instruments are described below. Refer to Notes 10 and 11 of these Consolidated Financial Statements for additional information regarding the Company’s investment securities and derivative financial instruments, respectively.

The estimated fair market value of FDC’s long-term borrowings was primarily based on market trading prices. For additional information regarding the Company’s borrowings, refer to Note 4 of these Consolidated Financial Statements as well as to Note 8 of the Company’s Consolidated Financial Statements in Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Concentration of Credit Risk

The Company’s investment securities are diversified across multiple issuers within its investment portfolio (investment securities plus cash and cash equivalents). In addition to investment securities, the Company maintains other financial instruments with various financial institutions. The Company has no single issuer representing more than 13% of the total carrying value of the investment portfolio and limits its derivative financial instruments credit risk by maintaining contracts with counterparties rating “A” or higher. The Company periodically reviews the credit standings of these institutions.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial instruments carried and measured at fair value on a recurring basis are classified in the table below according to the fair value hierarchy (in millions):


	Fair Value Measurement Using
As of March 31, 2011	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Assets:
Settlement assets:
Student loan auction rate securities	$	—	$	—	$	219.1	$	219.1
Corporate bonds		—		149.3		—		149.3
State and municipal bonds		—		15.1		—		15.1
Preferred stock		0.6		—		—		0.6

Total settlement assets		0.6		164.4		219.1		384.1
Other long-term assets:
Available-for-sale securities		—		0.5		—		0.5
Foreign currency derivative contracts		—		2.8		—		2.8

Total other long-term assets		—		3.3		—		3.3

Total assets at fair value	$	0.6	$	167.7	$	219.1	$	387.4


Liabilities:
Other current liabilities:
Interest rate swap contracts	$	—	$	4.4	$	—	$	4.4
Other long-term liabilities:
Interest rate swap contracts		—		306.8		—		306.8
Foreign currency derivative contracts		—		28.4		—		28.4

Total liabilities at fair value	$	—	$	339.6	$	—	$	339.6

Settlement assets - Student loan auction rate securities. Due to the lack of observable market activity for the SLARS held by the Company as of March 31, 2011, the Company, with the assistance of a third-party valuation firm upon which the Company in part relied, made certain assumptions, primarily relating to estimating both the weighted-average life for the securities held by the Company and the impact on the fair value of the current inability to redeem the securities at par value. All key assumptions and valuations were determined by and are the responsibility of management. The securities were valued using an income approach based on a probability-weighted discounted cash flow analysis. The Company considered each security’s key terms including date of issuance, date of maturity, auction intervals, scheduled auction dates, maximum auction rates, as well as underlying collateral, ratings, and guarantees or insurance. The impact of the Company’s judgment in the valuation was significant and, accordingly, the resulting fair value was classified as Level 3 within the fair value hierarchy. A 50 basis point change in liquidity risk premium, as well as slight changes in other factors, would impact the value of the SLARS by approximately $5 million. For additional information regarding sales, settlements and impairments of the SLARS, refer to Note 10 of these Consolidated Financial Statements.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


(in millions)	Fair Value Measurement Using Significant Unobservable Inputs (Level 3) Student loan auction rate securities
Beginning balance as of January 1, 2011	$	341.1
Total gains or losses (realized or unrealized):
Included in other comprehensive income		(1.2)
Included in product sales and other		(2.2)
Sales		(116.3)
Settlements		(2.3)
Transfers in (out) of Level 3		—

Ending balance as of March 31, 2011	$	219.1

Settlement assets - Other available-for-sale securities. Prices for the corporate and state and municipal bonds are not quoted on active exchanges but are priced through an independent third-party pricing service based on quotations from market-makers in the specific instruments or, where appropriate, from other market inputs. The bonds were valued under a market approach using observable inputs including reported trades, benchmark yields, broker/dealer quotes, issuer spreads and other standard inputs.

The Company’s experience with these types of investments and the expectations of the current investments held is that they will be satisfied at the current carrying amount. These securities were classified as Level 2.

Derivative financial instruments. The Company uses derivative instruments to mitigate certain risks. The Company’s derivatives are not exchange listed and therefore the fair value is estimated under an income approach using Bloomberg analytics models that are based on readily observable market inputs. These models reflect the contractual terms of the derivatives, such as notional value and expiration date, as well as market-based observables including interest and foreign currency exchange rates, yield curves and the credit quality of the counterparties. The models also incorporate the Company’s creditworthiness in order to appropriately reflect non-performance risk. Inputs to the derivative pricing models are generally observable and do not contain a high level of subjectivity and, accordingly, the Company’s derivatives were classified within Level 2 of the fair value hierarchy. While the Company believes its estimates result in a reasonable reflection of the fair value of these instruments, the estimated values may not be representative of actual values that could have been realized or that will be realized in the near future. Refer to Note 11 of these Consolidated Financial Statements for additional information regarding the Company’s derivative financial instruments.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

During the three months ended March 31, 2011, the Company did not have any assets measured at fair value on a non-recurring basis.

Note 13: Supplemental Guarantor Condensed Consolidating Financial Statements

As described in Note 8 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, the Company’s 9.875% senior notes, 12.625% senior notes, 10.55% senior PIK notes due 2015 and 11.25% senior subordinated notes are unconditionally guaranteed by substantially all existing and future, direct and indirect, wholly-owned, domestic subsidiaries of FDC other than Integrated Payment Systems Inc. (“Guarantors”). None of the other subsidiaries of FDC, either direct or indirect, guarantee the notes (“Non-Guarantors”). The Guarantors also unconditionally guarantee FDC’s senior secured revolving credit facility, senior secured term loan facility and the 8.875% senior secured notes which rank senior in right of payment to all existing and future unsecured and second lien indebtedness of FDC’s guarantor subsidiaries. The Guarantors further unconditionally guarantee FDC’s 8.25% senior second lien notes and 8.75%/10.00% PIK toggle senior second lien notes which rank senior in right of payment to all existing and future unsecured indebtedness of FDC’s guarantor subsidiaries. The 9.875% senior note, 12.625% senior note, 10.55% senior PIK note due 2015 and 11.25% senior subordinated note guarantees are unsecured and rank equally in right of payment with all existing and future senior indebtedness of the guarantor subsidiaries but senior in right of payment to all existing and future subordinated indebtedness of FDC’s guarantor subsidiaries. The 11.25% senior subordinated note guarantees are unsecured and rank equally in right of payment with all existing and future senior subordinated indebtedness of the guarantor subsidiaries.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following tables present the results of operations, financial position and cash flows of FDC (“FDC Parent Company”), the Guarantor subsidiaries, the Non-Guarantor subsidiaries and consolidation adjustments for the three months ended March 31, 2011 and 2010, and as of March 31, 2011 and December 31, 2010 to arrive at the information for FDC on a consolidated basis (in millions).


	Three months ended March 31, 2011
	FDC Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidation Adjustments		Consolidated
Revenues:
Transaction and processing service fees	$	—	$	950.7	$	568.8	$	(36.5)	$	1,483.0
Product sales and other		—		131.0		80.4		(14.5)		196.9
Reimbursable debit network fees, postage and other		—		591.5		292.4		(19.6)		864.3

		—		1,673.2		941.6		(70.6)		2,544.2

Expenses:
Cost of services (exclusive of items shown below)		—		463.1		289.9		(36.5)		716.5
Cost of products sold		—		68.3		37.0		(14.5)		90.8
Selling, general and administrative		63.5		228.9		119.3		—		411.7
Reimbursable debit network fees, postage and other		—		591.5		292.4		(19.6)		864.3
Depreciation and amortization		2.2		216.1		123.5		—		341.8
Other operating expenses:
Restructuring, net		(0.1)		10.7		2.0		—		12.6

		65.6		1,578.6		864.1		(70.6)		2,437.7

Operating (loss) profit		(65.6)		94.6		77.5		—		106.5

Interest income		0.1		0.2		1.6		—		1.9
Interest expense		(437.3)		(1.6)		(3.4)		—		(442.3)
Interest income (expense) from intercompany notes		35.8		(41.8)		6.0		—		—
Other income (expense)		(84.2)		9.3		48.6		—		(26.3)
Equity earnings from consolidated subsidiaries		129.4		22.8		—		(152.2)		—

		(356.2)		(11.1)		52.8		(152.2)		(466.7)

(Loss) income before income taxes and equity earnings in affiliates		(421.8)		83.5		130.3		(152.2)		(360.2)
Income tax (benefit) expense		(204.7)		57.1		(0.4)		—		(148.0)
Equity earnings in affiliates		—		27.8		(0.1)		—		27.7

Net (loss) income		(217.1)		54.2		130.6		(152.2)		(184.5)
Less: Net income attributable to noncontrolling interests		—		—		12.8		19.8		32.6

Net (loss) income attributable to First Data Corporation	$	(217.1)	$	54.2	$	117.8	$	(172.0)	$	(217.1)

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


	Three months ended March 31, 2010
	FDC Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidation Adjustments		Consolidated
Revenues:
Transaction and processing service fees	$	—	$	936.7	$	544.9	$	(33.4)	$	1,448.2
Product sales and other		—		119.2		87.6		(12.0)		194.8
Reimbursable debit network fees, postage and other		—		532.5		243.4		(16.8)		759.1

		—		1,588.4		875.9		(62.2)		2,402.1


Expenses:
Cost of services (exclusive of items shown below)		—		425.0		363.9		(33.4)		755.5
Cost of products sold		—		60.0		27.3		(12.0)		75.3
Selling, general and administrative		60.9		209.3		108.5		—		378.7
Reimbursable debit network fees, postage and other		—		532.5		243.4		(16.8)		759.1
Depreciation and amortization		1.8		231.8		117.7		—		351.3
Other operating expenses:
Restructuring, net		(0.7)		9.5		3.7		—		12.5
Litigation and regulatory settlements		—		(0.3)		—		—		(0.3)

		62.0		1,467.8		864.5		(62.2)		2,332.1

Operating (loss) profit		(62.0)		120.6		11.4		—		70.0

Interest income		0.3		0.4		1.3		—		2.0
Interest expense		(441.5)		(1.9)		(5.5)		—		(448.9)
Interest income (expense) from intercompany notes		26.4		(34.8)		8.4		—		—
Other income (expense)		35.0		1.7		(28.5)		—		8.2
Equity earnings from consolidated subsidiaries		43.3		26.0		—		(69.3)		—

		(336.5)		(8.6)		(24.3)		(69.3)		(438.7)


(Loss) income before income taxes and equity earnings in affiliates		(398.5)		112.0		(12.9)		(69.3)		(368.7)
Income tax (benefit) expense		(158.4)		8.7		11.6		—		(138.1)
Equity earnings in affiliates		—		23.0		—		(0.8)		22.2

Net (loss) income		(240.1)		126.3		(24.5)		(70.1)		(208.4)
Less: Net (loss) income attributable to noncontrolling interests		—		(0.2)		11.5		20.4		31.7

Net (loss) income attributable to First Data Corporation	$	(240.1)	$	126.5	$	(36.0)	$	(90.5)	$	(240.1)

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


	March 31, 2011
	FDC Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidation Adjustments		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	57.0	$	34.9	$	243.6		—	$	335.5
Accounts receivable, net of allowance for doubtful accounts		2.6		933.1		1,043.4		—		1,979.1
Settlement assets ^(a)		—		3,451.4		2,933.3		—		6,384.7
Other current assets		78.6		275.8		78.8		—		433.2

Total current assets		138.2		4,695.2		4,299.1		—		9,132.5

Property and equipment, net of accumulated depreciation		32.2		650.0		303.8		—		986.0
Goodwill		—		9,479.8		7,939.3		—		17,419.1
Customer relationships, net of accumulated amortization		—		2,820.9		2,244.8		—		5,065.7
Other intangibles, net of accumulated amortization		606.6		669.3		658.8		—		1,934.7
Investment in affiliates		—		1,163.6		39.3		—		1,202.9
Long-term settlement assets ^(a)		—		—		322.8		—		322.8
Other long-term assets		460.8		284.5		32.0		—		777.3
Investment in consolidated subsidiaries		24,954.8		5,308.2		—	$	(30,263.0)		—

Total assets	$	26,192.6	$	25,071.5	$	15,839.9	$	(30,263.0)	$	36,841.0

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1.9	$	101.4	$	95.6		—	$	198.9
Short-term and current portion of long-term borrowings		32.0		50.0		124.9		—		206.9
Settlement obligations ^(a)		—		3,451.4		3,257.0		—		6,708.4
Other current liabilities		289.5		517.5		363.4		—		1,170.4

Total current liabilities		323.4		4,120.3		3,840.9		—		8,284.6

Long-term borrowings		22,466.4		75.2		37.6		—		22,579.2
Long-term deferred tax (assets) liabilities		(968.0)		1,793.5		103.5		—		929.0
Intercompany payable (receivable)		4,533.4		(3,678.1)		(855.3)		—		—
Intercompany notes		(1,616.2)		1,736.2		(120.0)		—		—
Other long-term liabilities		934.2		93.6		21.7		—		1,049.5

Total liabilities		25,673.2		4,140.7		3,028.4		—		32,842.3

Redeemable equity interests		—		—		45.1	$	(45.1)		—
Redeemable noncontrolling interests		—		—		—		45.1		45.1
First Data Corporation stockholder’s equity		519.4		20,931.0		5,829.5		(26,760.5)		519.4
Noncontrolling interests		—		(0.2)		58.0		3,376.4		3,434.2
Equity of consolidated alliance		—		—		6,878.9		(6,878.9)		—

Total equity		519.4		20,930.8		12,766.4		(30,263.0)		3,953.6

Total liabilities and equity	$	26,192.6	$	25,071.5	$	15,839.9	$	(30,263.0)	$	36,841.0

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


	December 31, 2010
	FDC Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidation Adjustments		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	164.1	$	21.1	$	324.3		—	$	509.5
Accounts receivable, net of allowance for doubtful accounts		2.6		1,121.1		1,045.9		—		2,169.6
Settlement assets ^(a)		—		3,476.2		3,217.8		—		6,694.0
Other current assets		86.0		262.4		65.0		—		413.4

Total current assets		252.7		4,880.8		4,653.0		—		9,786.5

Property and equipment, net of accumulated depreciation		30.3		637.2		284.5		—		952.0
Goodwill		—		9,468.3		7,828.6		—		17,296.9
Customer relationships, net of accumulated amortization		—		2,923.8		2,299.9		—		5,223.7
Other intangibles, net of accumulated amortization		606.9		665.4		658.7		—		1,931.0
Investment in affiliates		—		1,169.9		38.3		—		1,208.2
Long-term settlement assets ^(a)		—		—		365.1		—		365.1
Other long-term assets		482.4		265.5		32.8		—		780.7
Investment in consolidated subsidiaries		25,074.4		5,361.4		—	$	(30,435.8)		—

Total assets	$	26,446.7	$	25,372.3	$	16,160.9	$	(30,435.8)	$	37,544.1

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	0.4	$	95.2	$	85.3		—	$	180.9
Short-term and current portion of long-term borrowings		31.7		44.9		193.9		—		270.5
Settlement obligations ^(a)		—		3,476.2		3,582.7		—		7,058.9
Other current liabilities		301.1		651.3		401.3		—		1,353.7

Total current liabilities		333.2		4,267.6		4,263.2		—		8,864.0

Long-term borrowings		22,376.0		21.8		41.0		—		22,438.8
Long-term deferred tax (assets) liabilities		(928.5)		1,838.6		103.6		—		1,013.7
Intercompany payable (receivable)		4,298.1		(3,496.7)		(801.4)		—		—
Intercompany notes		(1,253.2)		1,621.1		(367.9)		—		—
Other long-term liabilities		1,026.8		89.7		23.1		—		1,139.6

Total liabilities		25,852.4		4,342.1		3,261.6		—		33,456.1

Redeemable equity interests		—		—		28.1	$	(28.1)		—
Redeemable noncontrolling interests		—		—		—		28.1		28.1
First Data Corporation stockholder’s equity		594.3		21,030.4		5,864.5		(26,894.9)		594.3
Noncontrolling interests		—		(0.2)		52.5		3,413.3		3,465.6
Equity of consolidated alliance		—		—		6,954.2		(6,954.2)		—

Total equity		594.3		21,030.2		12,871.2		(30,435.8)		4,059.9

Total liabilities and equity	$	26,446.7	$	25,372.3	$	16,160.9	$	(30,435.8)	$	37,544.1

(a)	The majority of the Guarantor settlement assets relate to FDC’s merchant acquiring business. FDC believes the settlement assets are not available to satisfy any claims other than those related to the settlement liabilities.

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


	Three months ended March 31, 2011
	FDC Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidation Adjustments		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(217.1)	$	54.2	$	130.6	$	(152.2)	$	(184.5)
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization (including amortization netted against equity earnings in affiliates and revenues)		2.2		238.3		126.6		—		367.1
Charges (gains) related to other operating expenses and other income (expense)		84.1		1.4		(46.6)		—		38.9
Other non-cash and non-operating items, net		(103.1)		(67.6)		7.2		152.2		(11.3)
(Decrease) increase in cash resulting from changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions		(204.7)		132.9		(30.0)		—		(101.8)

Net cash (used in) provided by operating activities		(438.6)		359.2		187.8		—		108.4

CASH FLOWS FROM INVESTING ACTIVITIES
Current period acquisitions, net of cash acquired		—		(0.2)		—		—		(0.2)
Additions to property and equipment		(2.9)		(22.9)		(30.8)		—		(56.6)
Payments to secure customer service contracts, including outlays for conversion, and capitalized systems development costs		(0.1)		(42.0)		(10.3)		—		(52.4)
Distributions and dividends from subsidiaries		1.0		59.0		—		(60.0)		—
Other investing activities		0.4		0.5		0.5		—		1.4

Net cash used in investing activities		(1.6)		(5.6)		(40.6)		(60.0)		(107.8)

CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net		—		—		(78.9)		—		(78.9)
Debt modification and related financing costs		(18.6)		—		—		—		(18.6)
Principal payments on long-term debt		(0.1)		(10.8)		(4.0)		—		(14.9)
Distributions and dividends paid to noncontrolling interests and redeemable noncontrolling interests		—		—		(9.4)		(56.7)		(66.1)
Distributions paid to equity holders		—		—		(115.7)		115.7		—
Redemption of Parent’s redeemable common stock		(0.2)		—		—		—		(0.2)
Cash dividends		—		—		(1.0)		1.0		—
Intercompany		352.0		(323.6)		(28.4)		—		—

Net cash provided by (used in) financing activities		333.1		(334.4)		(237.4)		60.0		(178.7)

Effect of exchange rate changes on cash and cash equivalents		—		(5.4)		9.5		—		4.1

Change in cash and cash equivalents		(107.1)		13.8		(80.7)		—		(174.0)

Cash and cash equivalents at beginning of period		164.1		21.1		324.3		—		509.5

Cash and cash equivalents at end of period	$	57.0	$	34.9	$	243.6	$	—	$	335.5

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


	Three months ended March 31, 2010
	FDC Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidation Adjustments		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income		$ (240.1)	$	126.3	$	(24.5)	$	(70.1)	$	(208.4)
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization (including amortization netted against equity earnings in affiliates and revenues)		1.8		256.3		121.1		—		379.2
(Gains) charges related to other operating expenses and other income (expense)		(35.7)		7.5		32.2		—		4.0
Other non-cash and non-operating items, net		51.6		(66.0)		0.9		70.1		56.6
(Decrease) increase in cash resulting from changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions		(349.3)		(226.5)		174.8		(1.0)		(402.0)

Net cash (used in) provided by operating activities		(571.7)		97.6		304.5		(1.0)		(170.6)

CASH FLOWS FROM INVESTING ACTIVITIES
Current period acquisitions, net of cash acquired		—		(0.4)		—		—		(0.4)
Payments related to other businesses previously acquired		—		—		(1.3)		—		(1.3)
Proceeds from dispositions, net of expenses paid and cash disposed		—		—		21.2		—		21.2
Payments for additions to property and equipment		(0.8)		(18.3)		(13.7)		—		(32.8)
Payments to secure customer service contracts, including outlays for conversion, and capitalized systems development costs		(0.2)		(39.1)		(9.2)		—		(48.5)
Distributions and dividends from subsidiaries		45.0		24.2		—		(69.2)		—
Other investing activities		2.1		—		15.9		—		18.0

Net cash provided by (used in) investing activities		46.1		(33.6)		12.9		(69.2)		(43.8)

CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net		292.9		—		(3.9)		—		289.0
Principal payments on long-term debt		(32.2)		(18.9)		(5.4)		—		(56.5)
Distributions and dividends paid to noncontrolling interests and redeemable noncontrolling interests		—		—		—		(24.8)		(24.8)
Distributions paid to redeemable equity holders		—		—		(2.5)		2.5		—
Distributions paid to equity holders		—		—		(47.5)		47.5		—
Cash dividends		(4.7)		—		(45.0)		45.0		(4.7)
Intercompany		171.3		(50.9)		(120.4)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company