03.31.2015.10Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
 
FORM 10-Q
 
 
ý  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
OR 
o  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 
 
 
FIRST DATA CORPORATION
(Exact name of registrant as specified in its charter)
www.firstdata.com
 
DELAWARE
 
47-0731996
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
225 LIBERTY STREET
29th FLOOR
 
 
NEW YORK, NEW YORK
 
10281
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code (800) 735-3362
 
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   o  No  ý *
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  ý    No  o
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.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No ý
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, 2015
Common Stock, $0.01 par value per share
 
1,000 shares
 
* The registrant has not been subject to the filing requirements of Section 13 or 15(d) of the Exchange Act since January 1, 2015; however, registrant filed all reports since that date that would have been required to be filed if it were subject to Section 13 or 15(d) of the Exchange Act.


INDEX
 
 
 
 
PAGE
NUMBER
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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FORWARD LOOKING STATEMENTS

Certain matters First Data Corporation (we or our) discusses in this Quarterly Report on Form 10-Q and in other public statements may constitute forward-looking statements. You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “estimates,” or “anticipates” or similar expressions which concern our strategy, plans, projections or intentions. Examples of forward-looking statements include, but are not limited to, all statements we make relating to revenue, earnings before net interest expense, income taxes, depreciation, and amortization (EBITDA), earnings, margins, growth rates and other financial results for future periods. By their nature, forward-looking statements speak only as of the date they are made; are not statements of historical fact or guarantees of future performance; and are subject to risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify. Actual results could differ materially and adversely from our forward-looking statements due to a variety of factors, including the following: (1) our ability to implement and improve processing systems to provide new products, improve functionality, and increase efficiencies; (2) our ability to prevent a material breach of security of any of our systems; (3) our ability to anticipate and respond to technological changes, particularly with respect to e-commerce and mobile commerce; (4) our high degree of leverage; (5) credit and fraud risks in our business units and the merchant alliances, particularly in the context of e-commerce and mobile markets; (6) our merchant alliance program which involves several alliances not under our sole control and each of which acts independently of the others; (7) the impact of new laws, regulations, credit card association rules or other industry standards; (8) adverse impacts from currency exchange rates or currency controls imposed by any government or otherwise; (9) our ability to successfully convert accounts under service contracts with major clients; (10) changes in the interest rate environment that increases interest on our borrowings; (11) consolidation among client financial institutions or other client groups that impacts our client relationships; (12) catastrophic events that impact our or our major customers’ operating facilities, communication systems, and technology; (13) new lawsuits, investigations or proceedings, or changes to our potential exposure in connection with pending lawsuits, investigations or proceedings, and various other factors set forth in our Annual Report on Form 10-K for the period ended December 31, 2014, including but not limited to, Item 1 - Business, Item 1A - Risk Factors, and Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. Except as required by law, we do not intend to revise or update any forward-looking statement as a result of new information, future developments or otherwise.


 


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PART I. FINANCIAL INFORMATION 
ITEM 1.                         FINANCIAL STATEMENTS
FIRST DATA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
 
Three months ended 
 March 31,
(in millions)
 
2015
 
2014
Revenues:
 
 

 
 

Transaction and processing service fees:
 
 

 
 

Merchant related services (a)
 
$
975

 
$
942

Check services
 
59

 
66

Card services (a)
 
447

 
437

Other services
 
124

 
116

Product sales and other (a)
 
217

 
204

Total revenues (excluding reimbursable items)
 
1,822

 
1,765

Reimbursable debit network fees, postage, and other
 
873

 
875

Total revenues
 
2,695

 
2,640

Expenses:
 
 
 
 
Cost of services (exclusive of items shown below)
 
734

 
646

Cost of products sold
 
77

 
80

Selling, general, and administrative
 
499

 
486

Depreciation and amortization
 
251

 
265

Other operating expenses:
 
 
 
 
Restructuring, net
 
1

 
3

Total expenses (excluding reimbursable items)
 
1,562

 
1,480

Reimbursable debit network fees, postage, and other
 
873

 
875

Total expenses
 
2,435

 
2,355

Operating profit
 
260

 
285

Interest income
 
1

 
3

Interest expense
 
(407
)
 
(467
)
Other income
 
35

 
1

 
 
(371
)
 
(463
)
Loss before income taxes and equity earnings in affiliates
 
(111
)
 
(178
)
Income tax expense
 
3

 
37

Equity earnings in affiliates
 
51

 
50

Net loss
 
(63
)
 
(165
)
Less: Net income attributable to noncontrolling interests and redeemable noncontrolling interest
 
49

 
36

Net loss attributable to First Data Corporation
 
$
(112
)
 
$
(201
)
(a)
Includes processing fees, administrative service fees, and other fees charged to merchant alliances accounted for under the equity method of $50 million for the three months ended March 31, 2015, and $44 million for the comparable period in 2014.
 
See Notes to Unaudited Consolidated Financial Statements.

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FIRST DATA CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
 
Three months ended 
 March 31,
(in millions)
 
2015
 
2014
Net loss
 
$
(63
)
 
$
(165
)
Other comprehensive income (loss), net of tax:
 
 

 
 

Net change in unrealized (gains) losses on securities, net of reclassifications
 
6

 
1

Foreign currency translation adjustment
 
(173
)
 
(18
)
Pension liability adjustments
 
—

 
1

Total other comprehensive income (loss), net of tax
 
(167
)
 
(16
)
Comprehensive loss
 
(230
)
 
(181
)
Less: Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interest
 
38

 
37

Comprehensive loss attributable to First Data Corporation
 
$
(268
)
 
$
(218
)
 
See Notes to Unaudited Consolidated Financial Statements.


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FIRST DATA CORPORATION
CONSOLIDATED BALANCE SHEETS
 (Unaudited)
(in millions, except common stock share amounts)
 
As of March 31,
2015
 
As of December 31,
2014
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
340

 
$
358

Accounts receivable, net of allowance for doubtful accounts of $62 and $51
 
1,715

 
1,752

Settlement assets
 
7,688

 
7,555

Other current assets
 
414

 
289

Total current assets
 
10,157

 
9,954

Property and equipment, net of accumulated depreciation of $1,259 and $1,233
 
908

 
930

Goodwill
 
16,861

 
17,017

Customer relationships, net of accumulated amortization of $4,964 and $4,871
 
2,471

 
2,604

Other intangibles, net of accumulated amortization of $1,971 and $1,965
 
1,757

 
1,745

Investment in affiliates
 
1,088

 
1,101

Other long-term assets
 
896

 
918

Total assets
 
$
34,138

 
$
34,269

LIABILITIES AND EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
265

 
$
280

Short-term and current portion of long-term borrowings
 
496

 
161

Settlement obligations
 
7,689

 
7,557

Other current liabilities
 
1,297

 
1,533

Total current liabilities
 
9,747

 
9,531

Long-term borrowings
 
20,641

 
20,711

Long-term deferred tax liabilities
 
530

 
521

Other long-term liabilities
 
790

 
788

Total liabilities
 
31,708

 
31,551

Commitments and contingencies (See Note 7)
 


 


Redeemable noncontrolling interest
 
78

 
70

First Data Corporation shareholder's deficit:
 
 

 
 

Common stock, $0.01 par value; 1,000 shares authorized and issued (2015 and 2014)
 
—

 
—

Additional paid-in capital
 
9,904

 
9,906

Accumulated loss
 
(9,542
)
 
(9,429
)
Accumulated other comprehensive loss
 
(1,085
)
 
(929
)
Total First Data Corporation shareholder's deficit
 
(723
)
 
(452
)
Noncontrolling interests
 
3,075

 
3,100

Total equity
 
2,352

 
2,648

Total liabilities and equity
 
$
34,138

 
$
34,269

 See Notes to Unaudited Consolidated Financial Statements.

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FIRST DATA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
 
Three months ended 
 March 31,
(in millions)
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Net loss
 
$
(63
)

$
(165
)
Adjustments to reconcile to net cash used in operating activities:
 
 

 
 

Depreciation and amortization (including amortization netted against equity earnings in affiliates and revenues)
 
277

 
292

(Gains) charges related to other operating expenses and other income
 
(34
)
 
2

Other non-cash and non-operating items, net
 
(49
)
 
(34
)
Increase (decrease) in cash, excluding the effects of acquisitions and dispositions, resulting from changes in:
 
 

 
 

Accounts receivable, current and long-term
 
(8
)
 
55

Other assets, current and long-term
 
23

 
46

Accounts payable and other liabilities, current and long-term
 
(232
)
 
(251
)
Income tax accounts
 
(16
)
 
11

Net cash used in operating activities
 
(102
)
 
(44
)
CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Proceeds from dispositions, net of expenses paid
 
2


2

Additions to property and equipment
 
(67
)

(54
)
Payments to secure customer service contracts, including outlays for conversion, and capitalized systems development costs
 
(78
)

(62
)
Acquisitions, net of cash acquired
 
(8
)

—

Proceeds from sale of property and equipment
 
—


2

Purchase of investments
 
(16
)
 
—

Net cash used in investing activities
 
(167
)
 
(112
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Short-term borrowings, net
 
337


327

Debt modification payments and related financing costs, net
 
—


(91
)
Principal payments on long-term debt
 
(20
)

(19
)
Distributions and dividends paid to noncontrolling interests and redeemable noncontrolling interest
 
(63
)

(52
)
Capital transactions with parent, net
 
(1
)

(19
)
Net cash provided by financing activities
 
253

 
146

Effect of exchange rate changes on cash and cash equivalents
 
(2
)
 
(6
)
Change in cash and cash equivalents
 
(18
)
 
(16
)
Cash and cash equivalents at beginning of period
 
358

 
425

Cash and cash equivalents at end of period
 
$
340

 
$
409

 
See Notes to Unaudited Consolidated Financial Statements.

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FIRST DATA CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
 
 
 
First Data Corporation Shareholder
 
 
 
 
(in millions, except common share amounts)
 
Common
Shares
 
Accumulated
Loss
 
Accumulated
Other
Comprehensive
Loss
 
Paid-In
Capital
 
Noncontrolling
Interests
 
Total
Balance, December 31, 2014
 
1,000

 
$
(9,429
)
 
$
(929
)
 
$
9,906

 
$
3,100

 
$
2,648

Dividends and distributions paid to noncontrolling interests
 
—

 
—

 
—

 
—

 
(55
)
 
(55
)
Net (loss) income (a)
 
—

 
(112
)
 
—

 
—

 
41

 
(71
)
Other comprehensive loss
 
—

 
—

 
(156
)
 
—

 
(11
)
 
(167
)
Adjustment to redemption value of redeemable noncontrolling interest
 
—

 
—

 
—

 
(8
)
 
—

 
(8
)
Stock compensation expense and other
 
—

 
—

 
—

 
6

 
—

 
6

Cash dividends paid by First Data Corporation to Parent
 
—

 
(1
)
 
—

 
—

 
—

 
(1
)
Balance, March 31, 2015
 
1,000

 
$
(9,542
)
 
$
(1,085
)
 
$
9,904

 
$
3,075

 
$
2,352

 
 
 
First Data Corporation Shareholder
 
 
 
 
(in millions, except common share amounts)
 
Common
Shares
 
Accumulated
Loss
 
Accumulated
Other
Comprehensive
Loss
 
Paid-In
Capital
 
Noncontrolling
Interests
 
Total
Balance, December 31, 2013
 
1,000

 
$
(8,285
)
 
$
(589
)
 
$
7,384

 
$
3,183

 
$
1,693

Dividends and distributions paid to noncontrolling interests
 
—

 
—

 
—

 
—

 
(43
)
 
(43
)
Net (loss) income (a)
 
—

 
(201
)
 
—

 
—

 
27

 
(174
)
Other comprehensive (loss) income
 
—

 
—

 
(17
)
 
—

 
1

 
(16
)
Adjustment to redemption value of redeemable noncontrolling interest
 
—

 
—

 
—

 
(2
)
 
—

 
(2
)
Stock compensation expense and other
 
—

 
—

 
—

 
25

 
—

 
25

Cash dividends paid by First Data Corporation to Parent
 
—

 
(15
)
 
—

 
—

 
—

 
(15
)
Balance, March 31, 2014
 
1,000

 
$
(8,501
)
 
$
(606
)
 
$
7,407

 
$
3,168

 
$
1,468

(a)
The total net loss presented in the Consolidated Statements of Equity for the three months ended March 31, 2015 and 2014 is $8 million and $9 million, respectively, greater than the amount presented in the Consolidated Statements of Operations due to the net income attributable to the redeemable noncontrolling interest not included in equity.
 
See Notes to Unaudited Consolidated Financial Statements.


8


FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 
Note 1: Basis of Presentation and Summary of Significant Accounting Policies
 
Business Description
 
First Data Corporation (FDC or the Company) is a global provider of electronic commerce and payment solutions for merchants, financial institutions, and card issuers. The services the Company provides include merchant transaction processing and acquiring; credit, retail, and debit card issuing and processing; prepaid services; and check verification, settlement and guarantee services.
 
Basis of Presentation
 
The accompanying Unaudited Consolidated Financial Statements of the Company should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. 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, 2015 and the consolidated results of its operations and comprehensive income (loss) for the three months ended March 31, 2015 and 2014 and the consolidated cash flows and changes in equity for the three months ended March 31, 2015 and 2014. 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 Unaudited Consolidated Financial Statements and accompanying notes. Actual results could differ from those estimates.
 
Presentation
 
Depreciation and amortization presented as a separate line item on the Company’s Unaudited 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:

 
 
Three months ended 
 March 31,
(in millions)
 
2015
 
2014
Amortization of initial payments for new contracts
 
$
11

 
$
11

Amortization related to equity method investments
 
15

 
16

 
Revenue Recognition
 
The majority of the Company’s revenues are comprised of: 1) transaction-based fees, which typically constitute a percentage of dollar volume processed; 2) fees per transaction processed; 3) fees per account on file during the period; or 4) some combination thereof.

In multiple-element transactions, revenue is allocated to the separate units of accounting provided each element has stand-alone value to the customer. Stand-alone value is based on the relative selling price of any undelivered items for which delivery is probable and substantially within the Company’s control.
 

9

Table of Contents
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

In the case of merchant contracts that the Company owns and manages, revenue is comprised of fees charged to the merchant, net of interchange and assessments charged by the credit card associations, and is recognized at the time the merchant accepts a point of sale transaction. The fees charged to the merchant are a percentage of the credit card and signature based debit card transaction’s dollar value, a fixed amount or a combination of the two. Personal identification number based debit (PIN-debit) network fees are recognized in “Reimbursable debit network fees, postage, and other” revenues and expenses in the Consolidated Statements of Operations. STAR network access fees charged to merchants are assessed on a per transaction basis. Interchange fees and assessments charged by credit card associations to the Company’s consolidated subsidiaries and network fees related to PIN-debit transactions charged by debit networks are as follows:
 
 
Three months ended 
 March 31,
(in millions)
 
2015
 
2014
Interchange fees and assessments
 
$
4,965

 
$
4,721

Debit network fees
 
710

 
719


New Accounting Guidance
 
In May 2014, the Financial Accounting Standards Board (FASB) issued guidance that requires companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in an exchange for those goods or services. It also requires enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively, and improves guidance for multiple-element arrangements. The guidance applies to any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance is effective for public companies for annual periods beginning after December 15, 2016 as well as interim periods within those annual periods using either the full retrospective approach or modified retrospective approach. Early adoption is not permitted. On April 1, 2015, the FASB proposed deferring the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also proposed permitting early adoption of the standard, but not before the original effective date of December 15, 2016. The Company is currently evaluating the impacts of the new guidance on its consolidated financial statements. 

In April 2015, the FASB issued guidance that requires companies to present debt issuance costs related to a recognized debt liability on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. Debt issuance costs will continue to be amortized to interest expense using the effective interest method. The guidance is effective for public companies for annual periods beginning after December 15, 2015 as well as interim periods within those annual periods using the retrospective approach. The Company is currently evaluating the impacts of the new guidance on its consolidated financial statements. 
Note 2: Supplemental Financial Information
Supplemental Statements of Operations Information
 
The following table details the components of “Other income” on the Consolidated Statements of Operations:
 
 
Three months ended 
 March 31,
(in millions)
 
2015
 
2014
Derivative financial instruments (losses) and gains
 
$
(2
)
 
$
3

Divestitures, net gains
 
1

 
—

Non-operating foreign currency gains and (losses)
 
36

 
(2
)
Other income
 
$
35

 
$
1


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Table of Contents
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 3: Restructuring
 
The Company recorded restructuring charges during the three months ended March 31, 2015 and 2014, in connection with management’s alignment of the business with strategic objectives, cost savings initiatives, the departure of certain executive officers, and refinements of estimates.
 
A summary of net pretax benefits (charges), incurred by segment, for each period is as follows:
 
 
Pretax Benefit (Charge)
(in millions)
 
Merchant
Solutions
 
Financial
Services
 
International
 
All Other
and
Corporate
 
Totals
Three months ended March 31, 2015
 
 
 
 
 
 
 
 
 
 
Restructuring charges
 
$
—

 
$
—

 
$
—

 
$
(1
)
 
$
(1
)
Restructuring accrual reversals
 
—

 
—

 
—

 
—

 
—

Total pretax charge, net of reversals
 
$
—

 
$
—

 
$
—

 
$
(1
)
 
$
(1
)
Three months ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
Restructuring charges
 
$
(1
)
 
$
—

 
$
—

 
$
(2
)
 
$
(3
)
Restructuring accrual reversals
 
—

 
—

 
—

 
—

 
—

Total pretax charge, net of reversals
 
$
(1
)
 
$
—

 
$
—

 
$
(2
)
 
$
(3
)
 
The following table summarizes the Company’s utilization of restructuring accruals for the period presented:
(in millions)
 
Employee
Severance
 
Other
Remaining accrual as of January 1, 2015
 
$
12

 
$
1

Expense provision
 
—

 
1

Cash payments and other
 
(3
)
 
(1
)
Changes in estimates
 
—

 
—

Remaining accrual as of March 31, 2015
 
$
9

 
$
1

 

On May 4, 2015, the Company announced a strategic expense management initiative to optimize its annualized expense base by mid-2016. Anticipated restructuring costs will be $75 million, mainly cash, and will be recognized beginning in the second quarter of 2015. The net charge is expected to include costs for severance, retention and transition, asset impairments, professional services fees, and gains/losses on the sale of facilities. The vast majority of the net charge will be related to personnel (severance, retention and transition).


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FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 4: Borrowings 
(in millions)
 
As of March 31,
2015

As of December 31,
2014
Short-term borrowings:
 
 

 
 

Foreign lines of credit and other arrangements
 
$
30

 
$
68

Senior secured revolving credit facility
 
381

 
10

Total short-term borrowings
 
411

 
78

Current portion of long-term borrowings:
 
 

 
 

4.95% Unsecured notes due 2015
 
10

 
10

Capital lease obligations
 
75

 
73

Total current portion of long-term borrowings
 
85

 
83

Total Short-term and current portion of long-term borrowings
 
496

 
161

Long-term borrowings:
 
 

 
 

Senior secured term loan facility due March 2017, net of unamortized discount of $9 and $10
 
1,449

 
1,451

Senior secured term loan facility due March 2018, net of unamortized discount of $41 and $45
 
4,893

 
4,932

Senior secured term loan facility due September 2018, net of unamortized discount of $25 and $27
 
983

 
981

Senior secured term loan facility due March 2021, net of unamortized discount of $11 and $11
 
1,159

 
1,180

7.375% Senior secured first lien notes due 2019, net of unamortized discount of $18 and $19
 
1,577

 
1,576

8.875% Senior secured first lien notes due 2020, net of unamortized discount of $10 and $10
 
500

 
500

6.75% Senior secured first lien notes due 2020, net of unamortized discount of $13 and $14
 
1,384

 
1,383

8.25% Senior secured second lien notes due 2021, net of unamortized discount of $11 and $11
 
1,989

 
1,989

8.75% Senior secured second lien notes due 2022, net of unamortized discount of $5 and $6
 
995

 
994

12.625% Senior unsecured notes due 2021, net of unamortized discount of $16 and $16
 
2,984

 
2,984

10.625% Senior unsecured notes due 2021, net of unamortized discount of $15 and $16
 
515

 
514

11.25% Senior unsecured notes due 2021, net of unamortized discount of $14 and $15
 
496

 
495

11.75% Senior unsecured subordinated notes due 2021, net of unamortized discount of $11 and $11
 
1,598

 
1,598

Capital lease obligations
 
119

 
134

Total long-term borrowings
 
20,641

 
20,711

Total borrowings
 
$
21,137

 
$
20,872


Foreign Lines of Credit and Other Arrangements
 
As of March 31, 2015 and December 31, 2014, the Company had approximately $304 million and $349 million available under short-term lines of credit and other arrangements with foreign banks and alliance partners primarily to fund settlement activity, respectively. As of March 31, 2015, the Company had a $150 million committed line of credit for one of the Company's U.S. alliances. The remainder of these arrangements is 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. Of the amounts outstanding as of March 31, 2015 and December 31, 2014, $27 million and $67 million, respectively, were uncommitted.
 

12

Table of Contents
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Senior Secured Revolving Credit Facility
 
As of March 31, 2015, the Company’s senior secured revolving credit facility had commitments from financial institutions to provide approximately $1.0 billion of credit. The revolving credit facility matures on September 24, 2016. The Company had $381 million and $10 million outstanding against this facility as of March 31, 2015 and December 31, 2014, respectively. Up to $500 million of the senior secured revolving credit facility is available for letters of credit, of which $42 million and $43 million of letters of credit were issued under the facility as of March 31, 2015 and December 31, 2014, respectively. As of March 31, 2015, $593 million remained available.

Fair Value Measurement
 
As of March 31, 2015, the fair value of the Company's long-term borrowings was $22.2 billion. The estimated fair value of the Company's long-term borrowings was primarily based on market trading prices and is considered to be a Level 2 measurement.
Note 5: Segment Information
 
For a detailed discussion of the Company’s principles and detailed discussions regarding its operating segments refer to Note 13 “Segment Information” in the Company’s Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” and “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, 2014. 

During the fourth quarter of 2014 the Company announced the expansion of its Management Committee. The Company continues to evaluate the changes to its reporting that may be made as a result of the expansion, to best assist the chief operating decision maker (the Company's Chief Executive Officer) in monitoring and managing the businesses. Should the reporting change, the Company will retroactively revise its segment disclosures.

The following tables present the Company’s operating segment results for the periods presented:
 
 
Three months ended March 31, 2015
(in millions)
 
Merchant
Solutions
 
Financial
Services
 
International
 
All Other
and
Corporate
 
Totals
Revenues:
 
 

 
 

 
 

 
 

 
 

Transaction and processing service fees
 
$
782

 
$
358

 
$
308

 
$
21

 
$
1,469

Product sales and other
 
106

 
14

 
84

 
14

 
218

Equity earnings in affiliates (a)
 
—

 
—

 
6

 
—

 
6

Total segment reporting revenues
 
$
888

 
$
372

 
$
398

 
$
35

 
$
1,693

Internal revenue
 
$
4

 
$
8

 
$
3

 
$
—

 
$
15

External revenue
 
884

 
364

 
395

 
35

 
1,678

Depreciation and amortization
 
93

 
80

 
56

 
16

 
245

Segment EBITDA (b)
 
368

 
180

 
97

 
(82
)
 
563

Other operating expenses and other income (expense) excluding divestitures
 
22

 
—

 
(16
)
 
27

 
33

 

13

Table of Contents
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
 
Three months ended March 31, 2014
(in millions)
 
Merchant
Solutions
 
Financial
Services
 
International
 
All Other
and
Corporate
 
Totals
Revenues:
 
 

 
 

 
 

 
 

 
 

Transaction and processing service fees
 
$
761

 
$
338

 
$
327

 
$
18

 
$
1,444

Product sales and other
 
95

 
11

 
87

 
14

 
207

Equity earnings in affiliates (a)
 
—

 
—

 
7

 
—

 
7

Total segment reporting revenues
 
$
856

 
$
349

 
$
421

 
$
32

 
$
1,658

Internal revenue
 
$
5

 
$
9

 
$
2

 
$
—

 
$
16

External revenue
 
851

 
340

 
419

 
32

 
1,642

Depreciation and amortization
 
108

 
80

 
63

 
11

 
262

Segment EBITDA (b)
 
370

 
173

 
128

 
(57
)
 
614

Other operating expenses and other income (expense) excluding divestitures
 
(19
)
 
—

 
(6
)
 
23

 
(2
)

(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)
Earnings before net interest expense, income taxes, depreciation, and amortization (EBITDA).



 

14

Table of Contents
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

A reconciliation of reportable segment amounts to the Company’s consolidated balances is as follows:
 
 
Three months ended 
 March 31,
(in millions)
 
2015
 
2014
Segment Revenues:
 
 

 
 

Merchant Solutions
 
$
888

 
$
856

Financial Services
 
372

 
349

International
 
398

 
421

Subtotal segment revenues
 
1,658

 
1,626

All Other and Corporate
 
35

 
32

Adjustments to reconcile to Adjusted revenue:
 
 
 
 
Official check and money order revenues (a)
 
—

 
(1
)
Eliminations of intersegment revenues
 
(15
)
 
(16
)
Adjusted revenue
 
1,678

 
1,641

Adjustments to reconcile to Consolidated revenues:
 
 
 
 
Adjustments for non-wholly-owned entities (b) 
 
20

 
1

Official check and money order revenues (a)
 
—

 
1

Independent sales organizations (ISO) commission expense
 
124

 
122

Reimbursable debit network fees, postage and other
 
873

 
875

Consolidated revenues
 
$
2,695

 
$
2,640

Segment EBITDA:
 
 
 
 
Merchant Solutions
 
$
368

 
$
370

Financial Services
 
180

 
173

International
 
97

 
128

Total reported segments
 
645

 
671

All Other and Corporate
 
(82
)
 
(57
)
Adjusted EBITDA
 
563

 
614

Adjustments to reconcile to Net loss attributable to First Data Corporation:
 
 
 
 
Adjustments for non-wholly-owned entities (b)
 
7

 
2

Depreciation and amortization
 
(251
)
 
(265
)
Interest expense
 
(407
)
 
(467
)
Interest income
 
1

 
3

Other items (c)
 
(5
)
 
(7
)
Income tax expense
 
(3
)
 
(37
)
Stock based compensation
 
(7
)
 
(29
)
Official check and money order EBITDA (a)
 
—

 
1

Costs of alliance conversions
 
(3
)
 
(7
)
Kohlberg Kravis Roberts & Co. (KKR) related items
 
(6
)
 
(6
)
Debt issuance costs
 
(1
)
 
(3
)
Net loss attributable to First Data Corporation
 
$
(112
)
 
$
(201
)

(a)
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.
(b) 
Represents the net adjustment to reflect the Company’s proportionate share of alliance revenue and EBITDA within the Merchant Solutions segment, equity earnings in affiliates included in International segment revenue and amortization related to equity method investments not included in segment EBITDA.
(c)
Includes restructuring, litigation and regulatory settlements, derivative gains and (losses), non-operating foreign currency gains and (losses), divestitures and impairments as applicable to the periods presented and “Other income” as presented in the Consolidated Statements of Operations.


15

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FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

A reconciliation of reportable segment depreciation and amortization amounts to the Company’s consolidated balances in the Consolidated Statements of Cash Flows and Consolidated Statements of Operations is as follows:
 
 
Three months ended 
 March 31,
(in millions)
 
2015
 
2014
Total reported segments
 
$
229

 
$
251

All Other and Corporate
 
16

 
11

Total segment depreciation and amortization
 
245

 
262

Adjustments for non-wholly-owned entities
 
21

 
19

Amortization of initial payments for new contracts
 
11

 
11

Total consolidated depreciation and amortization per Consolidated Statements of Cash Flows
 
277

 
292

Less: Amortization of equity method investment
 
(15
)
 
(16
)
Less: Amortization of initial payments for new contracts
 
(11
)
 
(11
)
Total consolidated depreciation and amortization per Consolidated Statements of Operations
 
$
251

 
$
265

Note 6: Redeemable Noncontrolling Interest
 
One of the Company's noncontrolling interests is redeemable at the option of the holder and is presented outside of equity and carried at its estimated redemption value.

The following table presents a summary of the redeemable noncontrolling interest activity during the periods presented:
(in millions)
 
2015
 
2014
Balance as of January 1,
 
$
70

 
$
69

Distributions
 
(8
)
 
(9
)
Share of income
 
8

 
9

Adjustment to redemption value of redeemable noncontrolling interest
 
8

 
2

Balance as of March 31,
 
$
78

 
$
71

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 Unaudited 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
 
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 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 $50 million for patent infringement, $0 to $15 million for merchant customer matters, and $0 to $40 million for other matters, resulting in a total estimated range of possible losses of $0 to $105 million for all of the matters described above.
 

16

Table of Contents
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The estimated range of reasonably possible losses is based on information currently available and involves elements of judgment and significant uncertainties. As additional information becomes available and the resolution of the uncertainties becomes more apparent, it is possible that actual losses may exceed even the high end of the estimated range.
 
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. 

Contingent Consideration
 
Over the past three years, the Company completed three acquisitions in which contingent consideration was recorded. The transactions called for cash consideration as well as contingent payments for achievement of certain milestones. As part of the purchase price, the Company recorded a $29 million liability for the contingent consideration, of which $1 million was paid in the first quarter of 2015. This fair value measurement represents a Level 3 measurement as it is based on significant inputs not observable in the market. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date. The primary assumption is the estimated number of merchant locations that will be using the software or technology in the next three years.
Note 8: Stock Compensation Plans
 
The Company’s parent, First Data Holdings, Inc. (FDH), has a stock incentive plan for employees of the Company and its affiliates (stock plan). Stock compensation expense associated with this stock plan is recorded by the Company. Stock compensation expense for certain awards is only recognized upon liquidity or an employment termination event which triggers vesting. For the remaining awards that vest based solely on service conditions, expense is recognized over the requisite service period.
 
Total stock-based compensation expense recognized in the “Selling, general, and administrative” line item of the Unaudited Consolidated Statements of Operations was as follows for the periods presented:
 
 

Three months ended 
 March 31,
(in millions)

2015

2014
Total stock-based compensation expense (pretax)

$
7

 
$
29

 
During the three months ended March 31, 2014, $23 million of stock-based compensation expense was recognized as a result of the departure of certain executive officers.

Stock Options
 
As of March 31, 2015, there was approximately $169 million of total unrecognized compensation expense related to non-vested stock options that will only be recognized upon a qualified public offering or certain liquidity or employment termination events.

Restricted Stock Awards and Restricted Stock Units

Beginning in 2014, substantially all of the Company's employees are granted restricted stock awards on an annual basis and during the three months ended March 31, 2015, 39 million restricted stock awards were granted. The restrictions on a majority of these awards will lapse upon the later of three years or following an initial public offering or upon certain employment termination events. For the remainder of these awards, the restrictions will lapse following an initial public offering or upon certain employment termination events.
 
As of March 31, 2015, there was $337 million of total unrecognized compensation expense related to restricted stock, of which $2 million will be recognized over a period of approximately one year while $335 million will only be recognized upon the occurrence of certain liquidity or employment termination events.
 

17

Table of Contents
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

For additional information on the Company’s Stock Compensation Plans refer to Note 11 “Stock Compensation Plans” in the Company’s Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. 
Note 9: Derivative Financial Instruments

The Company enters into the following types of derivatives:

Interest rate contracts:

•
Interest rate swaps: The Company uses interest rate swaps to mitigate its exposure to interest rate fluctuations on interest payments related to variable rate debt. The Company uses these contracts in non-qualifying hedging relationships.

•
Fixed to floating interest rate swaps: The Company uses fixed to floating interest rate swaps to maintain a desired ratio of fixed rate and floating rate debt. The Company uses these contracts in non-qualifying hedging relationships.

Foreign exchange contracts: The Company uses cross-currency swaps to protect the net investment in certain foreign subsidiaries and/or affiliates with respect to changes in foreign currency exchange rates. The Company uses these contracts in both qualifying and non-qualifying hedging relationships.

The Company held the following derivative instruments as of the dates indicated:
 
 
 
 
 
As of March 31, 2015
 
As of December 31, 2014
(in millions)
 
Notional Currency
 
Notional Value
 
Assets
(a) (b)
 
Liabilities
(a) (c)
 
Notional Value
 
Assets
(a) (b)
 
Liabilities
(a) (c)
Derivatives designated as hedges of net investments in foreign operations:
 
 
 
 
 
 

 
 

 
 

 
 

 
 

Foreign exchange contracts
 
AUD
 
260

 
$
56

 
$
—

 
260

 
$
41

 
$
—

Foreign exchange contracts
 
EUR
 
200

 
53

 
—

 
200

 
27

 
—

Foreign exchange contracts
 
GBP
 
250

 
37

 
—

 
250

 
18

 
—

Foreign exchange contracts
 
CAD
 
110

 
17

 
—

 
110

 
9

 
—

 
 
 
 
 
 
163

 
—

 
 
 
95

 
—

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
USD
 
5,750

 
59

 
(106
)
 
5,750

 
47

 
(105
)
Foreign exchange contracts
 
EUR
 
22

 
4

 
—

 
22

 
1

 
—

 
 
 
 
 
 
63

 
(106
)
 
 
 
48

 
(105
)
 
 
 
 
 
 
$
226

 
$
(106
)
 
 
 
$
143

 
$
(105
)

(a)
Of the balances included in the table above, in aggregate, $222 million of assets and $96 million of liabilities, net $126 million, as of March 31, 2015 and $142 million of assets and $96 million of liabilities, net $46 million, as of December 31, 2014 are subject to master netting agreements to the extent that the swaps are with the same counterparty. The terms of those agreements require that the Company net settle the outstanding positions at the option of the counterparty upon certain events of default.
(b)
Derivative assets included in “Other current assets” and “Other long-term assets” in the Consolidated Balance Sheets.
(c)
Derivative liabilities included in “Other current liabilities” and “Other long-term liabilities” in the Consolidated Balance Sheets.

The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions excluding those forecasted transactions related to the payment of variable interest on existing financial instruments is through January 2018.

Fair Value Measurement

The carrying amounts for the Company's Derivative financial instruments are the estimated fair value of the financial instruments. 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

18

Table of Contents
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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.

Effect of Derivative Instruments on the Consolidated Statements of Operations

Derivative gains and (losses) were as follows for the periods indicated:
 
 
Three months ended March 31,
 
 
2015
 
2014
(in millions, pretax)
 
Interest
Rate
Contracts
 
Foreign
Exchange
Contracts
 
Interest
Rate
Contracts
 
Foreign
Exchange
Contracts
Derivatives in net investment hedging relationships:
 
 

 
 

 
 

 
 

Gain (loss) recognized in other comprehensive income (loss) (effective portion)
 
$
—

 
$
67

 
$
—

 
$
(7
)
Derivatives not designated as hedging instruments:
 
 

 
 

 
 

 
 

Gain (loss) recognized in Other income (expense) in the Consolidated Statements of Operations
 
(5
)
 
3

 
3

 
—


Accumulated Derivative Gains and Losses

The following table summarizes activity in other comprehensive income for the three months ended March 31, 2015 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, 2015
Accumulated gain included in other comprehensive income (loss) at beginning of the period
 
$
37

Less: Reclassifications into earnings from other comprehensive income (loss), net of tax
 
—

 
 
37

Increase in fair value of derivatives that qualify for hedge accounting (a)
 
42

Accumulated gain included in other comprehensive income (loss) at end of the period
 
$
79


(a)
Gains and (losses) are included in “Unrealized gains on hedging activities” and in “Foreign currency translation adjustment” on the Consolidated Statements of Comprehensive Income (Loss). 
Note 10: Income Taxes
 
The effective tax rates on the Company's pretax loss were expenses of 5% and 29% for the three months ended March 31, 2015 and 2014, respectively.

The effective tax rate for the three months ended March 31, 2015 was lower than the statutory rate primarily because it is not more likely than not, due to the valuation allowances recorded in the U.S. and certain foreign jurisdictions, that the computed year-to-date tax benefit would be realized at the end of the year.

The effective tax rate for the three months ended March 31, 2014 was lower than the statutory rate primarily as a result of recognizing tax expense in jurisdictions with pretax income while being precluded from recognizing deferred tax benefits on pretax losses in the U.S. and certain foreign jurisdictions that are subject to valuation allowances. The negative impact from the valuation allowance was partially offset by state tax benefits and by the Company not having to record tax expense attributable to the noncontrolling interest portion of pre-tax income from pass through entities.


19

Table of Contents
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Company's liability for unrecognized tax benefits was approximately $240 million as of March 31, 2015. The Company anticipates it is reasonably possible that the liability for unrecognized tax benefits may decrease by approximately $123 million within the next twelve months as the result of the possible closure of federal tax audits, potential settlements with certain states and foreign countries and the lapse of the statute of limitations in various state and foreign jurisdictions.
Note 11: Investment in Affiliates
 
Segment results include the Company’s proportionate share of income from affiliates, which consist of unconsolidated investments accounted for under the equity method of accounting. The most significant of these affiliates are related to the Company’s merchant bank alliance program.
 
As of March 31, 2015, the Company has an unconsolidated significant subsidiary that is not required to be consolidated, but represents more than 20% of the Company’s pretax loss. This affiliate became significant during the second quarter of 2014 and its summarized financial information is presented below for the periods indicated:
 
(in millions)
 
Three months ended 
 March 31, 2015
Net operating revenues
 
$
211

Operating expenses
 
89

Operating income
 
$
122

Net income
 
$
122

FDC equity earnings
 
38

 

20

Table of Contents
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 12: Supplemental Guarantor Condensed Consolidating Financial Statements
 
As described in Note 6 "Borrowings" in the Company's Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, the Company’s 12.625% senior notes, 11.25% senior notes, 10.625% senior notes, and 11.75% senior subordinated notes are guaranteed by most of the existing and future, direct and indirect, wholly owned, domestic subsidiaries of the Company (Guarantors). The Guarantors guarantee the senior secured revolving credit facility, senior secured term loan facility, the 8.875% senior secured notes, the 7.375% senior secured notes, and the 6.75% senior secured notes, which rank senior in right of payment to all existing and future unsecured and second lien indebtedness of the Company’s guarantor subsidiaries to the extent of the value of the collateral. The Guarantors guarantee the 8.25% and 8.75% senior second lien notes which rank senior in right of payment to all existing and future unsecured indebtedness of the Company’s guarantor subsidiaries to the extent of the value of the collateral. The 12.625% senior note, 10.625% senior note, and 11.25% senior 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 the Company’s guarantor subsidiaries. The 11.75% senior subordinated note guarantee is unsecured and ranks equally in right of payment with all existing and future senior subordinated indebtedness of the guarantor subsidiaries.
 
All of the above guarantees are full, unconditional, and joint and several and each of the Guarantors is 100% owned, directly or indirectly, by the Company. None of the other subsidiaries of the Company, either direct or indirect, guarantee the notes (Non-Guarantors). The Guarantors are subject to release under certain circumstances as described below.
 
The credit agreement governing the guarantees of the senior secured revolving credit facility and senior secured term loan facility provide for a Guarantor to be automatically and unconditionally released and discharged from its guarantee obligations in certain circumstances, including under the following circumstances:
 
•
the Guarantor ceases to be a “restricted subsidiary” for purpose of the agreement because the Company no longer directly or indirectly owns 50% of the equity or, if a corporation, stock having voting power to elect a majority of the board of directors of the Guarantor; or
•
the Guarantor is designated as an “unrestricted subsidiary” for purposes of the agreement covenants; or
•
the Guarantor is no longer wholly owned by the Company subject to the value of all Guarantors released under this provision does not exceed (x) 10% of the Company’s Consolidated EBITDA plus (y) the amount of investments permitted under the agreement in respect of non-guarantors.
 
The indentures governing all of the other guarantees described above provide for a Guarantor to be automatically and unconditionally released and discharged from its guarantee obligations in certain circumstances, including upon the earliest to occur of:
 
•
the sale, exchange or transfer of the subsidiary’s capital stock or all or substantially all of its assets;
•
designation of the Guarantor as an “unrestricted subsidiary” for purposes of the indenture covenants;
•
release or discharge of the Guarantor’s guarantee of certain other indebtedness; or
•
legal defeasance or covenant defeasance of the indenture obligations when provision has been made for them to be fully satisfied.

During the third quarter of 2014, the senior secured loan facilities were amended and three subsidiaries were removed as guarantors. Although these changes were not material and did not have an impact to the Company’s Unaudited Consolidated Financial Statements, the Company adjusted prior periods to align with the new guarantor structure. These adjustments are limited to the guarantor footnote and do not affect any other reported amounts or disclosures in the Company’s Unaudited Consolidated Financial Statements. A summary of the adjustments is as follows:



21

Table of Contents
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
 
Three months ended March 31, 2014
 
 
FDC Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidation Adjustments
(in millions)
 
As previously reported
As adjusted
 
As previously reported
As adjusted
 
As previously reported
As adjusted
 
As previously reported
As adjusted
Revenues
 
$
—

$
—

 
$
1,771

$
1,642

 
$
943

$
1,072

 
$
(74
)
$
(74
)
(Loss) income before income taxes and equity earnings in affiliates
 
(278
)
(278
)
 
158

160

 
125

126

 
(183
)
(186
)
Income tax (benefit) expense
 
(77
)
(77
)
 
67

65

 
47

49

 
—

—

Net (loss) income attributable to First Data Corporation
 
(201
)
(201
)
 
142

141

 
61

66

 
(203
)
(207
)
Comprehensive (loss) income attributable to First Data Corporation
 
(218
)
(218
)
 
151

120

 
42

76

 
(193
)
(196
)

 
 
Three months ended March 31, 2014
 
 
FDC Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidation Adjustments
(in millions)
 
As previously reported
As adjusted
 
As previously reported
As adjusted
 
As previously reported
As adjusted
 
As previously reported
As adjusted
Net cash (used in) provided by operating activities
 
$
(630
)
$
(630
)
 
$
365

$
364

 
$
221

$
222

 
$
—

$
—

Net cash provided by (used in) investing activities
 
27

27

 
(19
)
(12
)
 
(48
)
(55
)
 
(72
)
(72
)
Net cash provided by (used in) financing activities
 
574

574

 
(348
)
(360
)
 
(152
)
(140
)
 
72

72


The following tables present the results of operations, comprehensive income, financial position and cash flows of the Company (FDC Parent Company), the Guarantor subsidiaries, the Non-Guarantor subsidiaries and consolidation adjustments for the period presented to arrive at the information for the Company on a consolidated basis.

22

Table of Contents
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Three months ended March 31, 2015
(in millions)
 
FDC Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidation
Adjustments
 
Consolidated
Revenues:
 
 

 
 

 
 

 
 

 
 

Transaction and processing service fees
 
$
—

 
$
945

 
$
733

 
$
(73
)
 
$
1,605

Product sales and other
 
—

 
134

 
97

 
(14
)
 
217

Reimbursable debit network fees, postage, and other
 
—

 
601

 
272

 
—

 
873

Total revenues
 
—

 
1,680

 
1,102

 
(87
)
 
2,695

Expenses:
 
 
 
 
 
 
 
 
 
 
Cost of services (exclusive of items shown below)
 
—

 
405

 
402

 
(73
)
 
734

Cost of products sold
 
—

 
53

 
38

 
(14
)
 
77

Selling, general, and administrative
 
32

 
287

 
180

 
—

 
499

Reimbursable debit network fees, postage, and other
 
—

 
601

 
272

 
—

 
873

Depreciation and amortization
 
4

 
150

 
97

 
—

 
251

Other operating expenses:
 
 
 
 
 
 
 
 
 
 
Restructuring, net
 
(1
)
 
2

 
—

 
—

 
1

Total expenses
 
35

 
1,498

 
989

 
(87
)
 
2,435

Operating (loss) profit
 
(35
)
 
182

 
113

 
—

 
260

Interest income
 
—

 
—

 
1

 
—

 
1

Interest expense
 
(402
)
 
(3
)
 
(2
)
 
—

 
(407
)
Interest income (expense) from intercompany notes
 
81

 
(77
)
 
(4
)
 
—

 
—

Other income (expense)
 
69

 
—

 
(34
)
 
—

 
35

Equity earnings from consolidated subsidiaries
 
172

 
38

 
—

 
(210
)
 
—

 
 
(80
)
 
(42
)
 
(39
)
 
(210
)
 
(371
)
(Loss) income before income taxes and equity earnings in affiliates
 
(115
)
 
140

 
74

 
(210
)
 
(111
)
Income tax (benefit) expense
 
(3
)
 
3

 
3

 
—

 
3

Equity earnings in affiliates
 
—

 
48

 
3

 
—

 
51

Net (loss) income
 
(112
)
 
185

 
74

 
(210
)
 
(63
)
Less: Net income attributable to noncontrolling interests and redeemable noncontrolling interest
 
—

 
—

 
16

 
33

 
49

Net (loss) income attributable to First Data Corporation
 
$
(112
)
 
$
185

 
$
58

 
$
(243
)
 
$
(112
)
Comprehensive (loss) income
 
$
(267
)
 
$
158

 
$
(156
)
 
$
35

 
$
(230
)
Less: Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interest
 
—

 
—

 
5

 
33

 
38

Comprehensive (loss) income attributable to First Data Corporation
 
$
(267
)
 
$
158

 
$
(161
)
 
$
2

 
$
(268
)


23

Table of Contents
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
 
Three months ended March 31, 2014 (As Adjusted)
(in millions)
 
FDC Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidation
Adjustments
 
Consolidated
Revenues:
 
 

 
 

 
 

 
 

 
 

Transaction and processing service fees
 
$
—

 
$
894

 
$
726

 
$
(59
)
 
$
1,561

Product sales and other
 
—

 
122

 
97

 
(15
)
 
204

Reimbursable debit network fees, postage, and other
 
—

 
626

 
249

 
—

 
875

Total revenues
 
—

 
1,642

 
1,072

 
(74
)
 
2,640

Expenses:
 
 
 
 
 
 
 
 
 
 
Cost of services (exclusive of items shown below)
 
—

 
337

 
368

 
(59
)
 
646

Cost of products sold
 
—

 
52

 
43

 
(15
)
 
80

Selling, general, and administrative
 
42

 
275

 
169

 
—

 
486

Reimbursable debit network fees, postage, and other
 
—

 
626

 
249

 
—

 
875

Depreciation and amortization
 
2

 
154

 
109

 
—

 
265

Other operating expenses:
 
 
 
 
 
 
 
 
 
 
Restructuring, net
 
1

 
2

 
—

 
—

 
3

Total expenses
 
45

 
1,446

 
938

 
(74
)
 
2,355

Operating (loss) profit
 
(45
)
 
196

 
134