Supplemental Guarantor Condensed Consolidating Financial Statements

3 Months Ended

Mar. 31, 2016

Supplemental Guarantor Condensed Consolidating Financial Statements

Supplemental Guarantor Condensed Consolidating Financial Statements

Supplemental Guarantor Condensed Consolidating Financial Statements

As described in note 2 "Borrowings" in "Item 8. Financial Statements and Supplementary Data" in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, FDC's 7.0% senior notes are guaranteed by most of the existing and future, direct and indirect, wholly owned, domestic subsidiaries of FDC (Guarantors). The Guarantors guarantee the senior secured revolving credit facility, senior secured term loan facility, the 5.0% senior secured notes, the 5.375% 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 FDC’s guarantor subsidiaries to the extent of the value of the collateral. The Guarantors guarantee the 5.75% senior second lien notes which rank senior in right of payment to all existing and future unsecured indebtedness of FDC’s guarantor subsidiaries to the extent of the value of the collateral. The 7.0% senior note guarantee is unsecured and ranks 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.

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 Covenant 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.

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 periods presented to arrive at the information for the Company on a consolidated basis:

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three months ended March 31, 2016
(in millions)	FDC Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidation Adjustments			Consolidated
Revenues:
Transaction and processing service fees	$	—		$	948		$	718		$	(75	)	$	1,591
Product sales and other	—			194			117			(32		)	279
Total revenues (excluding reimbursable items)	—			1,142			835			(107		)	1,870
Reimbursable PIN debit fees, postage, and other	—			622			285			—			907
Total revenues	—			1,764			1,120			(107		)	2,777
Expenses:
Cost of services (exclusive of items shown below)	—			406			352			(27		)	731
Cost of products sold	—			70			40			(32		)	78
Selling, general, and administrative	166			254			192			(48		)	564
Depreciation and amortization	1			149			88			—			238
Other operating expenses	12			7			2			—			21
Total expenses (excluding reimbursable items)	179			886			674			(107		)	1,632
Reimbursable PIN debit fees, postage, and other	—			622			285			—			907
Total expenses	179			1,508			959			(107		)	2,539
Operating (loss) profit	(179		)	256			161			—			238
Interest expense, net	(256		)	(5		)	(2		)	—			(263		)
Loss on debt extinguishment	(46		)	—			—			—			(46		)
Interest income (expense) from intercompany notes	63			(62		)	(1		)	—			—
Other (expense) income	(2		)	—			8			—			6
Equity earnings from consolidated subsidiaries	226			56			—			(282		)	—
(Loss) income before income taxes and equity earnings in affiliates	(194		)	245			166			(282		)	(65		)
Income tax (benefit) expense	(138		)	115			28			—			5
Equity earnings in affiliates	—			55			9			—			64
Net (loss) income	(56		)	185			147			(282		)	(6		)
Less: Net income attributable to noncontrolling interests and redeemable noncontrolling interest	—			—			19			31			50
Net (loss) income attributable to First Data Corporation	$	(56	)	$	185		$	128		$	(313	)	$	(56	)
Comprehensive (loss) income	$	(122	)	$	198		$	150		$	(296	)	$	(70	)
Less: Comprehensive income (loss) attributable to noncontrolling interests and redeemable noncontrolling interest	—			—			21			31			52
Comprehensive income (loss) attributable to First Data Corporation	$	(122	)	$	198		$	129		$	(327	)	$	(122	)

	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	$	—		$	914		$	725		$	(73	)	$	1,566
Product sales and other	—			165			105			(14		)	256
Total revenues (excluding reimbursable items)	—			1,079			830			(87		)	1,822
Reimbursable PIN debit 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			382			(73		)	714
Cost of products sold	—			53			37			(14		)	76
Selling, general, and administrative	32			287			201			—			520
Depreciation and amortization	4			150			97			—			251
Other operating (income) expenses	(1		)	2			—			—			1
Total expenses (excluding reimbursable items)	35			897			717			(87		)	1,562
Reimbursable PIN debit fees, postage, and other	—			601			272			—			873
Total expenses	35			1,498			989			(87		)	2,435
Operating (loss) profit	(35		)	182			113			—			260
Interest expense, net	(402		)	(3		)	(1		)	—			(406		)
Interest income (expense) from intercompany notes	81			(77		)	(4		)	—			—
Other income (expense)	69			—			(34		)	—			35
Equity earnings from consolidated subsidiaries	172			38			—			(210		)	—
(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	)

CONSOLIDATED BALANCE SHEETS

	As of March 31, 2016
(in millions)	FDC Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidation Adjustments			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	2	$	24	$	285	$	—		$	311
Accounts receivable, net of allowance for doubtful accounts	—		496		1,272		—			1,768
Settlement assets (a)	—		3,766		4,011		—			7,777
Intercompany notes receivable	1		—		—		(1		)	—
Other current assets	86		171		102		—			359
Total current assets	89		4,457		5,670		(1		)	10,215
Property and equipment, net of accumulated depreciation	37		646		281		—			964
Goodwill	—		9,145		7,717		—			16,862
Customer relationships, net of accumulated amortization	—		1,182		861		—			2,043
Other intangibles, net of accumulated amortization	604		703		485		—			1,792
Investment in affiliates	4		889		147		—			1,040
Long-term intercompany receivables	9,036		15,683		7,123		(31,842		)	—
Long-term intercompany notes receivable	3,474		215		9		(3,698		)	—
Long-term deferred tax assets	479		—		—		(479		)	—
Other long-term assets	248		364		264		(67		)	809
Investment in consolidated subsidiaries	26,263		5,886		—		(32,149		)	—
Total assets	$	40,234	$	39,170	$	22,557	$	(68,236	)	$	33,725
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	334	$	681	$	522	$	—		$	1,537
Short-term and current portion of long-term borrowings	267		61		276		—			604
Settlement obligations (a)	—		3,766		4,011		—			7,777
Intercompany notes payable	—		—		1		(1		)	—
Total current liabilities	601		4,508		4,810		(1		)	9,918
Long-term borrowings	18,675		182		—		—			18,857
Long-term deferred tax liabilities	—		836		86		(479		)	443
Long-term intercompany payables	19,646		7,111		5,085		(31,842		)	—
Long-term intercompany notes payable	224		3,383		91		(3,698		)	—
Other long-term liabilities	463		278		149		(67		)	823
Total liabilities	39,609		16,298		10,221		(36,087		)	30,041
Redeemable equity interest	—		—		73		(73		)	—
Redeemable noncontrolling interest	—		—		—		73			73
First Data Corporation stockholders' equity	625		22,872		6,277		(29,149		)	625
Noncontrolling interests	—		—		100		2,886			2,986
Equity of consolidated alliance	—		—		5,886		(5,886		)	—
Total equity	625		22,872		12,263		(32,149		)	3,611
Total liabilities and equity	$	40,234	$	39,170	$	22,557	$	(68,236	)	$	33,725

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

	As of December 31, 2015
(in millions)	FDC Parent Company		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Consolidation Adjustments			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	105	$	16	$	308	$	—		$	429
Accounts receivable, net of allowance for doubtful accounts	—		826		1,000		—			1,826
Settlement assets (a)	—		4,273		3,877		—			8,150
Intercompany notes receivable	436		86		10		(532		)	—
Other current assets	98		188		95		—			381
Total current assets	639		5,389		5,290		(532		)	10,786
Property and equipment, net of accumulated depreciation	37		640		274		—			951
Goodwill	—		9,139		7,707		—			16,846
Customer relationships, net of accumulated amortization	—		1,235		901		—			2,136
Other intangibles, net of accumulated amortization	604		703		476		—			1,783
Investment in affiliates	5		900		143		—			1,048
Long-term intercompany receivables	8,523		15,192		6,321		(30,036		)	—
Long-term intercompany notes receivable	3,415		236		9		(3,660		)	—
Long-term deferred tax assets	524		—		—		(524		)	—
Other long-term assets	259		358		265		(70		)	812
Investment in consolidated subsidiaries	25,692		5,588		—		(31,280		)	—
Total assets	$	39,698	$	39,380	$	21,386	$	(66,102	)	$	34,362
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	283	$	792	$	564	$	—		$	1,639
Short-term and current portion of long-term borrowings	740		70		46		—			856
Settlement obligations (a)	—		4,273		3,877		—			8,150
Intercompany notes payable	96		408		28		(532		)	—
Total current liabilities	1,119		5,543		4,515		(532		)	10,645
Long-term borrowings	18,616		119		2		—			18,737
Long-term deferred tax liabilities	—		875		80		(524		)	431
Long-term intercompany payables	18,583		6,874		4,579		(30,036		)	—
Long-term intercompany notes payable	245		3,353		62		(3,660		)	—
Other long-term liabilities	467		288		127		(70		)	812
Total liabilities	39,030		17,052		9,365		(34,822		)	30,625
Redeemable equity interest	—		—		77		(77		)	—
Redeemable noncontrolling interest	—		—		—		77			77
First Data Corporation stockholders' equity	668		22,328		5,933		(28,261		)	668
Noncontrolling interests	—		—		88		2,904			2,992
Equity of consolidated alliance	—		—		5,923		(5,923		)	—
Total equity	668		22,328		11,944		(31,280		)	3,660
Total liabilities and equity	$	39,698	$	39,380	$	21,386	$	(66,102	)	$	34,362

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three months ended March 31, 2016
(in millions)	FDC Parent Company			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidation Adjustments			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(56	)	$	185		$	147		$	(282	)	$	(6	)
Adjustments to reconcile to net cash (used in) provided by operating activities:
Depreciation and amortization (including amortization netted against equity earnings in affiliates and revenues)	1			164			97			—			262
Charges (gains) related to other operating expenses and other income (expense)	14			7			(6		)	—			15
Loss on debt extinguishment	46			—			—			—			46
Stock-based compensation expense	115			—			—			—			115
Other non-cash and non-operating items, net	(216		)	(51		)	(15		)	282			—
Increase (decrease) in cash, excluding the effects of acquisitions and dispositions, resulting from changes in operating assets and liabilities	59			(83		)	(22		)	—			(46		)
Net cash (used in) provided by operating activities	(37		)	222			201			—			386
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment	—			(13		)	(40		)	—			(53		)
Payments to secure customer service contracts, including outlays for conversion, and capitalized systems development costs	—			(51		)	(13		)	—			(64		)
Other investing activities, net	13			53			—			(72		)	(6		)
Net cash provided by (used in) investing activities	13			(11		)	(53		)	(72		)	(123		)
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net	269			—			229			—			498
Proceeds from issuance of long-term debt	896			—			—			—			896
Payment of call premiums and debt issuance cost	(43		)	—			—			—			(43		)
Principal payments on long-term debt	(1,637		)	(12		)	(2		)	—			(1,651		)
Payment of taxes related to net settlement of equity awards	(39		)	—			—			—			(39		)
Distributions and dividends paid to noncontrolling interests and redeemable noncontrolling interest	—			—			(8		)	(50		)	(58		)
Distributions paid to equity holders	—			—			(103		)	103			—
Other financing activities, net	16			8			(19		)	19			24
Intercompany	459			(202		)	(257		)	—			—
Net cash used in financing activities	(79		)	(206		)	(160		)	72			(373		)
Effect of exchange rate changes on cash and cash equivalents	—			3			(11		)	—			(8		)
Change in cash and cash equivalents	(103		)	8			(23		)	—			(118		)
Cash and cash equivalents at beginning of period	105			16			308			—			429
Cash and cash equivalents at end of period	$	2		$	24		$	285		$	—		$	311

	Three months ended March 31, 2015
(in millions)	FDC Parent Company			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidation Adjustments			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(112	)	$	185		$	74		$	(210	)	$	(63	)
Adjustments to reconcile to net cash (used in) provided by operating activities:
Depreciation and amortization (including amortization netted against equity earnings in affiliates and revenues)	4			170			103			—			277
(Gains) charges related to other operating expenses and other income (expense)	(70		)	2			34			—			(34		)
Stock-based compensation expense	7			—			—			—			7
Other non-cash and non-operating items, net	(160		)	(37		)	(7		)	210			6
(Decrease) increase in cash resulting from changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions	(258		)	(76		)	39			—			(295		)
Net cash (used in) provided by operating activities	(589		)	244			243			—			(102		)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment	(4		)	(37		)	(26		)	—			(67		)
Payments to secure customer service contracts, including outlays for conversion, and capitalized systems development costs	—			(59		)	(19		)	—			(78		)
Other investing activities, net	12			59			—			(93		)	(22		)
Net cash provided by (used in) investing activities	8			(37		)	(45		)	(93		)	(167		)
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net	372			—			(35		)	—			337
Principal payments on long-term debt	—			(16		)	(4		)	—			(20		)
Distributions and dividends paid to noncontrolling interests and redeemable noncontrolling interest	—			—			(8		)	(55		)	(63		)
Distributions paid to equity holders	—			—			(112		)	112			—
Other financing activities, net	(1		)	—			(36		)	36			(1		)
Intercompany	223			(191		)	(32		)	—			—
Net cash provided by (used in) financing activities	594			(207		)	(227		)	93			253
Effect of exchange rate changes on cash and cash equivalents	—			4			(6		)	—			(2		)
Change in cash and cash equivalents	13			4			(35		)	—			(18		)
Cash and cash equivalents at beginning of period	—			23			335			—			358
Cash and cash equivalents at end of period	$	13		$	27		$	300		$	—		$	340