News Column

FIRST DATA CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 8, 2014

Overview

First Data Corporation ("FDC" or "the Company") operates electronic commerce businesses providing services that include merchant transaction processing and acquiring services; credit, retail and debit card issuing and processing services; prepaid card services; and check verification, settlement and guarantee services. The Company has designated its principal executive offices as 225 Liberty Street, 29th Floor, New York City, New York 10281. However, the Company's headquarters remain in Atlanta, Georgia. Results of Operations Consolidated results should be read in conjunction with segment results, which provide more detailed discussions concerning certain components of the Consolidated Statements of Operations. All significant intercompany accounts and transactions have been eliminated. Consolidated Results Three months ended Six months ended June 30, June 30, (in millions) 2014 2013 % 2014 2013 % Revenues: Transaction and processing service fees $ 1,695.9$ 1,628.6 4 % $ 3,257.6$ 3,172.3 3 % Product sales and other 211.3 204.9 3 % 415.0 407.3 2 % Reimbursable debit network fees, postage and other 929.9 875.3 6 % 1,804.8 1,720.1 5 % Total revenues 2,837.1 2,708.8 5 % 5,477.4 5,299.7 3 % Expenses: Cost of services (exclusive of items shown below) 686.8 691.9 (1 )% 1,332.6 1,410.6 (6 )% Cost of products sold 82.5 83.4 (1 )% 162.6 166.0 (2 )% Selling, general and administrative 489.8 493.2 (1 )% 976.0 956.5 2 % Reimbursable debit network fees, postage and other 929.9 875.3 6 % 1,804.8 1,720.1 5 % Depreciation and amortization 262.2 274.7 (5 )% 527.5 546.9 (4 )% Other operating expenses, net (a) 3.8 20.0 * 7.3 38.2 * Total expenses 2,455.0 2,438.5 1 % 4,810.8 4,838.3 (1 )% Operating profit 382.1 270.3 41 % 666.6 461.4 44 % Interest income 3.6 2.6 38 % 6.6 5.3 25 % Interest expense (463.1 ) (472.2 ) (2 )% (930.2 ) (941.2 ) (1 )% Other income (b) 82.5 15.0 * 83.4 15.3 * (377.0 ) (454.6 ) (17 )% (840.2 ) (920.6 ) (9 )% Income (loss) before income taxes and equity earnings in affiliates 5.1 (184.3 ) (103 )% (173.6 ) (459.2 ) (62 )% Income tax expense 40.0 11.5 * 76.6 73.1 5 % Equity earnings in affiliates 58.0 51.0 14 % 108.4 88.7 22 % Net income (loss) 23.1 (144.8 ) (116 )% (141.8 ) (443.6 ) (68 )% Less: Net income attributable to noncontrolling interests and redeemable noncontrolling interest 57.6 44.3 30 % 93.2 82.9 12 % Net loss attributable to First Data Corporation $ (34.5 )$ (189.1 ) (82 )% $ (235.0 )$ (526.5 ) (55 )%



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* Calculation not meaningful

(a) Other operating expenses, net includes restructuring, net, litigation and regulatory settlements, impairments and other as applicable to the periods presented.



(b) Other income includes investment gains and losses, derivative financial instruments gains and losses, divestitures, net, and non-operating foreign currency exchange gains and losses as applicable to the periods presented.

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Table of Contents

The following provides highlights of revenue and expense growth while a more detailed discussion is included in the "Segment Results" section below.

Operating revenues overview Transaction and processing service fees increased during the three and six months ended June 30, 2014 compared to the same periods in 2013 due primarily to increased card services revenue resulting from net new business and organic growth, both domestically and internationally. Acquiring revenue increased due to growth from higher transactions and volume offset by lower rates, changes in mix and attrition. The Company also received an $8.5 million network incentive during the second quarter of 2014. As expected, the Company continues to experience decreases in check processing revenue primarily as a result of lower overall check volumes due to a shift toward electronic payments. Foreign currency exchange rate movements did not have a significant impact on the transaction and processing service fees revenue growth rates for the three and six months ended June 30, 2014 compared to the same periods in 2013. Product sales and other slightly increased for the three and six months ended June 30, 2014 compared to the same periods in 2013. Point of Sale equipment sales showed growth from interest income and fees on terminal leases offset by a reduction in bulk sales to external parties. Professional services also increased approximately 10% during the three and six months ended June 30, 2014. Foreign currency exchange rate movements negatively impacted the product sales and other growth rate for the three and six months ended June 30, 2014 compared to the same periods in 2013 by approximately 2 and 3 percentage points, respectively. Reimbursable debit network fees, postage and other revenue and expense increased (for this primarily margin neutral item) for the three and six months ended June 30, 2014 compared to the same periods in 2013 due to transaction and volume growth related to debit network fees related to both new and existing customers partially offset by changes in regulated financial institution mix.



Operating expenses overview

Cost of service decreased for the three and six months ended June 30, 2014 compared to the same periods in 2013 due to the Company's focus on operational and processing efficiencies including lower headcount and changes in compensation programs. For the six months ended June 30, 2014, Cost of services also benefited from an operating tax credit and settlement funds revaluation during the first quarter of 2014 almost completely offset by a $12 million reserve for uncollectible receivables, a $5 million legal reserve, and a $3 million receivable write-off for a failed merchant in the second quarter of 2014. Cost of products sold decreased slightly for the three months ended June 30, 2014 compared to the same period in 2013. Expenses decreased in the six months ended June 30, 2014 due primarily to decreases in product and software sales expenses, lower hardware and supply expenses particularly during the first quarter of 2014 partially offset by leasing income costs.



Selling, general and administrative increased for the six months ended June 30, 2014 compared to the same period in 2013 principally due to higher use of consulting services. Expenses decreased slightly for the three months ended June 30, 2014 compared to the same period in 2013 principally due to stock awards for the CEO issued in 2013.

Depreciation and amortization decreased during the three and six months ended June 30, 2014 compared to the same periods in 2013 due to a decrease in the amortization of certain intangible assets that are being amortized on an accelerated basis, resulting in higher amortization in 2013, and certain other assets that have become fully amortized, partially offset by amortization of new assets. Other operating expenses, net The Company recorded restructuring charges during the three and six months ended June 30, 2014 and 2013, primarily related to the alignment of the business with strategic objectives, cost savings initiatives as well as refinements of estimates. During the six months ended June 30, 2013, the Company also recorded restructuring charges in connection with the departure of executive officers. The Company expects to record additional charges in 2014 associated with the alignment of the business with strategic objectives and cost savings initiatives. Refer to Note 4 "Restructuring" of these Consolidated Financial Statements for details regarding restructuring charges.



Interest income was consistent year over year.

Interest expense decreased for the three and six months ending June 30, 2014 compared to the same period for 2013 due to lower new debt financing fees amortization, and lower interest rates as a result of debt exchanges and refinancing.

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Table of Contents Other income Three months ended Six months ended June 30, June 30, (in millions) 2014 2013 2014 2013 Investment gains $ 89.0$ 1.1$ 89.0$ 2.3 Derivative financial instruments (losses) and gains (7.4 ) 10.4 (4.1 ) 14.2 Divestitures, net gains 1.6 - 1.6 - Non-operating foreign currency (losses) and gains (0.7 ) 3.5 (3.1 ) (1.2 ) Other income $ 82.5$ 15.0$ 83.4$ 15.3 Investment gains for the three and six months ended June 30, 2014 relates to the sale of the Company's 30% minority interest in Electronic Funds Source LLC resulting in a pretax gain of $88.9 million. Refer to Note 3 "Acquisitions and Dispositions" in these Consolidated Financial Statements for additional information. Derivative financial instruments (losses) and gains for the three and six months ended June 30, 2014 and 2013 were due to the fair value adjustments for interest rate swaps and cross currency swaps that are not designated as accounting hedges.



Divestiture gains for the three and six months ended June 30, 2014 and 2013 were due to a divestiture of a business.

Non-operating foreign currency (losses) and gains for the three and six months ended June 30, 2014 and 2013 relate to currency translations on the Company's intercompany loans and its euro-denominated debt. Income taxes The Company's effective tax rates on Income (loss) before income taxes including Equity earnings in affiliates were expenses of 63.3% and 117.6% for the three and six months ended June 30, 2014 and expenses of 8.6% and 19.7% for the same periods in 2013. The effective tax rates for the three and six months ended June 30, 2014 and 2013 differed from the statutory rate primarily due to valuation allowances recorded in certain tax jurisdictions against deferred tax benefits on pre-tax losses, while tax expense was recognized on pre-tax earnings in other jurisdictions. This negative adjustment was partially offset by net income attributable to noncontrolling interests from pass through entities for which there was no tax expense provided. As a result of the Company's pre-tax losses in the six months ended June 30, 2014 and the three and six months ended June 30, 2013, favorable and unfavorable tax impacts have the opposite effect on the effective tax rate for these periods. The balance of the Company's liability for unrecognized tax benefits was approximately $268 million as of June 30, 2014. The Company anticipates it is reasonably possible that its liability for unrecognized tax benefits may decrease by approximately $147 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.



Equity earnings in affiliates increased for the three and six months ended June 30, 2014 compared to the same periods in 2013 mostly due to higher volumes and pricing initiatives.

Net income attributable to noncontrolling interests and redeemable noncontrolling interest mostly relates to the Company's consolidated merchant alliances. Net income attributable to noncontrolling interests and redeemable noncontrolling interest increased for the three and six months ended June 30, 2014 compared to the same periods in 2013 due to organic growth, new revenue and lower credit losses from our alliances. Segment results During the first quarter of 2014, the Company renamed its Retail and Alliance Services segment to Merchant Solutions to better reflect its transformation from a processer to a solutions and technology provider. For a detailed discussion of the Company's principles regarding its segments, refer to "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. 39 --------------------------------------------------------------------------------



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Merchant Solutions segment results

Three months ended June 30, Change (in millions) 2014 2013 % Revenues: Transaction and processing service fees $ 844.3 $ 829.3 2 % Product sales and other 100.9 98.9 2 % Segment revenue $ 945.2 $ 928.2 2 % Segment EBITDA $ 455.7 $ 429.3 6 % Segment margin 48 % 46 % 2 pts Key indicators: Domestic merchant transactions (a) 10,547.7 10,173.0 4 % Six months ended June 30, Change (in millions) 2014 2013 % Revenues:



Transaction and processing service fees $ 1,605.7$ 1,594.8

1 % Product sales and other 195.9 194.8 1 % Segment revenue $ 1,801.6$ 1,789.6 1 % Segment EBITDA $ 825.3$ 783.5 5 % Segment margin 46 % 44 % 2 pts Key indicators: Domestic merchant transactions (a) 20,344.9 19,542.9 4 %

-------------------------------------------------------------------------------- (a) Domestic merchant transactions include acquired Visa



and

MasterCard credit and signature debit, American Express and Discover, PIN-debit, electronic benefits transactions, processed-only and gateway customer transactions at the point of sale ("POS"). Domestic merchant transactions reflect 100% of alliance transactions.

Transaction and processing service fees revenue

Components of transaction and processing service fees revenue

Three months ended June 30, Change (in millions) 2014 2013 % Acquiring revenue $ 643.4 $ 630.4 2 % Check processing revenue 62.8 69.0 (9 )% Prepaid revenue 79.5 75.0 6 % Processing fees and other revenue from alliance partners 58.6 54.9 7 % Total transaction and processing service fees revenue $ 844.3 $ 829.3 2 % 40

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Table of Contents Six months ended June 30, Change (in millions) 2014 2013 % Acquiring revenue $ 1,208.2$ 1,193.7 1 % Check processing revenue 125.0 137.8 (9 )% Prepaid revenue 157.2 154.6 2 % Processing fees and other revenue from alliance partners 115.3 108.7 6 % Total transaction and processing service fees revenue $ 1,605.7$ 1,594.8 1 % Acquiring revenue increased in the three and six months ended June 30, 2014 compared to the same periods in 2013 due to growth in merchant transactions and dollar volumes, as well as new sales and pricing increases, primarily for regional merchants and an $8.5 million network incentive. The increases were mostly offset by decreases resulting from the impact of merchant mix on transactions and dollar volumes, the effect of shifts in pricing mix, merchant attrition, price compression and the impact of Walmart adopting a dual processor strategy. Transaction growth outpaced revenue growth for the three and six months ended June 30, 2014 compared to the same periods in 2013 driven by the factors noted above, particularly volume growth, pricing mix and price compression. A greater portion of transaction growth was driven by the Company's national and ISO merchants, which contributed to lower revenue per transaction. Check processing revenue, consistent with prior periods, decreased in the three and six months ended June 30, 2014 versus the comparable periods in 2013 due to lower overall check volumes from continued check writer and merchant attrition. Prepaid revenue increased in the three and six months ended June 30, 2014 compared to the same periods in 2013 due to higher transaction volumes within the open loop payroll distribution program related to existing customers and new business, partially offset by the disposition of a noncore transportation payments joint venture, Electronic Funds Source LLC ("EFS"), which occurred in late May 2014. The disposition of EFS will have an approximate $12.0 million negative impact on revenue per quarter. Refer to Note 3 "Acquisitions and Dispositions" of these Consolidated Financial Statements for additional information. Processing fees and other revenue from alliance partners increased in the three and six months ended June 30, 2014 compared to the same periods in 2013 resulted from increased volumes within the Company's merchant alliances. Product sales and other revenue increased slightly in the three and six months ended June 30, 2014 versus the comparable periods in 2013 due to growth in interest income and fees on terminal leases, partially offset by a decline in terminal sales including lower bulk sales. Merchant Solutions Segment EBITDA increased during the three and six months ended June 30, 2014 compared to the same period in 2013 driven by lower expense, primarily compensation and technology costs, as well as lower processing costs. Compensation decreased as a result of lower headcount and changes in compensation programs. The decrease in technology costs was driven by overall lower spending, partially offset by product investment costs. The decrease in operating expenses positively impacted the segment EBITDA growth rate for the three and six months ended June 30, 2014 versus the comparable periods in 2013 by approximately 2 and 4 percentage points, respectively. The disposition of EFS will have an approximate $6.0 million negative impact on EBITDA per quarter. 41

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Financial Services segment results

Three months ended June 30, Change (in millions) 2014 2013 % Revenues: Transaction and processing service fees $ 345.2 $ 327.6 5 % Product sales and other 12.2 9.6 27 % Segment revenue $ 357.4 $ 337.2 6 % Segment EBITDA $ 183.1 $ 150.7 21 % Segment margin 51 % 45 % 6 pts Key indicators: Domestic debit issuer transactions (a) 2,971.5 2,865.1 4 % Six months ended June 30, Change (in millions) 2014 2013 % Revenues:



Transaction and processing service fees $ 683.0$ 648.4

5 % Product sales and other 23.1 19.4 19 % Segment revenue $ 706.1$ 667.8 6 % Segment EBITDA $ 356.1$ 283.8 25 % Segment margin 50 % 42 % 8 pts Key indicators: Domestic debit issuer transactions (a) 5,704.5 5,563.2 3 % Domestic active card accounts on file (average for period) (b) 160.7 139.9 15 % Domestic card accounts on file (end of period) (c) 770.1 701.2 10 %

-------------------------------------------------------------------------------- (a) Domestic debit issuer transactions include signature



and

PIN-debit transactions, STAR and non-STAR branded.

(b) Domestic active card accounts on file reflect the



average

number of bankcard and retail accounts that had a balance or any monetary posting or authorization activity during the periods presented. Domestic active card accounts on file for the periods presented have been revised from amounts reported in prior periods to disclose an average count of active card accounts on file rather than the previously disclosed end of period data. (c) Domestic card accounts on file include credit, retail



and

debit card accounts as of the last day of the last month of the period.

Transaction and processing service fees revenue

Components of transaction and processing service fees revenue

Three months ended June 30, Change (in millions) 2014 2013 % Credit card, retail card and debit processing $ 236.1 $ 223.0 6 % Output services 61.0 57.8 6 % Other revenue 48.1 46.8 3 % Total transaction and processing service fees revenue $ 345.2 $ 327.6 5 % 42

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Table of Contents Six months ended June 30, Change (in millions) 2014 2013 % Credit card, retail card and debit processing $ 461.0$ 434.6 6 % Output services 126.8 119.3 6 % Other revenue 95.2 94.5 1 % Total transaction and processing service fees revenue $ 683.0$ 648.4 5 % Credit card, retail card and debit processing revenue increased for the three and six months ended June 30, 2014 versus the comparable periods in 2013, due to net new business, growth from existing customers and the resolution of a customer dispute in the first quarter of 2013, partially offset by price compression on contract renewals and other net pricing incentives. Domestic active card accounts on file increased due to net new account conversions and growth from existing customers. Debit processing revenue increased for the three and six months ended June 30, 2014 versus the comparable periods in 2013 due in part to internal growth, partially offset by net lost business and price compression on contract renewals. Also contributing to revenue growth in both periods was a new transaction routing program that was introduced in the first quarter of 2014, along with increased growth in the pinless debit offering rolled out in the fourth quarter of 2013.



Debit issuer transaction growth in the three and six months ended June 30, 2014 compared to the same periods in 2013 increased due to growth from existing customers and new pinless debit product, partially offset by net lost business.

Output services revenue increased for the three and six months ended June 30, 2014 versus the comparable periods in 2013 due to growth in the print business, derived from new and existing customers. The plastics business was slightly lower as volume declines were partially offset by a more favorable product mix. Other revenue consists mostly of revenue from remittance processing, information services, online banking and bill payment services as well as voice services. Other revenue for the three and six months ended June 30, 2014 increased slightly compared to the same periods in 2013 primarily driven by new business in remittance processing, partially offset by lost and disposed business in information services. The information services disposition culminated in the first quarter of 2013.



Product sales and other revenue increased in the three and six months ended June 30, 2014 versus the comparable periods in 2013, primarily from termination fees and increased programming revenue.

Financial Service Segment EBITDA increased significantly for the three and six months ended June 30, 2014 compared to the same period in 2013 due to the impact of the revenue items noted above as well as decreased operating expenses, primarily operations and technology costs and decreased sales costs, as a result of lower headcount and changes in compensation programs. The decreases in operating expenses positively impacted the segment EBITDA growth rate for the three and six months ended June 30, 2014 versus the comparable periods in 2013 by approximately 8 and 12 percentage points, respectively. International segment results Three months ended June 30, Change (in millions) 2014 2013 % Revenues:



Transaction and processing service fees $ 351.7 $ 327.3

7 % Product sales and other 87.8 88.5 (1 )% Equity earnings in affiliates 8.3 9.1 (9 )% Segment revenue $ 447.8 $ 424.9 5 % Segment EBITDA $ 110.8 $ 115.2 (4 )% Segment margin 25 % 27 % (2 )pts Key indicators: International transactions (a) 2,510.1 2,339.5 7 % 43

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Table of Contents Six months ended June 30, Change (in millions) 2014 2013 % Revenues:



Transaction and processing service fees $ 679.0$ 641.6

6 % Product sales and other 174.7 176.7 (1 )% Equity earnings in affiliates 15.4 15.2 1 % Segment revenue $ 869.1$ 833.5 4 % Segment EBITDA $ 239.2$ 215.6 11 % Segment margin 28 % 26 % 2 pts Key indicators: International transactions (a) 4,895.0 4,508.0 9 % International card accounts on file (end of period) (b) 79.5 77.1 3 %

-------------------------------------------------------------------------------- (a) International transactions include Visa, MasterCard and other card association merchant acquiring and switching and debit issuer transactions for clients outside the U.S. Transactions include credit, signature debit and PIN-debit POS, POS gateway and ATM transactions. International transactions for the three and six months ended June 30, 2013 reflect an updated count of transactions. (b) International card accounts on file include bankcard and retail. Segment revenue in the three and six months ended June 30, 2014 versus the comparable periods in 2013 was impacted by the items discussed below as well as by foreign currency exchange rate movements. Foreign currency exchange rate movements negatively impacted the total segment revenue growth rate during the three and six months ended June 30, 2014 by 1 and 2 percentage points, respectively, compared to the same periods in 2013.



Transaction and processing service fees revenue includes merchant related services and card services revenue. Merchant related services revenue encompasses merchant acquiring and processing revenue, debit transaction revenue, POS/ATM transaction revenue and fees from switching services. Card services revenue represents monthly managed service fees for issued cards. Merchant related services transaction and processing service fee revenue represented approximately 62% and card services revenue represented approximately 38% of total transaction and processing service fees revenue for the periods presented.

Transaction and processing service fees revenue increased in the three and six months ended June 30, 2014 compared to the same periods in 2013 due to volume growth in the merchant acquiring businesses and card issuing businesses, as well as new business in the card issuing businesses. The majority of increases in the merchant acquiring businesses resulted from volumes growth in the merchant acquiring alliances, partially offset by lost merchants in Poland. Revenue in the card issuing businesses increased primarily from volumes growth from existing customers in Argentina and new business from existing clients in the United Kingdom and Greece. Foreign currency exchange rate movements had no impact on the transaction and processing service fees revenue growth rates for the three months ended June 30, 2014 compared to the same period in 2013. For the six months ended June 30, 2014, foreign currency exchange rate movements negatively impacted the transaction and processing service fees revenue growth rate by approximately 2 percentage points compared to the same period in 2013. Transaction and processing service fees revenue is driven by accounts on file and transactions. The spread between growth in these two indicators and revenue growth was driven mostly by the mix of transaction types and the impact of foreign currency exchange rate movements. International card accounts on file as of June 30, 2014 as compared to the same period in 2013 increased primarily due to new accounts in the United Kingdom, partially offset by the removal of inactive accounts in Canada. Product sales and other revenue decreased slightly during the three and six months ended June 30, 2014 versus the same periods in 2013 primarily due to foreign currency exchange rate movements in Argentina, partially offset by higher rates and product sales in Argentina, and terminal leasing income in Germany. Foreign currency exchange rate movements negatively impacted the growth rate for product sales and other revenue for the three and six months ended June 30, 2014 compared to the same periods in 2013 by 6 and 7 percentage points, respectively. International Segment EBITDA decreased during the three months ended June 30, 2014 compared to the same period in 2013 as a result of the impact of a $12 million reserve for uncollectible receivables, a $5 million legal reserve, a $3 million receivable write-off for a failed merchant, and business investments in South Africa and Brazil, partially offset by the revenue items noted above. The segment EBITDA growth rate was adversely impacted during the second quarter of 2014 versus the comparable period in 2013 by approximately 17 percentage points as a result of these charges. The impact from foreign currency exchange rate movements 44

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positively impacted segment EBITDA growth rates by 3 percentage points in the second quarter of 2014 compared to the same period in 2013. The $12 million reserve for uncollectible receivables relates to a $41 million receivable in Latin America from debit card holders, merchants and financial institutions, which principally arose over the past 12 months from settlement activity. The Company believes that it will be able to collect $29 million of this amount and has initiated collection efforts. International Segment EBITDA increased during the six months ended June 30, 2014 versus the same period in 2013 from the revenue items noted above and a combined $21 million in the first quarter of 2014 from a tax recovery in Australia and a gain on the revaluation of settlement funds associated with the devaluation of the Argentinian peso, almost completely offset by these items in the second quarter. The segment EBITDA growth rate for the six months ended June 30, 2014 versus the comparable period in 2013 was negatively impacted by approximately 3 percentage points from the impact of foreign currency exchange rate movements.



Capital Resources and Liquidity

FDC's source of liquidity is principally cash generated from operating activities supplemented as necessary on a short-term basis by borrowings against its revolving credit facility. The Company believes its current level of cash and short-term financing capabilities along with future cash flows from operations are sufficient to meet the needs of the business. Over the past few years, FDC completed various amendments and modifications to certain of its debt agreements in an effort to extend its debt maturities and lower interest rates. On July 11, 2014, First Data Holdings Inc., the direct parent company of FDC ("Holdings"), completed the issuance of $3.5 billion of its common equity in a private placement. Approximately $2.5 billion of the net proceeds from the private placement were contributed to the Company as a capital contribution and the funds were used to repay approximately $2.2 billion of debt and $214 million in call premiums. Additionally, on July 18, 2014, FDC repriced approximately $5.7 billion of 2018 term loans, reducing the interest rate by 50 basis points and saving over $25 million in annual interest expense. The debt pay down from the equity contribution proceeds, combined with the repricing and other actions by the Company, will lower annual cash interest payments by approximately $228 million. Refer to Note 5 "Borrowings" of these Consolidated Financial Statements for additional information on the debt modifications and extinguishments. As of August 8, 2014, FDC's long-term corporate family rating from Moody's was B3 (positive outlook). The long-term local issuer credit rating from Standard and Poor's was B (stable). The long-term issuer default rating from Fitch was B (stable). The Company's current level of debt may impair the ability of the Company to get additional funding beyond its revolving credit facility if needed. Cash and cash equivalents Investments (other than those included in settlement assets) with original maturities of three months or less (that are readily convertible to cash) are considered to be cash equivalents and are stated at cost, which approximates market value. As of June 30, 2014 and December 31, 2013, the Company held $547.7 million and $425.3 million in cash and cash equivalents, respectively. Included in cash and cash equivalents are amounts held by Integrated Payment Systems Inc. ("IPS") and the Banc of America Merchant Services, LLC ("BAMS") alliance, that are not available to fund operations outside of those businesses. As of June 30, 2014 and December 31, 2013, the cash and cash equivalents held by IPS and the BAMS alliance totaled $125.5 million and $115.8 million, respectively. All other domestic cash balances, to the extent available, are used to fund the Company's short-term liquidity needs. Cash and cash equivalents also includes amounts held outside of the U.S. as of June 30, 2014 and December 31, 2013 totaling $186.2 million and $237.6 million, respectively. Approximately $30 million as of June 30, 2014 is held in Argentina where government imposed restrictions prevent any material repatriations outside of the country. As of June 30, 2014, there was approximately $62 million of cash and cash equivalents held outside of the U.S. that could be used for general corporate purposes. FDC plans to fund any cash needs throughout the remainder of 2014 within the International segment with cash held by the segment, but if necessary, could fund such needs using cash from the U.S., subject to satisfying debt covenant restrictions. 45

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Cash flows from operating activities

Six months ended June 30, Source/(use) (in millions) 2014 2013 Net loss $ (141.8 )$ (443.6 ) Depreciation and amortization (including amortization netted against equity earnings in affiliates and revenues) 581.6



606.7

(Earnings) charges related to other operating expenses and other income

(76.0 )



22.9

Other non-cash and non-operating items, net (38.4 ) (18.6 ) Increase (decrease) in cash, excluding the effects of acquisitions and dispositions, resulting from changes in: Accounts receivable, current and long-term 41.9



267.7

Other assets, current and long-term 29.6



36.4

Accounts payable and other liabilities, current and long-term

(23.5 ) (183.5 ) Income tax accounts 9.7



21.4

Net cash provided by operating activities $ 383.1$ 309.4 Cash flows provided by operating activities for the periods presented resulted from normal operating activities and reflect the timing of the Company's working capital requirements. FDC's operating cash flow is significantly impacted by its level of debt. Approximately $867 million and $914 million in cash interest were paid during the six months ended June 30, 2014 and 2013, respectively. The decrease in cash interest payments from 2013 is primarily due to the timing of payments and lower spreads on term loans resulting from the debt modifications that occurred in the first quarter and 2013. Cash flows from operating activities increased for the six months ended June 30, 2014 compared to the same period in 2013 primarily due to an increase in operating income and a decrease in cash interest payments, as discussed above. This was partially offset by the timing of settlement arrangement prefunding and an $88.9 million net gain on the sale of the Company's minority interest, Electronic Funds Source LLC, as discussed below in "Acquisitions and dispositions" and included in (Earnings) charges related to other operating expenses and other income. FDC anticipates funding operations throughout the remainder of 2014 primarily with cash flows from operating activities and by closely managing discretionary capital and other spending; however, any shortfalls would be supplemented as necessary by borrowings against its revolving credit facility.



Cash flows from investing activities

Six months ended June 30, Source/(use) (in millions) 2014 2013



Payments related to other businesses previously acquired $ - $ 0.2 Proceeds from dispositions, net of expenses paid

258.9



9.6

Proceeds from sale of property and equipment 2.3



3.8

Additions to property and equipment (133.1 ) (89.1 ) Payments to secure customer service contracts, including outlays for conversion, and capitalized systems development costs (111.6 ) (86.1 ) Other investing activities -



7.1

Net cash provided by (used in) investing activities $ 16.5$ (154.5 )

Acquisitions and dispositions The Company may finance acquisitions through a combination of internally generated funds, reinvestment of proceeds from asset sales, short-term borrowings and equity of its parent company. The Company may also consider using long-term borrowings subject to restrictions in its debt agreements. Although the Company considers potential acquisitions from time to time, the Company's plan for the remainder of 2014 does not include funding of material acquisitions.



On May 29, 2014, the Company completed the sale of its 30% minority interest in a transportation payments business, Electronic Funds Source LLC ("EFS") and received $255.1 million in cash. Refer to Note 3 "Acquisitions and Dispositions"

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of these Consolidated Financial Statements for additional information on EFS. The Company continues to manage its portfolio of businesses and evaluate the possible divestiture of businesses that do not match its long-term growth objectives. Capital expenditures (Additions to property and equipment and Payments to secure customer service contracts, including outlays for conversion, and capitalized systems development costs) are anticipated to be approximately $425 to $475 million in 2014 and are expected to be funded by cash flows from operations. If, however, cash flows from operating activities are insufficient, the Company will decrease its discretionary capital expenditures or utilize its revolving credit facility.



Cash flows from financing activities

Six months ended June 30, Source/(use) (in millions) 2014 2013 Short-term borrowings, net $ 11.7$ (147.8 ) Accrued interest funded upon issuance of notes (55.2 )



(6.5 ) Debt modification payments and related financing costs, net

(35.4 ) (49.0 ) Principal payments on long-term debt (38.5 )



(36.8 ) Distributions and dividends paid to noncontrolling interests and redeemable noncontrolling interest

(135.2 ) (102.1 ) Redemption of Parent's redeemable common stock (4.0 ) (5.9 ) Purchase of noncontrolling interest - (23.7 ) Cash dividends (15.3 ) (17.5 ) Net cash used in financing activities $ (271.9 )$ (389.3 ) Short-term borrowings, net The cash activity related to short-term borrowings in 2014 and 2013 resulted primarily from net borrowings (net paydowns) on FDC's international credit lines used principally to prefund settlement activity. As of June 30, 2014, FDC's senior secured revolving credit facility had commitments from financial institutions to provide $1.0 billion of credit and matures on September 24, 2016. Besides the letters of credit discussed below, FDC had no amount outstanding against this facility as of June 30, 2014 and December 31, 2013. As of June 30, 2014, $973 million remained available under this facility. Excluding the letters of credit, the maximum amount outstanding against this facility during the three and six months ended June 30, 2014 was approximately $436 million and $474 million, respectively, while the average amount outstanding during the three and six months ended June 30, 2014 was approximately $149 million and $184 million, respectively. FDC utilizes its revolving credit facility on a short-term basis to fund investing or operating activities when cash flows from operating activities are not sufficient. The Company believes the capacity under its senior secured revolving credit facility will be sufficient to meet its short-term liquidity needs. FDC's senior secured revolving credit facility can be used for working capital and general corporate purposes.



There are multiple institutions that have commitments under this facility with none representing more than approximately 21% of the capacity.

Accrued interest funded upon issuance of notes In conjunction with issuing debt in November 2013, FDC received $55.2 million in cash related to accrued interest on the notes which were issued mid-coupon period. The interest was paid in the first quarter of 2014. Debt modification payments and related financing costs FDC's debt modifications and amendments completed in 2013 and fully settled in the first quarter of 2014 were accounted for as modifications resulting in only the net effect of the transactions, including payment of capitalized fees, being reflected as a use or source of cash excluding certain fees included in the Company's results of operations.



Principal payments on long-term debt Payments for capital leases totaled $38.5 million and $36.8 million for the six months ended June 30, 2014 and 2013, respectively.

Distributions and dividends paid to noncontrolling interests and redeemable noncontrolling interest Distributions and dividends paid to noncontrolling interests and redeemable noncontrolling interest primarily represent distributions of earnings.

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Redemption of Parent's redeemable common stock Redemption of Parent's redeemable common stock represents amounts paid for the repurchase of stock awards from employees and the exercise of stock options. Purchase of noncontrolling interest In April 2013, the Company made the final payment for the purchase of the remaining noncontrolling interest in Omnipay, a provider of card and electronic payment processing services to merchant acquiring banks for 18.1 million euro ($23.7 million).



Cash dividends The Company paid cash dividends to its parent company, Holdings, in the periods presented.

Letters, lines of credit and other

Total Available (a) Total Outstanding As of June 30, As of December 31, As of June 30, As of December 31, (in millions) 2014 2013 2014 2013 Letters of credit (b) $ 500.0 $ 500.0 $ 43.0 $ 46.3 Lines of credit and other (c) $ 224.6 $ 264.8 $ 81.0 $ 68.7



--------------------------------------------------------------------------------

(a) Total available without giving effect to amounts outstanding.

(b) Up to $500 million of FDC's senior secured revolving credit facility is available for letters of credit. Outstanding letters of credit are held in connection with lease arrangements, bankcard association agreements and other security agreements. The maximum amount of letters of credit outstanding during both the three and six months ended June 30, 2014 was approximately $48 million. All letters of credit expire prior to June 1, 2015 with a one-year renewal option. FDC expects to renew most of the letters of credit prior to expiration. (c) As of June 30, 2014, represents $168.9 million of committed lines of credit as well as certain uncommitted lines of credit and other agreements that are available in various currencies to fund settlement and other activity for the Company's international operations. FDC cannot use these lines of credit for general corporate purposes. Certain of these arrangements are uncommitted but, as of the dates presented, FDC had borrowings outstanding against them.



In the event one or more of the aforementioned lines of credit becomes unavailable, FDC will utilize its existing cash, cash flows from operating activities or its revolving credit facility to meet its liquidity needs.

Significant non-cash transactions Refer to Note 2 "Supplemental Financial Information" of these Consolidated Financial Statements for further information on the Company's significant non-cash transactions.

Guarantees and covenants For a description of guarantees and covenants and covenant compliance, refer to the "Guarantees and covenants" and "Covenant compliance" sections in "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, 2013. As of June 30, 2014, the Company was in compliance with all applicable covenants, including its sole financial covenant with Consolidated Senior Secured Debt of $12.2 billion, Consolidated EBITDA of $3.0 billion and a Ratio of 4.06 to 1.00 compared to the maximum ratio allowed by the covenant of 6.00 to 1.00. 48 --------------------------------------------------------------------------------



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The calculation of Consolidated EBITDA under FDC's senior secured term loan facility is as follows: Last twelve months ended (in millions) June 30, 2014 Net loss attributable to First Data Corporation $ (577.6 ) Interest expense, net (1) 1,857.3 Income tax expense 90.0 Depreciation and amortization (2)



1,186.8

EBITDA (17)



2,556.5

Stock based compensation (3)



41.2

Restructuring, net (4)



44.0

Non-operating foreign currency (gains) and losses (5)



21.3

Investment (gains) and losses (6) (89.1 ) Derivative financial instruments (gains) and losses (7)



42.7

Official check and money order EBITDA (8) (2.3 ) Cost of alliance conversions and other technology initiatives (9) 40.5 KKR related items (10) 21.0 Debt issuance costs (11) 4.6 Litigation and regulatory settlements (12)



15.4

Projected near-term cost savings and revenue enhancements (13)



102.1

Net income attributable to noncontrolling interests and redeemable noncontrolling interest (14)

187.3

Equity entities taxes, depreciation and amortization (15) 9.4 Other (16) 0.3 Consolidated EBITDA (17) $ 2,994.9

-------------------------------------------------------------------------------- (1) Includes interest expense and interest income. (2) Includes amortization of initial payments for new contracts



which

is recorded as a contra-revenue within "Transaction and processing service fees" of $43.6 million and amortization related to equity method investments, which is netted within the "Equity earnings in affiliates" line of $71.3 million. (3) Stock based compensation recognized as expense. (4) Restructuring charges in connection with management's



alignment

of the business with strategic objectives and the departure of executive officers.

(5) Represents net gains and losses related to currency



translations

on certain intercompany loans and euro-denominated debt.

(6) Reflects investment gains and losses, principally $89



million

gain on sale of minority interest, Electronic Funds Source.

(7) Represents fair market value adjustments for cross-currency



swaps

and interest rate swaps that are not designated as accounting hedges.

(8) Represents an adjustment to exclude the official check and



money

order businesses from EBITDA due to wind down of these businesses.

(9) Represents costs directly associated with the strategy to



have

First Data operate Bank of America N.A.'s legacy settlement platform and costs associated with the termination of the Chase Paymentech alliance, both of which are considered business optimization projects, and other technology initiatives.



(10) Represents KKR annual sponsorship fees for management, financial and other advisory services.

(11) Debt issuance costs represent costs associated with issuing debt and modifying First Data's debt structure.

(12) Represents settlements of litigation or regulatory matters.

(13) Reflects cost savings and revenue enhancements projected to be realized as a result of specific actions as if they were achieved on the first day of the period. Includes cost savings initiatives associated with the business optimization projects and other technology initiatives described in Note 8, the Banc of America Merchant Services ("BAMS") alliance, operations and technology initiatives, headcount reductions and other addressable spend reductions.



(14) Net income attributable to noncontrolling interests and redeemable noncontrolling interest in restricted subsidiaries.

(15) Represents FDC's proportional share of income taxes, depreciation and amortization on equity method investments.

(16) Includes items such as impairments and other as applicable to the period presented.

(17) EBITDA is defined as net income (loss) attributable to First Data Corporation before net interest expense, income taxes, depreciation and amortization. EBITDA is not a recognized term under U.S. generally accepted accounting principles ("GAAP") and does not purport to be an alternative to net income (loss) attributable to First Data Corporation as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, EBITDA is not 49 --------------------------------------------------------------------------------



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intended to be a measure of free cash flow available for management's discretionary use as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. The presentation of EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of First Data's results as reported under GAAP. Management believes EBITDA is helpful in highlighting trends because EBITDA excludes the results of decisions that are outside the control of operating management and can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. Management compensates for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Consolidated EBITDA (or debt covenant EBITDA) is defined as EBITDA adjusted to exclude certain non-cash items, non-recurring items that First Data does not expect to continue at the same level in the future and certain items management believes will impact future operating results and adjusted to include near-term cost savings projected to be achieved within twelve months on an annualized basis (see Note 13 above). Consolidated EBITDA is further adjusted to add net income attributable to noncontrolling interests and redeemable noncontrolling interest of certain non-wholly-owned subsidiaries and exclude other miscellaneous adjustments that are used in calculating covenant compliance under the agreements governing First Data's senior unsecured debt and/or senior secured credit facilities. The Company believes that the inclusion of supplementary adjustments to EBITDA are appropriate to provide additional information to investors about items that will impact the calculation of EBITDA that is used to determine covenant compliance under the agreements governing First Data's senior unsecured debt and/or senior secured credit facilities. Since not all companies use identical calculations, this presentation of Consolidated EBITDA may not be comparable to other similarly titled measures of other companies.



Off-Balance Sheet Arrangements

During the six months ended June 30, 2014 and 2013, the Company did not engage in any off-balance sheet financing activities other than those discussed in the "Off-Balance Sheet Arrangements" discussion in "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, 2013. Contractual Obligations During the six months ended June 30, 2014, there were no material changes outside the ordinary course of business in the Company's contractual obligations and commercial commitments from those reported as of December 31, 2013 in the Company's Annual Report on Form 10-K, other than as outlined in Note 5 "Borrowings". Critical Accounting Policies The Company's critical accounting policies have not changed from those reported in "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, 2013. New Accounting Guidance Refer to Note 1 "Basis of Presentation and Summary of Significant Accounting Policies" of these Consolidated Financial Statements for new accounting guidance issued during the six months ended June 30, 2014. 50 --------------------------------------------------------------------------------



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