UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K 

FIRST DATA CORPORATION 

 

225 LIBERTY STREET, 29th FLOOR, NEW YORK, NEW YORK 10281

(Address of principal executive offices) (Zip Code)

 

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

As of June 30, 2017 (the last business day of the registrant's most recently completed second fiscal quarter), the aggregate market value of the registrant’s voting stockClass A Common Stock held by non-affiliates is zero. Theof the registrant is privately held. There were 1,000 shareswas $6.9 billion (based on the closing price of the registrant's Class A Common Stock on that date as reported on the New York Stock Exchange).

 

 

Certain matters we discuss in this Annual Report on Form 10-K 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, EBITDA,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: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) adverse impacts from global economic, political, and other conditions affecting trends in consumer, business, and government spending; (2) our ability to anticipate and respond to changing industry trends, including technological changes and increasing competition; (3) our ability to successfully renew existing client contracts on favorable terms and obtain new clients; (4) our ability to prevent a material breach of security of any of our systems; (5) 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(6) the successful management 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) our successful management of credit and fraud risks in our business units and merchant alliances, particularly in the impactcontext of new laws, regulations, credit card association ruleseCommerce and mobile markets; (8) consolidation among financial institution clients or other industry standards; (8)client groups that impacts our client relationships; (9) our ability to use our net operating losses without restriction to offset income for US tax purposes; (10) our ability to improve our profitability and maintain flexibility in our capital resources through the implementation of cost savings initiatives; (11) the acquisition or disposition of a material business or assets; (12) our ability to successfully value and integrate acquired businesses; (13) our high degree of leverage; (14) 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)(15) changes in the interest rate environment that increasesincrease interest on our borrowings or the interest rate at which we can refinance our borrowings; (11) consolidation among client financial institutions(16) the impact of new or changes in current laws, regulations, credit card association rules, or other client groups that impacts our client relationships; (12) catastrophic events that impact our or our major customers’ operating facilities, communication systems,industry standards; and technology; (13)(17) new lawsuits, investigations, or proceedings, or changes to our potential exposure in connection with pending lawsuits, investigations or proceedings, and various other factors discussed throughout this report, 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.

PART I 

 

General

 

First Data Corporation (we or our) is asits at the center of global providerelectronic commerce. We believe we offer our clients the most complete array of electronicintegrated solutions in the industry, covering their needs across next-generation commerce technologies, merchant acquiring, issuing, and payment solutions for merchants,network solutions. We serve our clients in over 100 countries, reaching over 6 million business locations and over 4,000 financial institutions. We believe we have the industry’s largest distribution network, driven by our partnerships with many of the world’s leading financial institutions, our direct sales force, and card issuers with operationsa network of distribution partners. We are the largest merchant acquirer, issuer processor, and independent network services provider in 34 countries, servingthe world, enabling businesses to accept electronic payments, helping financial institutions issue credit, debit and prepaid cards, and routing secure transactions between them. In 2017, we processed 93 billion transactions globally, or approximately 6.2 million merchant locations. We were incorporated in Delaware in 1989 and were3,000 per second. In our largest market, the subjectUnited States, we processed approximately $2.1 trillion of an initial public offering in connection with a spin-off from American Express in 1992. On September 24, 2007, we were acquired through a merger transaction with an entity controlled by affiliatespayment volume, which represents over 10% of Kohlberg Kravis Roberts & Co. (KKR) that resulted in our equity becoming privately held.United States gross domestic product (GDP) last year.

We have operations and offices located within the United States (U.S.) (domestic) and outside of the U.S. (international) where sales, customer service and/or administrative personnel are based. Revenues generatedTotal revenues from processing domestic and international transactions regardlessas a percentage of the segments to which the associatedtotal revenues applied, were 85% and 15% of our consolidated revenues for the year ended December 31, 2014, respectively. Long-livedtotal long lived assets attributable to domestic and international operations as percentagesa percentage of our total long-livedlong lived assets, asare displayed in the below table.

No country outside the US is greater than 10% of December 31, 2014 were 88% and 12%, respectively. No individual international country is material to our total revenues or long-lived assets.assets during any of the years presented in the above table. Further financial information relating to our international and domestic revenues and long-lived assets is set forth in Note 13note 7 "Segment Information" to our Consolidated Financial Statementsconsolidated financial statements in Part II, Item 8 of this Form 10-K.

Products and Services SegmentSegments Information

We are organized inprovide a range of solutions to businesses and financial institutions across the value chain of commerce-enabling services and technologies. We deliver our value-added solutions from a suite of proprietary technology products, software, cloud-based applications, processing services, security offerings, and customer support programs that we configure to meet our clients' individual needs.

We operate three segments: MerchantGlobal Business Solutions (GBS), Global Financial Services,Solutions (GFS), and International.Network & Security Solutions (NSS). Our segments are designed to establish global lines of businesses that support our global client base and allow us to further globalize our solutions while working seamlessly with our geographic teams across our regions: the United States and Canada (North America); Europe, Middle East, and Africa (EMEA); Latin America (LATAM); and Asia Pacific (APAC) and be supported by a corporate team focused on company-wide issues.

The segments’ profit measure is a form of EBITDA (earnings before net interest expense, income taxes, depreciation, and amortization). A discussion of factors potentially affecting our operations is set forth in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K.

We do not have any significant customers that account for 10% or more of total consolidated revenues. Refer to the following segment discussions, which address significant customer relationships within each segment.

The Merchantprocessing of a traditional card transaction includes two sub-processes: (1) capture and authorization and (2) clearing and settlement. Below is an illustrative diagram of the flow of a typical card transaction and an explanation of each step in the process.

The following table presents Merchant SolutionsGBS information as a percentage of total segment revenue and All Other and Corporate:segment EBITDA:

GBS segment revenues are primarily derived from processing credit and debit card transactions for merchants and other business clients and includes fees for providing processing, loyalty and software services, and sales and leases of POS devices. Revenues are generated from a variety of sources:sources, including:

Through December 31, 2017, we have shipped over 750,000 Clover devices and the current Clover platform processes approximately $50 billion in payment volume annually. Within Clover, we also offer a contractual relationshipcloud-based Clover App Market for business applications. Our application marketplace is designed specifically to provide merchants with another company. These relationships do notintegrated software applications that they can download and install quickly and easily on their Clover devices. As of December 31, 2017, the Clover App Market has over 300 active applications. We already offer Clover throughout North America and within numerous countries in EMEA, and we are in the process of rolling Clover out to other international regions. Furthermore, we believe Clover improves client retention because it becomes core to our clients' businesses, and positions us as a value-added partner. For example, business owners may use applications in the Clover App Market to manage their employees' work schedules, operate customer loyalty programs, integrate transaction information directly into their accounting software, manage inventory, and provide analytics on their business.

The primary competitive factors impacting GBS are brand, data security, breadth of features and functionality, ease of technological integration, strength of financial institution partnerships, price, and servicing capability. Other factors impacting GBS include consolidation among large businesses and financial institutions, the shiftpace of consumer spending to increased usageintegrated point of electronic forms of payment,sale solution development, and the strengthcreation of our alliancesnew payment methods and relationships with banks and other entities. Our alliance structures take on different forms, including consolidated subsidiaries, equity method investments, and contractual revenue sharing and/or referral arrangements. Under the alliance and referral programs, the alliance/referral partners typically act as a merchant referral source. We benefit by providing processing services for the alliance/referral partners and their merchant customers. Both we and the alliance may provide management, sales, marketing, and other administrative services. The alliance strategy could be affected by consolidation among financial institutions.

On July 6, 2017, we acquired CardConnect Corp. (CardConnect) for $763 million, net of cash acquired. CardConnect is an innovative provider of payment issuer/network route transactions between ourselvesprocessing and the card issuer. The merchant is a business from which a product or service is purchased by a cardholder. The acquirer (such as us ortechnology solutions and was one of our alliances) contractslargest distribution partners. The transaction is expected to enable us to bring innovative partner management tools to improve merchant retention, accelerate our firm-wide independent software vendor (ISV) initiative and bring immediate capabilities in enterprise resource planning (ERP) integrated payment solutions to our customers.

On December 1, 2017, we acquired BluePay Holdings, Inc. (BluePay) for $759 million, net of cash acquired. BluePay is a provider of technology-enabled payment processing for merchants in the U.S. and Canada and was one of our largest distribution partners with merchantsa strong focus on software-enabled payments and card-not-present transactions.  The transaction is expected to facilitate their acceptancebe highly complementary to our earlier acquisition of cards. ACardConnect and enhance our suite of innovative partner management tools to improve merchant acquirer may do its own processing or, more commonly, may outsource those functionsretention, accelerate our firm-wide ISV initiative and bring immediate capabilities in ERP integrated payment solutions to an electronic processor such as our Merchant Solutions segment. The acquirer/processor serves as an intermediary between the merchant and the card issuer by:customers.

GFS clients include some of the transaction, theworld's largest financial institutions, which we serve in approximately 100 countries. Our largest service in GFS is outsourced issuer processing, which helps banks and non-bank issuers provide credit, commercial, and retail card issuer delivers fundsprograms to us via the payment or debit network. Generally, we fund the merchant after receiving the money from the payment or debit network. Each participant in the transaction receives compensationtheir account holders, as well as loan programs. GFS also provides licensed software solutions for financial processing the transaction. For example, in a credit card transaction using a VISA or MasterCard for $100.00 with an interchange rate of 1.5%, the card issuer will fund the payment network $98.50 and bill the cardholder $100.00 on their monthly statement. The card network will retain assessment fees of approximately $0.10 and forward $98.40activities to us. We will retain, for example, $0.40 and pay the merchant $98.00. The $1.50 retained by the card issuer is referred to as interchange and it, like assessment fees, is set by the card network. The $0.40 we receive represents our spreadfinancial institutions globally. Depending on the transaction,market, our solutions are often bundled with related offerings, such as customer communications and is negotiated between the merchantpersonalization of plastic cards, settlement and us.back office support, outsourced

Revenues for outsourced issuer processing services are derived from fees payable under contracts that depend primarily on the number of cardholder accounts on file. More revenue is derived from active accounts (those accounts on file that had a balance or any monetary posting or authorization activity during a specified period) than inactive accounts. Revenues are also derived from licensing fees for our alliances,VisionPLUS application, as merchant acquirers/processors, have certain contingent liabilitieswell as cardholder and data transactions and professional services such as custom programming and development.

There are other reasons,possible configurations of transactions that result in us receiving multiple fees for a transaction, depending on the role we or the alliance will bear the loss for the amount of the refund paid to the cardholder. In most cases, this contingent liability situation is unlikely to arise because most products or services are delivered when purchased, and credits are issued on returned items. However, where the product or service is not provided until sometime following the purchase (e.g., airline or cruise ship tickets), the risk is greater. We often mitigate our risk by obtaining collateral from merchants that are considered higher risk because they have a time delay in the delivery of services, operate in industries that experience chargebacks or are less creditworthy.play.

The majority of our services involve providing check guarantee services for checks received by merchants. Under the guarantee service, when a merchant receives a check as payment for goods and services, the transaction is submitted to and analyzed by us. We either accept or decline the check for warranty coverage under our guarantee service. If we approve the check for warranty coverage and the merchant accepts the check, the merchant will either deposit the check in its bank account or process it for settlement through our Electronic Check Acceptance service. If the check is returned unpaid by the merchant’s bank and the returned check meets the requirements for warranty coverage, we are required to purchase the check from the merchant at its face value. We then own the purchased check and pursue collection of the check from the check writer. As a result, we bear the risk of loss if we are unable to collect the returned check from the check writer. We earn a fee for each check we guarantee, which generally is determined as a percentage of the check amount.

Corporate operations include administrative and shared servicecorporate-wide governance functions such as theour executive group, legal,management team, tax, treasury, internal audit, finance,corporate strategy, and certain accounting, human resources information technology, and procurement.legal costs related to supporting the corporate function. Costs incurred by Corporate that are directly relatedattributable to a segment are allocated to the respective segment. Administrative

We currently have operations in 34 countries and shared service costs are retained by Corporate.serve businesses and financial institutions in over 100 countries around the world as illustrated on the following map:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

Intellectual Property

Employees and Labor

As of December 31, 2014,2017, we employedhad approximately 23,000 persons, approximately 97% of which were full-time22,000 employees. The majority of the employees of our subsidiaries outside of the U.S.United States are subject to the terms of individual employment agreements. One of our wholly owned subsidiaries has approximately 1,6001,900 employees in the United Kingdom, a portion of whom are members of the Unite trade union. Employees of our subsidiaries in Vienna, Austria; Frankfurt, Germany; and Nürnberg, Germany are also represented by local workswork councils. The Vienna workforce and a portion of the Frankfurt workforce are also covered by a union contract. Certain employees of our Korean subsidiary are represented by a Labor-Management council. In Brazil, every single employee isall employees are unionized and covered by the terms of industry-specific collective agreements. Employees in certain other countries are also covered by the terms of industry-specific national collective agreements. None of our employees are otherwise represented by any labor organization in the U.S.United States. We believe that our relations with our employees and the labor organizations identified above are in good standing.

Available Information

Our principal executive offices are located at 225 Liberty Street, 29th Floor, New York, NY 10281, telephone (800) 735-3362. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available free of charge to shareholders and other interested parties through the “Investor Relations” portion of our website at http://investor.firstdata.com as soon as reasonably practical after they are filed with the Securities and Exchange Commission (SEC). Information contained on, or that can be accessed through, our website is not incorporated by reference into this document, and you should not consider information on our website to be part of this document. The SEC maintains a website, www.sec.gov, which contains reports and other information filed electronically with the SEC by us. Various corporate governance documents, including our Audit Committee Charter, Governance, Compensation and Nominations Committee Charter, and Code of Ethics for Senior Financial Officers are available without charge through the “About Us” “Investor Relations” “Corporate Governance” portion of our investor relations website, listed above.

Government Regulations

Various aspects of our service areas are subject to U.S. federal, state, and local regulation, as well as regulation outside the U.S.United States. Failure to comply with regulations may result in the suspension or revocation of licenses or registrations, the limitation, suspension or termination of service, and/or the imposition of civil and criminal penalties, including fines. Certain of our services also are subject to rules promulgated by various payment networks and banking authorities as more fully described below.

now regulated by the Board of Governors of the Federal Reserve Board (Board)System (Federal Reserve Board), and must be “reasonable and proportional” to the cost incurred by the card issuer in authorizing, clearing, and settling the transaction. Effective October 1, 2011, the Federal Reserve Board capped debit interchange rates for card issuers operating in the U.S.United States with assets of $10 billion or more at the sum of $0.21 per transaction and an ad valorem component of 5 basis points to reflect a portion of the issuer’s fraud losses plus, for qualifying issuers, an additional $0.01 per transaction in debit interchange for fraud prevention costs.more. In addition, the new regulations contain non-exclusivity provisions that ban debit payment card networks from prohibiting an issuer from contracting with any other payment card network that may process an electronic debit transaction involving an issuer’s debit cards and prohibit card issuers and payment networks from inhibiting the ability of merchants to direct the routing of debit card transactions over any network that can process the transaction. Beginning April 1, 2012, all debit card issuers in the U.S.United States were required to participate in at least two unaffiliated debit payment card networks. On April 1, 2013, the ban on network exclusivity arrangements became effective for prepaid card and healthcare debit card issuers, with some leewaycertain exceptions for prepaid cards issued before that date.

Effective July 22, 2010, merchants were allowed to set minimum dollar amounts (not to exceed $10) for the acceptance of a credit card (while federal governmental entities and institutions of higher education may set maximum amounts for the acceptance of credit cards). They were also allowed to provide discounts or incentives to entice consumers to pay with an alternative payment method, such as cash, checks or debit cards. In addition, the Dodd-Frank Act created a new entity, the Financial Stability Oversight Council, and authorizesauthorized it to require that a nonbank financial company that is deemed to pose a systemic risk to the U.S. financial system become subject to consolidated, prudential supervision by the Federal Reserve Board. At this point it is unclear whether we would be subject to additional systemic risk related oversight.

Our subsidiary in Germany, TeleCash GmbH & Co. KG, is certified and regulated as a processor for domestic German debit card transactions by the Deutsche Kreditwirtschaft (DK), the German banking association.Banking Industry Committee. Failure to comply with the technical requirements set forth by the DK may result in suspension or termination of services.

FDR Limited (FDRL)is authorized and regulated in the United Kingdom is authorized and regulated by the Financial Conduct Authority, (FCA),one of the regulatory authority for the full range oftwo principal financial servicesmarkets regulators in the United Kingdom. FDRLFDR Limited is authorized by the FCAFinancial Conduct Authority to carryarrange and advise on ancertain insurance mediation businesscontracts for the purpose of arranging insurance taken out by its issuer clients' cardholders. FDR Limited also has obtained permission from the Financial Conduct Authority in respect of certain consumer credit activities related to its issuer customers’ cardholdersservices and merchant terminal leasing businesses. As a firm authorized by the Financial Conduct Authority, FDR Limited is required to meetcomply with certain prudential, and conduct of business and reporting requirements.

As a result of the implementation of the Payment Services Directive 2007/60 EC(2007/64/EC) in the European Union (PSD), a number of our subsidiaries in the International segmentGBS hold Payment Institution Licensespayment institution licenses in the countries whereEuropean Union member states in which such subsidiaries do business. As Payment Institutions,payment institutions, we are subject to regulation and oversight in the applicable European Union member state, which includes amongst(amongst other things, theobligations) a requirement to maintain specified regulatory capital. The PSD was amended by a revised Payment Services Directive, known as PSD2 which was required to be transposed into national law by January 2018. Under PSD2, each subsidiary holding a payment institution license will need to submit by April 2018 a reauthorization application to the applicable regulatory authority and be approved to continue providing the licensed business activity.

First Data Trust Company, LLC (FDTC) engages in trust activities previously conducted by the trust department of a former banking subsidiary of ours and is subject to regulation, examination, and oversight by the Division of Banking of the Colorado Department of Regulatory Agencies. Since FDTC is not a “bank” under the Bank Holding Company Act of 1956, as amended (BHCA), our affiliation with FDTC does not cause us to be regulated as a bank holding company or financial holding company under the BHCA.

Further, in our International segment, several subsidiaries provide services such as factoring or settlement that make them subject to regulation by local banking agencies, including the National Bank of Slovakia, the National Bank of Poland, the Reserve Bank of Australia, and the German Federal Financial Supervision Agency.

The collection business within TRS Recovery Services, Inc. (TRS) is subject to the Federal Fair Debt Collection Practices Act and various similar state laws. TRS has licenses in a number of states in order to engage in collection in those states. In the United Kingdom, FDRLFDR Limited has a license under the Consumer Credit Act of 1974 (CCA) to enable it to undertake, among other things, credit administration and debt collections activities on behalf of its card issuing customersclients through calls and correspondence with the cardholders. FDRLFDR Limited is also licensed under the CCA to carry on the activity of a consumer hire business for the purpose of leasing point of sale devices to merchants.

In addition, several subsidiaries inof our International segmentsubsidiaries are subject to comparable local laws regarding collection activities and obtaining credit reports.

large cash transactions and suspicious activity, and to maintain transaction records. Our subsidiary Money Network Financial LLC is a provider ofprovides prepaid access for various open loop prepaid programs for which it is the program manager and therefore must meet the requirements of the Financial Crimes Enforcement Network (FinCEN), the agency that enforces the BSA. Recently FinCEN released rules requiring the collection and verification of beneficial owners holding equal to or greater than 25% equity interest. We will be required to comply with the new rules, which have a mandatory compliance date of May 2018.

We are also subject to certain economic and trade sanctions programs that are administered by the Treasury Department’s Office of Foreign Assets Control (OFAC), which prohibit or restrict transactions to or from or dealings with specified countries, their governments, and in certain circumstances, their nationals, and with individuals and entities that are specially-designated nationals of those countries, narcotics traffickers, and terrorists or terrorist organizations. Other group entities may be subject to additional local sanctions requirements in other relevant jurisdictions.

Similar anti-money laundering and counter terrorist financing and proceeds of crime laws apply to movements of currency and payments through electronic transactions and to dealings with persons specified in lists maintained by the country equivalents to the OFAC lists in several other countries and require specific data retention obligations to be observed by intermediaries in the payment process. Our businesses in those jurisdictions are subject to those data retention obligations. In the European Union, for example, certain of our businesses are subject to requirements under the Third Money Laundering Directive (2005/60/EC) (MLD3) as implemented in relevant European Union member states. MLD3 was repealed and replaced by the Fourth Money Laundering Directive ((EU) 2015/849) (MLD4), when the latter entered into force on June 25, 2015. European Union member states were required to implement MLD4 into national law by June 26, 2017.

In the U.S.,United States, most states license money transmitters and issuers of payment instruments. Many states exercise authority over the operations of our services related to money transmission and payment instruments and, as part of this authority, subject us to periodic examinations. Many states require, among other things, that proceeds from money transmission activity and payment instrument sales be invested in high-quality marketable securities before the settlement of the transactions. Such licensing laws also may cover matters such as regulatory approval of consumer forms, consumer disclosures and the filing of periodic reports

resources to assist our clients in meeting their new and enhanced oversight and audit requirements established by the Consumer Financial Protection Bureau,CFPB, the Office of the Comptroller of the Currency and others. The banking agencies, including the Office of the Comptroller of the Currency, also have imposed requirements on regulated financial institutions to manage their third-party service providers. Among other things, these requirements include performing appropriate due diligence when selecting third-party service providers; evaluating the risk management, information security, and information management systems of third-party service providers; imposing contractual protections in agreements with third-party service providers (such as performance measures, audit and remediation rights, indemnification, compliance requirements, confidentiality and information security obligations, insurance requirements, and limits on liability); and conducting ongoing monitoring of the performance of third-party service providers. Accommodating these requirements applicable to our clients imposes additional costs and risks in connection with our financial institution relationships. We expect to expend significant resources on an ongoing basis in an effort to assist our clients in meeting their legal requirements.

In addition, the Housing Assistance Tax Act of 2008 included an amendment to the Internal Revenue Code that requires information returns to be made for each calendar year by merchant acquiring entities and third-party settlement organizations with respect to payments made in settlement of payment card transactions and third-party payment network transactions occurring in that calendar year. Reportable transactions are also subject to backup withholding requirements. We could be liable for penalties if we are not in compliance with these regulations.rules.

 

The following are certain risks that could affect our business and our results of operations. The risks identified below are not all encompassing but should be considered in establishing an opinion of our future operations.

Business and Operational Risks

The global electronicFinancial services, payments, industry dependsand technology industries in which we operate depend heavily upon the overall level of consumer, business, and government spending. A sustained deterioration in the general economic conditions (including distress in financial markets, turmoil in specific economies around the world, and additional government intervention), particularly in the United States or Europe, or increases in interest rates in key countries in which we operate may adversely affect our financial performance by reducing the number or average purchase amount of transactions involving payment cards. A reduction in the amount of consumer spending could result in a decrease of our revenue and profits.

A weakening in the economy could also force some retailers to close, resulting in exposure to potential credit losses and transaction declines in transactions, and us earning lessreduced earnings on transactions due also to a potential shift to large discount merchants. Additionally, credit card issuers may reduce credit limits and bebecome more selective with regard to which they issue credit cards.in their card issuance practices. Changes in economic conditions could adversely impact our future revenues and profits and result in a downgrade of our debt ratings, which may lead to termination or modification of certain contracts and make it more difficult for us to obtain new business. Any of these developments could have a material adverse impact on our overall business and results of operations.

We expect that the competitive landscape will continue to change, including:

Our alliance structures take on different forms, including consolidated subsidiaries, equity method investments, and revenue sharing arrangements. Under our alliance program, a bank or other institution forms an alliance with us on an exclusive basis, either contractually or through a separate legal entity. Merchant contracts may be contributed to the alliance by us and/or the bank or institution. The banks and other institutions generally provide card association sponsorship, clearing, and settlement services and typically act as a merchant referral source when the institution has an existing banking or other relationship with such merchant. We provide transaction processing and related functions. Both we and our alliance partners may also provide management, sales, marketing, and other administrative services. The alliance structure allows us to be the processor for multiple financial institutions, any one of which may be selected by the merchant as its bank partner. Our Global Business Solutions business is dependent, in part, on our merchant relationships, alliances, and other distribution channels. We are working with our alliance partners to grow their businesses. There can be no guarantee that our efforts will be successful and that we will achieve growth in our merchant relationships, alliances, and other distribution channels. In addition, our contractual arrangements with our merchants and merchant alliance partners are for fixed terms and may also allow for early termination upon the occurrence of certain events. There can be no assurance that we will be able to renew our contractual arrangements with these merchants or merchant alliance partners on similar terms or at all. The loss of merchant relationships or alliance and financial institution partners could negatively impact our business and result in a reduction of our revenue and profit.

In order to provide our services, we process, store, and transmit sensitive business information and personal consumer information, including, but not limited to, names, bankcard numbers, home or business addresses, social security numbers, driver's license numbers, and bank account numbers. Under the card network rules, various federal, state and international laws, and client contracts, we are responsible for information provided to us by financial institutions, merchants, ISOs, third-party service providers, and others. The confidentiality of such sensitive business information and personal consumer information that resides on our systems is critical to our business. We cannot be certain that the security measures and procedures we have in place to protect this sensitive data will be successful or sufficient to counter all current and emerging technology threats designed to breach our systems in order to gain access to confidential information. The increasing sophistication of cyber criminals and their continuous attempts to breach our system has increased the risk of a security breach of our systems. A breach of our products or systems processing or storing sensitive business information or personal consumer information could lead to claims against us, reputational damage, lost clients and lost revenue, substantial additional costs (including costs of notification of consumers, credit monitoring, card reissuance, contact centers and forensics), loss of our financial institution sponsorship, loss of clients' and their customers’ confidence, as well as imposition of fines and damages, or potential restrictions imposed by card networks on our ability to process transactions, all of which could have a material adverse effect on our revenues, profitability, financial condition, and future growth. In addition, as security threats continue to evolve we will be required to invest additional resources to modify the security of our systems. The level of required investment could have a material adverse effect on our results of operations.

could cause system interruptions include, but are not limited to, fire, natural disaster, unauthorized entry, power loss, telecommunications failure, computer viruses, terrorist acts, cyber attacks, and war. Although we have taken steps to protect against data loss and system failures, there is still risk that we may lose critical data or experience system failures. To help protect against these events, we perform the vast majority of disaster recovery operations ourselves, but we also utilize select third parties for certain operations, particularly outside of the United States. To the extent we outsource our disaster recovery, we are at risk of the vendor’s unresponsiveness or other failures in the event of breakdowns in our systems. In addition, our property and business interruption insurance may not be adequate to compensate us for all losses or failures that may occur.

We are subject to the credit risk of our merchants being unable to satisfy obligations for which we may also be liable. For example, we and our merchantmerchants acquiring alliances along with us are contingently liablemay be subject to contingent liability for transactions originally acquired by us that are disputed by the cardholder and charged back to the merchants. If we or the alliance is unable to collect this amount from the merchant due tobecause of the merchant’s insolvency or other reasons, we or the alliance will bear the loss for the amount of the refund paid to the cardholder. We have an active program to manage our credit risk and often mitigate our risk by obtaining collateral. However, itIt is possible, however, that a default on such obligations by one or more of our merchants could have a material adverse effect on our business. For further information on our merchant credit losses, see note 1 "Summary of Significant Policies" to our consolidated financial statements in Part II, Item 8 of this Form 10-K.

We havemay be subject to potential liability for fraudulent electronic payment transactions or credits initiated by merchants or others. Examples of merchant fraud include when a merchant or other party knowingly uses a stolen or counterfeit credit, debit or prepaid card, card number, or other credentials to record a false sales transaction, processes an invalid card, or intentionally fails to deliver the merchandise or services sold in an otherwise valid transaction. Criminals are using increasingly sophisticated methods to engage in illegal activities such as counterfeiting and fraud. It is possible that incidents of fraud could increase in the future. Failure to effectively manage risk and prevent fraud would increase our chargeback liability or other liability. Increases in chargebacks or other liability could have a material adverse effect on our business, financial condition, and results of operations.

We have experienced the negative impact of the substantial bank industry consolidation in recent years. Bank industry consolidation impactscould affect existing and potential clients in our service areas, primarily in Financial Services and Merchant Solutions.areas. Our alliance strategy could also be negatively impacted as a result ofaffected by consolidations, especially where the banks involved are committed to their internal merchant processing businesses that compete with us. Bank consolidation has led to an increasingly concentrated client base, resulting in a changing

client mix for Financial Services as well as increased price compression. Further consolidation in the bank industry or other client base could have a negative impact on us, including a loss of revenue and price compression.

We have been an active business acquireractively acquired businesses and may continue to be activemake acquisitions of businesses or assets in the future. The acquisition and integration of businesses or assets involves a number of risks. The core risks are in the areas of valuation (negotiating a fair price for the business) and, integration (managing the complex process of integrating the acquired company’s people, products, technology, and other assets to realizeextract the projected value of the acquired company and the synergies projected to be realized in connection with the acquisition), regulation (obtaining necessary regulatory or other government approvals that may be necessary to complete acquisitions), and diligence (identifying undisclosed or unknown liabilities or restrictions that will be assumed in the acquisition).

In addition, international acquisitions outside of the United States often involve additional or increased risks including, for example:

The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or more of our combined businesses and the possible loss of key personnel. The diversion of management’s attention and any delays or difficulties encountered in connection with acquisitions and the integration of the two companies’ operations could have an adverse effect on our business, results of operations, financial condition or prospects.

Financial Risks

We are highly leveraged. As of December 31, 2014,2017, we had $20.9$19.2 billion of total debt. Our high degree of leverage could have important consequences, including:

Successful execution of our business strategy is dependent in part upon our ability to manage our capital structure to minimize interest expense and enhance free cash flow generation. Our senior secured revolving credit facility has $1.0$1.25 billion in commitments that are scheduled to mature in September 2016.June 2020. In addition, approximately $1.7 billion of obligations under our existing long-term borrowings are scheduled to mature prior to December 31, 2020. We may not be able to refinance our senior secured credit facilities or our other existing indebtedness at or prior to their maturity at attractive rates of interest because of our high levels of debt, debt incurrence restrictions under our debt agreements or because of adverse conditions in credit markets generally.

Certain of our borrowings, including borrowings under our senior secured credit facilities, to the extent the interest rate is not fixed by an interest rate swap, are at variable rates of interest. An increase in interest rates would have a negative impact on our results of operations by causing an increase in interest expense.

As of December 31, 2014,2017, we had $8.6$10.0 billion aggregate principal amount of variable rate long-term indebtedness, of which we have fixed interest rate swaps fix the interest ratecollar contracts on $5.0$4.3 billion in notional amount. We also had a $750 million fixedThe interest rate collar contracts mitigate exposure to floating swapinterest rate fluctuations, but are subject to preserve the ratio of fixedcontractual ceilings and floatingfloors. The interest rate debt that we had prior to the April 2011 debt modification and amendment.collars provide for interest rate protection if one month LIBOR rises above 150 or 175 basis points. As a result, as of December 31, 2014,2017, the impact of a 100 basis point increase in short-term interest rates on an annualized basis compared to the interest rates as of December 31, 2017, which for the one month LIBOR was 1.56%, and a corresponding and parallel shift in the remainder of the yield curve, would result in a $46 million increase our annualin interest expense by approximately $44 million.expense. See the discussion of our interest rate swap transactionscollar contracts in Note 5note 13 "Derivative Financial Instruments" to our Consolidated Financial Statementsconsolidated financial statements in Part II, Item 8 of this Form 10-K.

Our consolidated balance sheet includes goodwill and intangible assets that represent approximately 60%45% of our total assets atas of December 31, 2014.2017. These assets consist primarily of goodwill and customerclient relationship intangible assets associated with our acquisitions. We also expect to engage in additional acquisitions, which may result in our recognition of additional goodwill and intangible assets. Under current accounting standards, we are required to amortize certain intangible assets over the useful life of the asset, while goodwill and certain other intangible assets are not amortized. On a regular basis we assess whether there have been impairments in the carrying value of goodwill and certain intangible assets. If the carrying value of the asset is determined to be impaired, then it is written down to fair value by a charge to operating earnings. An impairment of a significant portion of goodwill or intangible assets could have a material adverse effect on our business, financial condition and results of operations.

Unfavorable resolution of tax contingencies could adversely affect ourtax expense. results of operations and cash flows from operations.

Our tax returns and positions are subject to review and audit by federal, state, local, and international taxing authorities. An unfavorable outcome to a tax audit could result in higher tax expense, thereby negatively impacting our results of operations as well as our cash flows from operations. We have established contingency reserves for material, known tax exposures relating to deductions, transactions, and other matters involving some uncertainty as to the proper tax treatment of the item. These reserves reflect what we believe to be reasonable assumptions as to the likely final resolution of each issue if raised by a taxing authority. While we believe that the reserves are adequate to cover reasonably expected tax risks, there is no assurance that, in all instances, an issue raised by a tax authority will be finally resolved at a financial cost not in excess of any related reserve. An unfavorable resolution, therefore, could negatively impact our effective tax rate, financial position, results of operations, and cash flows in the current and/or future periods. Refer to Note 15note 8 "Income Taxes" to our Consolidated Financial Statementsconsolidated financial statements included in Part II, Item 8 of this Form 10-K for more information.

Our operations are subject to tax by federal, state, local, and international taxing jurisdictions. Changes in tax laws, in our periodic reports is subjectsignificant tax jurisdictions could materially increase the amount of taxes we owe, thereby negatively impacting our results of operations as well as our cash flows from operations. For example, although we expect to limited regulatory oversight which may adverselybenefit from the recently enacted changes in US tax laws, the limitations on the deductibility of interest expense in the U.S. negatively impact our ability to provide accurateeffective tax rate, results of operations, and complete financial reports. In addition, we could discontinue filing with the SEC at any time.

Regulatory and Legal Risks

Failure to comply with, or changes in, laws, regulations and enforcement activities may adversely affect the products, services, and markets in which we operate.

We and our customers,clients are subject to laws and regulations that affect the electronic payments industry in the many countries in which our services are used. In particular, our customersclients are subject to numerous laws and regulations applicable to banks, financial institutions, and card issuers in the United States and abroad, and, consequently, we are at times affected by these

We are subject to U.S. and international financial services regulations, a myriad of consumer protection laws, economic sanctions, laws and regulations, and anti-corruption laws, escheat regulations and privacy and information security regulations to name only a few. Changes to legal rules and regulations, or interpretation or enforcement of them, could have a negative financial effect on us. In particular, changing regulations or standards in the area of privacy and data protection could also adversely impact us. For example, the General Data Protection Regulation (GDPR), which becomes effective in May 2018, extends the scope of the E.U. data protection law to all companies processing data of E.U. residents, regardless of the company’s location. The law requires companies to meet new requirements regarding the handling of personal data. Our efforts to comply with GDPR and other privacy and data protection laws may entail substantial expenses, may divert resources from other initiatives and projects, and could limit the services we are able to offer. Further, failure to meet GDPR requirements could result in fines, penalties, and reputational damage. The GDPR and other privacy and data protection laws may be interpreted and applied differently from country to country and may create inconsistent or conflicting requirements. Such regulations increase our compliance and administrative burden

Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which was signed into law in July 2010, significantly changed the U.S.United States financial regulatory system includingby, among other things, creating a new independent agency funded by the Federal Reserve Board, the Consumer Financial Protection Bureau,CFPB to regulate consumer financial products and services (including many offered by our customers)clients), restrictingrestrict debit card fees paid by merchants to issuer banks and allowingallow merchants to offer discounts for different payment methods. CFPB rules, examinations, and enforcement actions may require us to adjust our activities and may increase our compliance costs. The regulations under the Dodd-Frank Act require all debit card issuing financial institutions to participate in at least two, unaffiliated debit networks (banning exclusivity agreements between one debit network and one debit card issuer) and prohibit card issuers and payment networks from inhibiting the ability of merchants to choose among the enabled debit networks for the routing of each debit card transaction. Changes to the Dodd-Frank Act or regulations could adversely impact our debit network business. In addition, certain of our alliance partners are subject to regulation by federal and state authority and, as a result, could pass through some of those compliance obligations to us.

Changes in credit card association or other network rules or standards could adversely affect our business.

In order to provide our transaction processing services, several of our subsidiaries are registered with Visa and MasterCard and other networks as members or service providers for member institutions. As such, we and many of our customersclients are subject to card association and network rules that could subject us or our customersclients to a variety of fines or penalties that may be levied by the card associations or networks for certain acts or omissions by us, acquirer customers,acquiring clients, processing customers,clients, and merchants. Visa, MasterCard, and other networks, some of which are our competitors, set the rules and standards with respect to which we must comply. The termination of our member registration or our status as a certified service provider, or any changes in card association or other network rules or standards, including interpretation and implementation of the rules or standards, that increase the cost of doing business or limit

our ability to provide transaction processing services to or through our customers,clients, could have an adverse effect on our business, results of operations, and financial condition.

Failure to comply with state and federal antitrust requirements could adversely affect our business.

Through our merchant alliances, we hold an ownership interest in several competing merchant acquiring businesses while serving as an electronic processor for those businesses. In order to satisfy state and federal antitrust requirements, we actively maintain an antitrust compliance program. Notwithstanding our compliance program, it is possible that perceived or actual violationviolations of state or federal antitrust requirements could give rise to regulatory enforcement investigations or actions. Regulatory scrutiny of, or regulatory enforcement action in connection with, compliance with state and federal antitrust requirements could have a material adverse effect on our reputation and business.

We are the subject of various legal proceedings which could have a material adverse effect on our revenue and profitability.

We are involved in various litigation matters. We are also involved in or are the subject of governmental or regulatory agency inquiries or investigations and makesmake voluntary self-disclosures to government or regulatory agencies from time to time. Our insurance or indemnities may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. If we are unsuccessful in our defense in thethese litigation matters, or any other legal proceeding, we may be forced to pay damages or fines, enter into consent decrees, and/or change our business practices, any of which could have a material adverse effect on our revenue and profitability.

 

None.

 

As of December 31, 2014,2017, we and our subsidiaries owned or leased 6779 domestic properties and 9072 international properties. These facilities are used for operational, sales and administrative purposes, and are substantially all currently being utilized.

We believe that our facilities are suitable and adequate for our current business; however, we periodically review our space requirements and may acquire new space to meet the needs of our businesses or consolidate and dispose of or sublet facilities which are no longer required.

 

From time to time, we are involved in various litigation matters arising in the ordinary course of our business. None of these matters, individually or in the aggregate, currently is material to us. Information with respect to this item may be found in note 14 “Commitments and Contingencies” to our consolidated financial statements in Part II, Item 8 of this Form 10-K.

 

Not applicable.

 

The information presented in the table below represents the high and low closing sales prices per share of Class A common stock as reported on the NYSE for the periods indicated. There is currently no established public trading market for our Class B common stock. We had one

There were 25 holders of record holder of our Class A common stock and 22 holders of record of our Class B common stock as of December 31, 2017. The number of beneficial owners of our Class A common stock is substantially greater than the number of record holders, because a large portion of our Class A common stock is held in "street name" by banks and brokers.

Since our initial public offering (IPO) on February 27,October 15, 2015, we have not declared or paid any cash dividends on our common stock, and we have no equity securitiescurrent plan to do so. Because a significant portion of ours are authorized for issuanceour operations is through our subsidiaries, our ability to pay dividends depends in part on our receipt of cash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their jurisdiction of organization, agreements of our subsidiaries or covenants under any equity compensation plan.

The following graph shows a comparison from October 15, 2015 (the date our Class A common stock commenced trading on the NYSE) through December 31, 2017 of the cumulative total return for our Class A common stock, the S&P 500 Index and Analysisthe S&P Information Technology Index. Data for the S&P 500 Index and the S&P Information Technology Index assume reinvestment of Financial Conditiondividends. Note that historic stock price performance is not necessarily indicative of future stock price performance.

This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and ResultsExchange Commission for purposes of Operations - Capital ResourcesSection 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section, and Liquidity” included in Part II, Item 7 and Note 10 "Firstshall not be deemed to be incorporated by reference into any filing of First Data Corporation Stockholder's Equity and Redeemable Noncontrolling Interest" to our Consolidated Financial Statements in Part II, Item 8under the Securities Act of this Form 10-K.1933, as amended.

 

The following table sets forth our selected consolidated financial data as of the dates and for the periods indicated. The selected financial data as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016, and 2015 have been derived from our audited consolidated financial statements and related notes appearing in Part II, Item 8 of this Form 10-K. The selected consolidated financial data as of December 31, 2015, 2014, and 2013 and for the years ended December 31, 2014 and 2013 have been derived from our audited consolidated financial statements and related notes thereto not included in this Form 10-K.

The results of operations for any period are not necessarily indicative of the results to be expected for any future period. The selected consolidated financial data set forth below should be read in conjunction with, "Management’sand are qualified by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Part II, Item 7 and the Consolidated Financial Statementsconsolidated financial statements and related notes thereto included in Part II, Item 8 of this formForm 10-K.

The Notesnotes to our Consolidated Financial Statementsconsolidated financial statements in Part II, Item 8 of this Form 10-K contain additional information about various acquisitions, dispositions, and certain charges and benefits resulting from other operating expenses, and other income (expense) which affect the comparability of information presented.

The International issuing services provide issuer card, output services, ATM services,following contains management’s discussion and professional services. Issuer card and network solutions includes credit, retail, and debit card processing for financial institutions and other organizations offering credit cards, debit cards, and retail private label cards to consumers and businesses to manage customer accounts. Output services include statement and letter printing, embossing and mailing services, and call center services. ATM services include processing, acquiring, and switching services. Additionally, the International issuing services provides licensing for card processing software, and professional services.

Results of Operations

 

Consolidated results should be read in conjunction with Note 13note 7 "Segment Information" to our Consolidated Financial Statementsconsolidated financial statements in Part II, Item 8 of this Form 10-K, which provides more detailed discussions concerning certain components of the Consolidated Statementsour consolidated statements of Operations.operations. All significant intercompany accounts and transactions have been eliminated within the consolidated results.