First Data 2008 Annual Report Download - page 40

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
assumptions, would have increased the segment's impairment charge by approximately $0.9 billion while a $50 million increase would have entirely
eliminated the segment's impairment charge of $0.7 billion. Accordingly, continued economic deterioration beyond that anticipated and/or increases in the
applicable discount rate could result in an additional impairment in future periods. A more detailed description of the impairment testing is presented in
"Critical Accounting Policies" below.
Economic Conditions
General economic conditions in the U.S. and other areas of the world weakened in the second half of 2008 with a dramatic acceleration in the fourth
quarter. Many of FDC's businesses rely in part on the number and size of consumer transactions which have been challenged by a declining U.S. and world
economy and difficult credit markets. After experiencing a rebound in the early part of 2008 from a slow 2007 holiday shopping period, domestic merchant
transaction and volume growth subsequently slowed on a year to date basis and particularly in the fourth quarter due to a decline in retail sales as a result of a
weakened economy and 2008 holiday shopping period. This reduction in spending is across a wide range of categories, with discounters showing less of an
effect than smaller retailers and large specialty retailers. While the Company is partially insulated from specific industry trends through its diverse market
presence, broad slowdowns in consumer spending had a material impact on fourth quarter 2008 revenues and profits and is expected to have an impact on
revenues and profits in 2009 as well. Retail sales are expected to remain relatively flat or decrease during 2009 compared to 2008. Even with flat retail sales
compared to 2008, the Company's revenues could decrease as sales may continue to shift to large discount merchants from which the Company earns less per
transaction. A further weakening in the economy could also force some smaller retailers to close resulting in exposure to potential credit losses and further
transaction declines and the Company earning less on transactions due also to a potential shift to large discount merchants. Additionally, credit card issuers
have been reducing credit limits and closing accounts and are more selective with regard to whom they issue credit cards. A continuation or acceleration of
the economic slowdown could adversely impact future revenues and profits of the Company.
The Company's source of liquidity is principally cash generated from operating activities supplemented as necessary on a very short-term basis by
borrowings against its revolving credit facility. The economic downturn is expected to have at least a near term impact on the capital resources provided by
operating activities. If the impact is more than expected, certain capital expenditures may be limited and, in an extreme situation, may require the use of the
revolving credit facility to fund interest payments or capital expenditures; however, to prevent such measures, the Company has implemented cost saving
initiatives that it expects will allow it to continue to fund such items from operating activities.
In addition to the weakening economic conditions, there is also volatility in the credit and capital markets which could adversely impact the Company's
results of operations due to the potential for additional investment losses and impairments.
An affiliate of Lehman Brothers Holdings Inc. provides a commitment in the amount of $230.6 million of the Company's $2.0 billion senior secured
revolving credit facility. After filing for bankruptcy in September 2008, the affiliate declined to participate in a request for funding under the Company's
senior secured revolving credit agreement and the Company has no assurances that they will participate in any future funding requests or that the Company
could obtain replacement loan commitments from other banks. In the event the Company decides to draw upon the senior secured revolving credit facility and
the affiliate of Lehman does not fund its obligation in accordance with the credit agreement, the Company believes its remaining capacity under its senior
secured revolving credit facility is sufficient to meet its short-term and long-term liquidity needs. There are multiple institutions that have commitments under
this facility with none representing more than approximately
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