First Data 2009 Annual Report Download - page 68

FIRST DATA CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The Company’s operating cash flows are impacted by fluctuations in working capital. During 2009, such
fluctuations included, most significantly, sources related to the timing of prefunding certain settlement
arrangements, collection of receivables and distributions of earnings received from alliances. Such sources were
offset by uses associated with timing of payments for various liabilities including semi-annual payments of
interest on senior unsecured debt and incentive compensation earned in 2008. The formation of BAMS
negatively impacted working capital in 2009 due most significantly to the prefunding of associated settlement
arrangements and timing of collections of receivables offset by sources from other prefunding arrangements and
the timing of payments on various expenses incurred by the alliance.
Operating cash flows for both 2009 and 2008 were impacted by the Company being in a net operating loss
carryforward position for U.S. federal income tax purposes. As a result, the Company has not received cash for
any of the income tax benefit recorded in the respective years related to U.S. federal income taxes. The Company
was able to carry back most of the net operating loss from the successor 2007 period and received a cash benefit
in 2008.
Cash flows from operating activities from continuing operations increased in 2009 compared to 2008 due
most significantly to the $246 million out of period collection and the timing of prefunding both described above.
The most significant sources of cash in 2008 were associated with the collection of receivables, distributions
of earnings associated with certain affiliates and the timing of certain settlement arrangements. Offsetting these
sources were uses of cash associated with the $246 million out of period collection described above and
payments for various liabilities the most significant of which included interest payments on long-term debt,
incentive compensation payments, pension plan contributions to the United Kingdom pension plan and income
taxes.
The source of cash in 2008 compared to the use of cash in the successor 2007 period and the source of cash
in the predecessor 2007 period resulted most significantly from timing associated with certain settlement
arrangements and collections of receivables and a decrease in the use of cash associated with the excess tax
benefit from share-based payment arrangement resulting from the accelerated payout of stock options and
restricted stock in 2007 in conjunction with the merger. Partially offsetting these items were larger uses of cash
in 2008 resulting from incentive compensation payments as well as interest payments on long-term debt. Cash
flows from operating activities in 2008 were lower, in part, due to earnings associated with CPS not being
distributed as the result of potential cash needs associated with the termination of the alliance.
The most significant uses of cash in the successor 2007 period were associated with timing of certain
settlement arrangements and payments for various liabilities the most significant of which included employee
related liabilities, interest payments on long-term debt, severance payments and pension plan contributions to the
United Kingdom pension plan. Partially offsetting these uses were sources of cash associated with collections of
receivables and distributions of earnings associated with certain affiliates as well as a net refund of income taxes.
The most significant sources of cash in the predecessor 2007 period were associated with the collection of
receivables and distributions of earnings associated with certain affiliates. Partially offsetting these sources were
uses of cash associated with timing of certain settlement arrangements and payments for various liabilities, net
payments of income taxes and payments totaling approximately $70 million for merger related costs.
The Company anticipates funding operations throughout 2010 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.
68