First Data 2010 Annual Report Download - page 19

Table of Contents
Changes in card association and debit network fees or products could increase costs or otherwise limit the Company's operations.
From time to time, card associations and debit networks increase the organization and/or processing fees (known as interchange fees) that they charge.
It is possible that competitive pressures will result in the Company absorbing a portion of such increases in the future, which would increase its operating
costs, reduce its profit margin and adversely affect its business, operating results and financial condition. Furthermore, the rules and regulations of the various
card associations and networks prescribe certain capital requirements. Any increase in the capital level required would further limit the Company's use of
capital for other purposes.
The Company's business may be adversely affected by risks associated with foreign operations.
The Company is subject to risks related to the changes in currency rates as a result of its investments in foreign operations and from revenues generated
in currencies other than the U.S. dollar. Revenue and profit generated by international operations will increase or decrease compared to prior periods as a
result of changes in foreign currency exchange rates. From time to time, the Company utilizes foreign currency forward contracts or other derivative
instruments to mitigate the cash flow or market value risks associated with foreign currency denominated transactions. However, these hedge contracts may
not eliminate all of the risks related to foreign currency translation. Furthermore, the Company may become subject to exchange control regulations that might
restrict or prohibit the conversion of its other revenue currencies into U.S. dollars. The occurrence of any of these factors could decrease the value of revenues
the Company receives from its international operations and have a material adverse impact on the Company's business.
Increase in interest rates may negatively impact the Company's operating results and financial condition.
Certain of the Company's borrowings, including borrowings under the Company's 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 the Company's results of
operations by causing an increase in interest expense.
As of December 31, 2010, the Company had $11.95 billion aggregate principal amount of variable rate long-term indebtedness, of which interest rate
swaps fix the interest rate on $5 billion in notional amount. As a result, as of December 31, 2010, the impact of a 100 basis point increase in interest rates
would increase the Company's annual interest expense by approximately $70 million. See the discussion of the Company's interest rate swap transactions in
Note 6 to the Company's Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Unfavorable resolution of tax contingencies could adversely affect the Company's tax expense.
The Company's 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 the Company's results of operations. The Company has 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 the Company believes to be reasonable assumptions as to the likely final resolution of each issue if raised by
a taxing authority. While the Company believes 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 the Company's effective tax rate, financial position, results of operations and cash flows in the current and/or future
periods. The Company's exposure to tax audits includes matters involving its former Western Union unit, which was spun off in September 2006. Under the
Tax Allocation Agreement executed at the time of the spin-off, Western Union is responsible for all taxes, interest and penalties related to it and must
indemnify the Company against such amounts. The Company, however, generally has ultimate liability to the relevant tax authorities for such amounts in the
event Western Union were to default in its indemnification obligation.
Failure to protect the Company's intellectual property rights and defend itself from potential patent infringement claims may diminish the Company's
competitive advantages or restrict it from delivering the Company's services.
The Company's trademarks, patents and other intellectual property are important to its future success. The FIRST DATA trademark and trade name and
the STAR trademark and trade name are intellectual property rights which are individually material to the Company. These trademarks and trade names are
widely recognized and associated with quality and reliable service. Loss of the proprietary use of the FIRST DATA or STAR trademarks and trade names or a
diminution in the perceived quality associated with them could harm the growth of the Company's businesses. The Company also relies on proprietary
technology. It is possible that others will independently develop the same or similar technology. Assurance of protecting its trade secrets, know-how or other
proprietary information cannot be guaranteed. The Company's patents could be challenged, invalidated or circumvented by others and may not be of sufficient
scope or strength to provide the Company with any meaningful protection or advantage. If the Company was
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