First Data 2011 Annual Report Download - page 32

The 2009 restructurings resulted from the elimination of management and other positions, approximately 1,700 employees, as
part of the Company's cost saving initiatives as well as domestic site consolidations and the elimination of certain information
technology positions. Partially offsetting the charges are reversals of 2009 and 2008 restructuring accruals related to the Company's
change in strategy related to global labor sourcing initiatives as well as refining previously recorded estimates.
In the fourth quarter of 2009, domestically, the Company recorded a $33 million impairment charge related to customer
contracts, a $17 million goodwill impairment charge and a $3 million software impairment charge related to the Information Services
reporting unit. The significant factor that drove most of the impairment was lower projections of financial results as compared to those
used in the 2008 impairment testing.
In the fourth quarter of 2009, the Company recorded $124 million in asset impairment charges related to the International
reporting unit and segment. Approximately $64 million of the total impairment charge related to the Company's business in Germany
and was allocated to impair the value of customer contracts and real property by approximately $58 million and $6 million,
respectively. The impairment occurred because of the deterioration of profitability on existing business, higher risk of revenue attrition
in future years and lower projections of financial results compared to those used in prior periods. Approximately $47 million of the
total impairment charge related to impairment of customer contracts associated with the Company's card-issuing business in the
United Kingdom. The impairment occurred because of negative cash flow in the existing business and lower projections of financial
results compared to those used in prior periods. The remaining $13 million of impairment charges related to a trade name in Canada,
customer contracts in Brazil and Ireland and software.
During the third quarter of 2009, the Company recorded a charge of $7.7 million related to an intangible asset impairment
within the International segment resulting from continuing and projected losses combined with a change in business strategy related to
an existing business.
The Company followed a discounted cash flow approach in estimating the fair value of the affected asset groups and individual
intangible assets within those groups. Discount rates were determined on a market participant basis. In certain situations, the Company
relied in part on a third-party valuation firm in determining the appropriate discount rates. A relatively small change in these inputs
would have had an immaterial impact on the impairments. The Company obtained an appraisal from a third-party brokerage firm to
assist in estimating the value of real property in Germany. All key assumptions and valuations were determined by and are the
responsibility of management.
In 2009, the Company recorded anticipated settlements of several matters within the Financial Services segment. In the first and
second quarters of 2010, the Company released $2.0 million related to these settlements.
Interest expense. Interest expense increased in 2011 compared to 2010 due to higher average interest rates resulting primarily
from the August 2010 and April 2011 debt modifications and amendments as well as the December 2010 debt exchange and higher
debt balances due to payment-in-kind ("PIK") interest accretion. Partially offsetting these increases was a decrease resulting from the
expiration of interest rate swaps with a notional balance of $2.5 billion. Interest expense remained flat in 2010 compared to 2009.
The Company utilizes interest rate swaps to hedge its interest payments on a portion of its variable rate debt from fluctuations in
interest rates. While certain of these swaps do not qualify for hedge accounting, they continue to be effective economically in
eliminating variability in interest rate payments. Additionally, the Company utilizes a fixed to floating interest rate swap, which does
not qualify for hedge accounting, to preserve the ratio of fixed rate and floating rate debt that the Company held prior to the debt
modifications and amendments discussed below in Capital Resources and Liquidity. The fair value adjustments for interest rate swaps
that do not qualify for hedge accounting as well as interest rate swap ineffectiveness are recorded in the "Other income (expense)" line
item of the Consolidated Statements of Operations and totaled benefits of $55.7 million, charges of $67.9 million and charges of $64.3
million for the years ended December 31, 2011, 2010 and 2009, respectively.
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