First Data 2014 Annual Report Download - page 47

 

We are exposed to market risk from changes in interest rates. Our assets include cash equivalents as well as both fixed and floating rate interest-bearing
securities. These investments arise primarily from settlement funds held by us pending settlement.
Our interest rate-sensitive liabilities are our debt instruments. Our senior secured term loan facility is subject to variable interest rates. We have interest rate
swaps on $5.0 billion of the variable rate debt that convert it to fixed rates that expire in September 2016. In addition, we have a fixed to floating interest rate
swap with a notional value of $750 million expiring in June 2019 with a mandatory termination date of June 2015, to maintain our ratio of fixed to floating
rate debt. Therefore, as of December 31, 2014, we had approximately $4.4 billion of variable rate debt that is not subject to a fixed rate swap and includes the
fixed to floating interest rate swap.
Based on the December 31, 2014 balances, a 10% proportionate increase in short-term interest rates on an annualized basis compared to the interest rates as of
December 31, 2014, which for the three month LIBOR was 0.2556%, and a corresponding and parallel shift in the remainder of the yield curve, would result
in a decrease to pretax income of $1 million. The $1 million decrease to pretax income (due to a 10% increase in variable rates as of December 31, 2014) is
due to a $1 million increase in interest expense related to our balance of variable interest rate debt, net of interest rate swaps. Conversely, a corresponding
decrease in interest rates would result in a comparable increase to pretax income. Actual interest rates could change significantly more than 10%. There are
inherent limitations in the sensitivity analysis presented, primarily due to the assumption that interest rate movements are linear and instantaneous. As a
result, the analysis is unable to reflect the potential effects of more complex market changes that could arise, which may positively or negatively affect
income.

We are exposed to changes in currency rates as a result of our investments in foreign operations, revenues generated in currencies other than the U.S. dollar
and foreign currency-denominated loans. 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. Refer to Note 5 "Derivative Financial Instruments" to our Consolidated Financial Statements in Part II,
Item 8 of this Form 10-K for additional information regarding the changes in foreign currency exchange rates.
A hypothetical uniform 10% weakening in the value of the U.S. dollar relative to all the currencies in which our revenues and profits are denominated would
result in an increase to pretax income of approximately $14 million. The increase results from a $59 million increase related to foreign exchange on
intercompany loans and a $19 million increase related to foreign exchange on foreign currency earnings, assuming consistent operating results as the twelve
months preceding December 31, 2014. This increase is partially offset by a $62 million decrease related to a euro-denominated term loan held by us as well as
a $3 million decrease related to two euro-denominated cross-currency swaps held by us. There are inherent limitations in the sensitivity analysis presented,
primarily due to the assumption that foreign exchange rate movements are linear and instantaneous. As a result, the analysis is unable to reflect the potential
effects of more complex market changes that could arise, which may positively or negatively affect income.

Through its merchant alliances, the Merchant Solutions segment holds an ownership interest in several competing merchant acquiring businesses while
serving as the electronic processor for those businesses. In order to satisfy state and federal antitrust requirements, we actively maintain an antitrust
compliance program.
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