Mail Stop 4561
April 3, 2006
Kimberly S. Patmore
Executive Vice President and Chief Financial Officer
First Data Corporation
6200 South Quebec Street
Greenwood Village, CO 30308
Re: First Data Corporation
Form 10-K for Fiscal Year Ended December 31, 2005
Form 10-K for Fiscal Year Ended December 31, 2004
File No. 001-11073
Dear Ms. Patmore:
We have reviewed your Form 10-K for the fiscal year ended
December
31, 2005 and your response letters dated February 13, 2006 and
March
7, 2006 and have the following comments. Please be as detailed as
necessary in your explanation. After reviewing this information,
we
may raise additional comments.
Form 10-K for the Fiscal Years Ended December 31, 2005
Consolidated Financial Statements
Note 8 - Nonderivative and Derivative Financial Instruments, page
112
1. We note your responses to comments 2 and 3 of our letter dated
January 30, 2006 and the sample hedge documentation that you
provided
in your letter dated March 7, 2006. In your responses you appear
to
acknowledge that the difference in the timing of payments of the
hedged item (commission payment obligations) and the payments or
receipts on the hedging instrument (interest rate swap or swaps)
results in economic ineffectiveness. You state that you believe
that
SFAS 133 does not require you to include the ineffectiveness
related
to the timing difference of payment terms (i.e. the effect of
discounting) in your assessment of hedge effectiveness or
measurement
of hedge ineffectiveness, and that you believe paragraphs 65 and
134
of SFAS 133 support your position. Although SFAS 133 has specific
guidance that allows such a timing difference to be ignored in a
hedge that meets the criteria in paragraph 68 of SFAS 133 (a
shortcut
method hedge), we do not believe that this guidance can be applied
to
non-short cut hedges. We also do not believe paragraph 65
provides
guidance that ineffectiveness due to the difference in the timing
of
payments can be ignored in an interest rate hedge. Although
applying
method 1 as described in DIG Issue G7 will result in no
ineffectiveness being recognized for certain non short-cut cash
flow
hedges, we believe that the application of method 1 to these
hedges
will result in ineffectiveness. Method 1 requires a comparison of
the present value of the cumulative change in the expected future
cash flows on the variable leg of the swap with the present value
of
the cumulative change in the expected future interest cash flows
(or
in this case commission cash flows) on the floating-rate
liability,
with both present value calculations using the discount rate used
to
fair value the swap. Because this method is a comparison of
present
values, the timing of payments will impact the determination of
the
amount of ineffectiveness. We believe that for these hedges the
timing difference in the payment terms of the hedging instrument
and
the hedging instrument causes these hedges to not qualify for the
effectiveness assessment and measurement method described in DIG
Issue G9. As a result we believe that the criteria for hedge
accounting were not met for these hedges since your method of
assessing effectiveness did not meet the requirements of paragraph
28(b) of SFAS 133 and your method of measuring ineffectiveness did
not meet the requirements of 30(b) of SFAS 133. Please tell us
how
you propose to address the impact on your financial statements.
2. We note your responses to comments 3 and 4 of our letter dated
January 30, 2006 and the sample hedge documentation that you
provided
in your letter dated March 7, 2006. It is not clear to us from
the
documentation you have provided how you determine the specific
forecasted transaction that each layered on swap hedges. For
example, it is not clear whether the addition of the $38 million
notional swap in 2004 changed the existing hedges in place, such
that
this swap was designed as part of the same hedge as the existing
swaps. If this were the case, we would assume that the addition
of
the 2004 swap would result in the need to re-designate the
existing
swaps when the hedged transaction is changed to reflect the
additional notional of the new swap. Based on the documentation
you
provided it appears possible that with each swap you are hedging a
different amount of forecasted transactions, separate from the
forecasted transactions hedged by the pre-existing swaps. If this
were the case, it is not clear how your documentation allows you
to
know what specific $38 million of forecasted outstanding float
this
swap hedges. For example, if a change in your forecast of
probable
outstanding float caused you to determine that for 2010 you were
over
hedged by $20 million, it is not clear how you would determine
which,
if any, of the swaps that were hedging forecasted float in 2010
was
no longer effective. Additionally, if you decided to de-designate
the $38 million notional swap, it is not clear how you would know
the
specific forecasted notional for each year that was no longer
hedged
as a result of the de-designation. Please tell us how the
documentation you put in place at the inception of each of these
cash
flow hedges provided sufficient specificity about the particular
hedged commission payments being hedged such that if you
determined
that certain forecasted commission payments were determined to be
no
longer probable you could identify which of the swaps were hedging
those particular forecasted commission payments. Please refer to
paragraph 28(a) of SFAS 133 and DIG Issue G13.
3. Aside from your cash flow hedges of your commission payment
obligation, for each type of hedging relationship, please tell us
how
you determined that they met the criteria for hedge accounting
pursuant to paragraphs 20, 21, 28 and 29 of SFAS 133.
Specifically
address the following for each type of hedging relationship:
* the nature and terms of the hedged item or transaction;
* the nature and terms of the derivative instruments;
* the specific documented risk being hedged;
* the type of SFAS 133 hedge (fair value, cash flow, etc.); and
* the quantitative measures you use to assess effectiveness of
each
hedge both at inception and on an ongoing basis.
4. For items discussed in response to comment 5 above, please tell
us
whether you use the short-cut method or matched terms for assuming
no
ineffectiveness for any of your hedging relationships that qualify
for hedge accounting treatment under SFAS 133. If so, please tell
us
how you determine that the hedging relationship meets each of the
conditions in paragraph 68 or 65 of SFAS 133.
* * *
Please respond to these comments within 10 business days or
tell
us when you will provide us with a response. Please file your
response on EDGAR. Please understand that we may have additional
comments after reviewing your response to our comments.
Please contact Nancy Maloney, Staff Accountant, at (202) 551-
3427 or me at (202) 551-3449 if you have questions.
Sincerely,
Joyce A. Sweeney
Accounting Branch Chief
Kimberly S. Patmore
First Data Corporation
April 3, 2006
Page 4