Mail Stop 4561
August 7, 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, March
7,
2006, April 20, 2006, June 1, 2006 and June 16, 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 response to comment 1 of our letter dated April 3,
2006 and the sample hedge documentation you provided in your
letter
dated June 1, 2006. We continue to believe that DIG Issue G7 does
not allow a company following method 1 of Issue G7 to measure
ineffectiveness to match the index, reset dates, determine that
counterparty default is not probable, and then assume there is no
ineffectiveness, when there are other known sources of
ineffectiveness. Paragraph 3 of Issue G7 specifically indicates
in
the discussion of the conditions that would have to be met that
the
hedging relationship does not contain any other basis differences.
We believe that payment timing differences between the hedged item
and hedging instrument create basis differences, even when the
indexes and reset dates are the same. It appears you believe that
while in theory payment differences could lead to small amounts of
ineffectiveness, you could intuitively determine that the amount
of
ineffectiveness created by payment timing differences would be
immaterial to the financial statements. However, outside the
shortcut method and the very limited situation of the commodity
forward described in paragraph 65, we do not believe SFAS 133
permits a company to rely on matching what it believes are the
most
critical terms and intuition for measuring ineffectiveness, when
there are known sources of ineffectiveness. We note it appears
you
are relying on a G7-type methodology as part of your prospective
considerations and retrospective evaluations of effectiveness.
Please tell us why you believe you qualified for hedge accounting
during the period when your methodologies for both measuring and
assessing effectiveness did not consider known sources of
ineffectiveness.
2. We note that you have provided certain information regarding
your
contemporaneous testing of effectiveness, including your
assessments
that there had been no changes in counterparty creditworthiness or
changes in terms of the instruments. In our teleconference on
July
28, 2006 you indicated that you have additional information that
explains your procedures with respect to the periodic assessments.
Please provide such information to assist us in our review of the
documentation already provided.
3. We note your response to comment 2 of our letter dated June 7,
2006 where you state that you believe that SFAS 133`s de-
designation
and re-designation guidance does not apply to situations where a
hedger is simply layering on additional notional amounts of
derivatives due to a decision to hedge a new layer of variable
cash
flows. We believe paragraphs 28(a) and 459-462 in SFAS 133 are
clear
that when designating groups of items in a cash flow hedge, the
hedged item must be documented with sufficient specificity so that
when the transaction occurs it is clear whether that transaction
is
the hedged item. We believe that your approach for documenting
the
designation of the hedged item in hedging groups of commission
payments does not sufficiently identify which of the hedged
payments
or groups of hedged payments are the hedged items associated with
each swap. Therefore, as we have previously commented, we believe
that if you were in an over hedged position you would be unable to
determine which hedged transactions associated with which swaps
did
not occur.
You have previously responded that if you were in an over hedged
position; you believe SFAS 133 would require you to dedesignate
all
the swaps. This response appears to indicate one of two things:
(a) that you believe the hedged item is a group of cash flows
(commission payments) with a notional matching the aggregate
notional
on the swaps and the hedging instrument is the group of swaps, or
(b) that you believe you are using the group of existing swaps to
hedge a total specific amount of future commission payments.
If (a) is true, we believe you must dedesignate and redesignate
the
hedging relationship when new swaps are layered on since the
hedging
instrument (the group of swaps) has changed or when those
estimated
total commission cash flows (the hedged item) have changed. If
(b)
is true, we believe you must dedesignate and redesignate when a
new
swap is added since the total designated item (total commission
payments) has changed as well as the hedging instrument has
changed.
In this situation, you have not identified which of the total
population of potential cash flows are the hedged cash flows.
You have also discussed the view that with each swap you are
hedging
a proportion of the future commission payments and that each swap
that is added simply adds proportionately to the hedged
transaction.
If this is your hedging strategy, it still remains unclear what
the
total hedged item is that you are proportionately hedging and what
aspects of your documentation support this proportionate hedge
view,
since none of the documentation identifies the total amount of
which
the specific swap is a proportionate hedge or identifies what
proportion is being hedged.
DIG Issues G13, Question 1 and G25 permit documenting a
hedging
strategy that relies on a first cash payments approach as to
sufficiently specify the hedged item. Under that approach a
layering
on or the removal of a swap would not have changed the hedging
instrument or the hedged item and dedesignation and redesignation
would have not have been required. However, your documentation
did
not specify the hedged transactions in such a manner. As a result,
we
believe that you failed to properly identify the hedged
transactions
with sufficient specificity to satisfy the requirements of
paragraph
28 of SFAS 133. Accordingly, we do not believe you qualify for
hedge
accounting for these hedges. Please restate your financial
statements to remove the effects of hedge accounting for your
hedges
of commission payments or advise.
* * *
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
August 7, 2006
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