First Data 2007 Annual Report Download - page 79

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The estimate of fair value requires various assumptions including the use of projections of future cash flows and discount rates that reflect the risks associated
with achieving the future cash flows. Changes in the underlying business could affect these estimates, which in turn could affect the fair value of the reporting
unit.
Due to the valuation of the Company's intangible assets associated with the merger, it was determined an annual goodwill impairment test was not
needed for 2007. The Company's annual goodwill impairment test did not identify any impairments in 2006 and 2005; however, there was an impairment in
goodwill that was triggered by the changes in strategic direction of specific businesses made in 2007 and 2005 as discussed in Note 3.
New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 157, "Fair
Value Measurements". This statement defines fair value, establishes a fair value hierarchy to be used in generally accepted accounting principles and expands
disclosures about fair value measurements. Although this statement does not require any new fair value measurements, in certain cases, its application will
change current practice. SFAS No. 157 will be effective for fiscal years beginning after November 15, 2007 as it relates to fair value measurements of
financial assets and liabilities and for fiscal years beginning after November 15, 2008 for certain non-financial assets and non-financial liabilities that are not
recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Effective January 1, 2008, the Company will adopt
SFAS No. 157 for all financial assets and liabilities. The effect of adopting this standard is expected to reduce the Company's derivative liabilities by
approximately $13 million as of the date of adoption. The majority of this amount relates to derivatives that have been designated as cash flow hedges for
accounting purposes and, accordingly, the impact will be recorded as a reduction of the unrealized losses in "Other comprehensive income" to the extent the
hedges are effective. The amount of adjustment related to derivatives not designated as accounting hedges is immaterial and will be reflected as a gain in the
"Other income (expense)" line item in the Consolidated Statements of Income upon adoption. The Company is currently evaluating the January 1, 2009
impact of adopting the new statement on fair value measurements for non-financial assets and non-financial liabilities.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans—an
Amendment of FASB Statements No. 87, 88, 106, and 132(R)." This statement requires a company to recognize the funded status of a benefit plan as an asset
or a liability in its statement of financial position. In addition, a company is required to measure plan assets and benefit obligations as of the date of its fiscal
year-end statement of financial position. The Company adopted the recognition provisions and disclosure requirements as of December 31, 2006. As a result
of the merger, the Company measured the benefit plan assets and obligations as of the merger date and allocated purchase price to each plan equal to its
funded status. Additionally, for its new basis of accounting, the Company elected December 31 as the measurement date for its plans. As such, the
measurement date provisions of SFAS No. 158 have no impact on the Company's financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of
FASB Statement No. 115." This Statement permits entities to measure many financial instruments and certain other items at fair value. This election is made
on an instrument-by-instrument basis and is irrevocable. Unrealized gains and losses on items for which the fair value option has been elected are reported in
earnings. This statement is effective for fiscal years beginning after November 15, 2007. The Company did not elect the fair value option for any of its
existing financial assets and liabilities.
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations." The new standard will significantly change the financial accounting
and reporting of business combination transactions in the consolidated financial statements. It will require an acquirer to recognize, at the acquisition date, the
assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at their full fair values as of that date. In a business combination
achieved in stages (step acquisitions), the acquirer will be required to remeasure its previously held equity interest in the acquiree at its acquisition-date fair
value and recognize the resulting gain or loss in earnings. The acquisition-related transaction and restructuring costs will no longer be included as part of the
capitalized cost of the acquired entity but will be required to be accounted for separately in accordance with applicable generally accepted accounting
principles in the U.S. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15, 2008.
In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements." The statement clarifies the
definition of a non-controlling (or minority) interest and requires that non-controlling interests in subsidiaries be reported as a component of equity in the
consolidated statement of financial position and requires that earnings attributed to the
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