First Data 2013 Annual Report Download - page 77

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

Company also performs an assessment of the probability of the forecasted transactions on a periodic basis. If it is determined that a derivative ceases to be
highly effective during the term of the hedge or if the forecasted transaction is no longer probable, the Company discontinues hedge accounting prospectively
for such derivative.

The Company monitors the financial stability of its derivative counterparties and all counterparties remain highly-rated (in the “A” category or higher).
The credit risk inherent in these agreements represents the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. The
Company performs a review at inception of the hedge, as circumstances warrant, and at least on a quarterly basis of the credit risk of these counterparties.
The Company also monitors the concentration of its contracts with individual counterparties. The Company’s exposures are in liquid currencies (primarily in
U.S. dollars, euros, Australian dollars, British pounds and Canadian dollars), so there is minimal risk that appropriate derivatives to maintain the hedging
program would not be available in the future.

The Company’s derivative instruments portfolio was comprised of the following:

  

Interest rate contracts USD 5,750.0 5,750.0
Foreign exchange contracts EUR 21.5 91.1
 
Foreign exchange contracts AUD 215.0 115.0
Foreign exchange contracts EUR 200.0 —
Foreign exchange contracts GBP 100.0 —
Foreign exchange contracts CAD 75.0 —
 During the twelve months ended December 31, 2013 and 2012, the Company held certain
derivative instruments that functioned as economic hedges but no longer qualified or were not designated to qualify for hedge accounting. Such instruments
included cross-currency swaps held in order to mitigate foreign currency exposure on intercompany loans and a portion of the Company’s net investment in its
European operations, interest rate swaps held in order to mitigate the exposure to interest rate fluctuations on interest payments related to variable rate debt and
a fixed to floating interest rate swap held to maintain a desired ratio of fixed and variable rate debt.
Interest rate swaps with a combined notional value of $5.0 billion expired in September 2012. The Company held forward-starting interest rate swaps
with a combined notional value of $5.0 billion, which became effective upon expiration of the prior instruments. The interest rate swaps are intended to
mitigate exposure to fluctuations in interest rates and will expire in September 2016. The Company did not designate the swaps as hedges for accounting
purposes.
The Company holds a fixed to floating interest rate swap in order to preserve the ratio of fixed and floating debt. The swap has a notional value of
$750.0 million and expires on June 15, 2019, but is subject to a mandatory put that will result in cash settlement on June 15, 2015.
During 2012 and 2011, certain interest rate swaps previously designated as hedges for accounting purposes ceased to qualify for hedge accounting
treatment. The Company therefore de-designated the hedges and ceased to apply hedge accounting from the beginning of the quarter during which the
respective de-designations occurred. The amount carried in OCI as of the date of de-designation was subsequently reclassified into earnings in the same periods
during which the forecasted transactions affected earnings. As of December 31, 2013, there are no amounts carried in OCI related to interest rate swaps that are
expected to be reclassified into the Consolidated Statements of Operations.
In January of 2013, the Company’s cross-currency swap with an aggregate notional value of 69.6 million euro expired.
For information on the location and amounts of derivative fair values in the Consolidated Balance Sheets, derivative gains and losses in the
Consolidated Statements of Operations and accumulated derivative gains and losses in OCI, refer to the tables presented below.
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