First Data 2013 Annual Report Download - page 83

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
 Prices for the municipal and corporate securities are not quoted on active exchanges but are
priced through an independent third-party pricing service based on quotations from market-makers in the specific instruments or, where appropriate, from
other market inputs. Bonds were previously valued under a market approach using observable inputs including reported trades, benchmark yields,
broker/dealer quotes, issuer spreads and other standard inputs. Municipal paper was valued under a market approach using observable inputs including
maturity date, issue date, credit rating, current commercial paper rates and settlement date.
The Company’s experience with these types of investments and the expectations of the current investments held is that they will be satisfied at the
current carrying amount. These securities were classified as Level 2.
 The Company uses derivative instruments to mitigate certain risks. The Company’s derivatives are not exchange
listed and therefore the fair value is estimated under an income approach using Bloomberg analytics models that are based on readily observable market
inputs. These models reflect the contractual terms of the derivatives, such as notional value and expiration date, as well as market-based observables including
interest and foreign currency exchange rates, yield curves and the credit quality of the counterparties. The models also incorporate the Company’s
creditworthiness in order to appropriately reflect non-performance risk. Inputs to the derivative pricing models are generally observable and do not contain a
high level of subjectivity and, accordingly, the Company’s derivatives were classified within Level 2 of the fair value hierarchy. While the Company believes
its estimates result in a reasonable reflection of the fair value of these instruments, the estimated values may not be representative of actual values that could
have been realized or that will be realized in the near future. Refer to Note 6 of these Consolidated Financial Statements for additional information regarding the
Company’s derivative financial instruments.
 As discussed in Note 3 of these Consolidated Financial Statements, during the year ended December 31, 2013, contingent
consideration was recorded related to the acquisition of Perka, Inc. The transaction called for cash consideration as well as contingent payments for
achievement of certain milestones. As part of the purchase price, the Company recorded a $6.3 million liability for the contingent consideration. This fair
value measurement represents a Level 3 measurement as it is based on significant inputs not observable in the market. Significant judgment is employed in
determining the appropriateness of these assumptions as of the acquisition date. The primary assumption is the estimated number of merchant locations that
will be using the software in the next three years.
During the year ended December 31, 2012, contingent consideration was recorded related to the acquisition of Clover Network, Inc. The transaction
called for cash consideration as well as a series of contingent payments based on the achievement of specified sales targets. These contingent payments are
classified as purchase consideration if made to outside investors and compensation if made to current and future employees. As part of the purchase price, the
Company recorded a $20 million liability for the contingent consideration due to outside investors based upon the net present value of the Company’s estimate
of the future payments. Subsequent measurements are made using the same methodology. This fair value measurement represents a Level 3 measurement as it
is based on significant inputs not observable in the market. Significant judgment is employed in determining the appropriateness of these assumptions as of
the acquisition date. The primary assumption is the estimated number of merchant locations that will be using the software in the next three years.
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Beginning balance as of January 1, 2012 $ —
Initial estimate of contingent consideration 20.0
Contingent consideration payments —
Change in fair value of contingent consideration —
Ending balance as of December 31, 2012 20.0
Initial estimate of contingent consideration 6.3
Contingent consideration payments —
Change in fair value of contingent consideration —
Ending balance as of December 31, 2013 $ 26.3
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During the year ended December 31, 2013, the Company did not record any adjustments to the carrying value of existing assets based on non-recurring
fair value measurements.
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