Western Union 2010 Annual Report Download - page 86

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defined benefit plan trust (“Trust”) are recognized or disclosed utilizing the same hierarchy. The following three
levels of inputs may be used to measure fair value:
•Level 1: Quoted prices in active markets for identical assets or liabilities.
•Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities. For most of these assets, the
Company utilizes pricing services that use multiple prices as inputs to determine daily market values. In
addition, the Trust has other investments that fall within Level 2 that are valued at net asset value which is not
quoted on an active market, however, the unit price is based on underlying investments which are traded on an
active market.
•Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities. Level 3 assets and liabilities include items where the determination of fair
value requires significant management judgment or estimation. The Company has Level 3 assets that are
recognized and disclosed at fair value on a non-recurring basis related to the Company’s business
combinations, where the values of the intangible assets and goodwill acquired in a purchase are derived
utilizing one of the three recognized approaches: the market approach, the income approach or the cost
approach.
Except as it pertains to an investment redemption discussed in Note 9, carrying amounts for many of the
Company’s financial instruments, including cash and cash equivalents, settlement cash and cash equivalents,
settlement receivables, settlement obligations, borrowings under the commercial paper program and other short-
term notes payable, approximate fair value due to their short maturities. Investment securities, included in
settlement assets, and derivative financial instruments are carried at fair value and included in Note 8. Fixed
rate notes are carried at their original issuance values as adjusted over time to accrete that value to par, except for
portions of notes hedged by interest rate swap agreements as disclosed in Note 14. The fair values of fixed rate notes
are also disclosed in Note 15 and are based on market quotations. For more information on the fair value of financial
instruments see Note 8.
The fair values of non-financial assets and liabilities related to the Company’s business combinations are
disclosed in Note 4. The fair values of financial assets and liabilities related to the Trust are disclosed in Note 11.
Business Combinations
The Company accounts for all business combinations where control over another entity is obtained using the
acquisition method of accounting, which requires that most assets (both tangible and intangible), liabilities
(including contingent consideration), and remaining noncontrolling interests be recognized at fair value at the date
of acquisition. The excess of the purchase price over the fair value of assets less liabilities and noncontrolling
interests is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, or
noncontrolling interests made subsequent to the acquisition date, but within the measurement period, which is one
year or less, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are
recorded in income. Any cost or equity method interest that the Company holds in the acquired company prior to the
acquisition is remeasured to fair value at acquisition with a resulting gain or loss recognized in income for the
difference between fair value and existing book value. Results of operations of the acquired company are included
in the Company’s results from the date of the acquisition forward and include amortization expense arising from
acquired intangible assets. Effective January 1, 2009, the Company expenses all costs as incurred related to or
involved with an acquisition in “Selling, general and administrative” expenses. Previously, such amounts were
capitalized as part of the acquisition.
Cash and Cash Equivalents
Highly liquid investments (other than those included in settlement assets) with maturities of three months or less
at the date of purchase (that are readily convertible to cash) are considered to be cash equivalents and are stated at
cost, which approximates market value.
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