First Data 2008 Annual Report Download - page 115

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Comprehensive Income ("OCI"). Intercompany loans were considered invested on a long-term basis in the predecessor period and accordingly foreign
exchange gains and losses were recorded in OCI. In the successor period, the intercompany loans are not considered invested on a long-term basis and such
foreign currency gains and losses were recorded in income. Transaction gains and losses related to operating assets and liabilities were included in the "Cost
of services" and "Selling, general and administrative" lines of the Consolidated Statements of Operations and were immaterial. Non-operating transaction
gains and losses derived from non-operating assets and liabilities are included in the "Other income (expense)" line of the Consolidated Statements of
Operations and are separately disclosed in Note 11.
Derivative Financial Instruments
The Company utilizes derivative instruments to enhance its ability to manage interest rate risk and foreign exchange risk. The Company recognizes all
derivative financial instruments in the Consolidated Balance Sheets as assets or liabilities at fair value. Such amounts are recorded in either the "Other long-
term assets" or "Other long-term liabilities" captions in the Consolidated Balance Sheets. Changes in fair value of derivative instruments are recognized
immediately in earnings unless the derivative is designated and qualifies as a hedge of future cash flows or a hedge of a net investment in a foreign operation.
For derivatives that qualify as hedges of future cash flows, the effective portion of changes in fair value is recorded temporarily in stockholders' equity as a
component of OCI and then recognized in earnings in the same period or periods during which the hedged item affects earnings. For derivatives that qualify
as a hedge of a net investment in a foreign operation, the gain or loss is reported in OCI as part of the cumulative translation adjustment to the extent the
hedge is effective. Any ineffective portions of cash flow hedges and net investment hedges are recognized in the "Other income (expense)" line in the
Consolidated Statements of Operations during the period of change. Additional discussion of derivative instruments is provided in Note 8.
Minority Interest
Minority interest in earnings of consolidated subsidiaries represents the minority shareholders' share of the after-tax net income or loss of consolidated
subsidiaries. Substantially all of the Company's minority interest is presented pretax in the Consolidated Statements of Operations since the majority of the
Company's non-wholly owned consolidated subsidiaries are flow through entities for tax purposes. The minority interest liability is included in "Other long-
term liabilities" in the Consolidated Balance Sheets and reflects the original investments by these minority shareholders in the consolidated subsidiaries, along
with their proportionate share of the earnings or losses of the subsidiaries, net of dividends.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 160, "Non-controlling Interests in Consolidated Financial
Statements" ("SFAS No. 160"), effective January 1, 2009 which will change the presentation of minority interests. The requirements of SFAS No. 160 are
discussed below under "New Accounting Pronouncements."
Reserve for Merchant Credit Losses and Check Guarantees
With respect to the merchant acquiring business, the Company's merchant customers (or those of its unconsolidated alliances) have the liability for any
charges properly reversed by the cardholder. In the event, however, that the Company is not able to collect such amounts from the merchants due to merchant
fraud, insolvency, bankruptcy or another reason, the Company may be liable for any such reversed charges. The Company's risk in this area primarily relates
to situations where the cardholder has purchased goods or services to be delivered in the future such as airline tickets.
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