First Data 2008 Annual Report Download - page 143

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The costless collar that existed at December 31, 2007 and was used to hedge the anticipated cash flows from the future sale of an equity security was
terminated in January 2008 in connection with the sale of the associated equity security.
During 2008, the Company entered into an outsourcing contract with a foreign vendor which exposes the Company to foreign exchange risk related to
the currency of the vendor's country. The Company entered into a series of forward contracts to hedge the forecasted purchases from the vendor in order to
mitigate the foreign currency exposure.
As of December 31, 2008, the notional amounts of the forward contracts were 5.8 million Canadian dollars ($4.7 million). The notional amount of the
foreign exchange rate collar was 90.4 million Philippine pesos ($1.9 million). If the Philippine Peso to U.S. Dollar exchange rate fluctuates by more than +/-
8% from the reference rate, then a net payment is made or received based on the $1.9 million notional amount. The Company is also a party to a reverse collar
for a $950,000 notional amount which effectively reduces the notional amount of the Philippine Peso collar to $950,000 when the exchange rate fluctuates by
more than +/- 13%. The terms of the foreign exchange rate collar and the related reverse collar were specifically designed to match the foreign exchange
exposure from the underlying vendor agreement. The notional amount of the cross-currency swaps was 91.1 million euro (approximately $127.8 million). The
periodic change in the mark-to-market of the derivative instruments not designated as accounting hedges is recorded immediately in the Consolidated
Statements of Operations. For information on the location and amounts of derivative fair values in the Consolidated Balance Sheets and derivative gains and
losses in the Consolidated Statements of Operations, see the tabular information presented below.
DERIVATIVES THAT QUALIFY FOR HEDGE ACCOUNTING
Hedge of a Net Investment in a Foreign Operation
A cross currency swap that was designated as a net investment hedge prior to the merger was redesignated at the merger date as a hedge of net
investments in foreign operations. Since the existing derivative instrument was not at zero fair value at the time of redesignation, the redesignated hedging
relationship creates some ineffectiveness which is recognized immediately in the Consolidated Statements of Operations. The effective portion of the change
in fair value of the cross currency swap is recognized in the Consolidated Statements of Stockholders' Equity. As of December 31, 2008, the aggregate
notional amount of the cross currency swap was 115.0 million Australian dollars (approximately $78.6 million).
For information on the location and amounts of derivative fair values in the Consolidated Balance Sheets and derivative gains and losses in the
Consolidated Balance Sheets or in the Consolidated Statements of Operations, see the tabular information presented below.
Cash Flow Hedges
As noted above and in the third quarter 2007 prior to the consummation of the merger, the Company entered into two forward starting, deal contingent
interest rate swaps. At the merger date such interest rate swaps were designated as cash flow hedges of the variability in the interest payments on a specified
$3.0 billion portion of the approximate $12.8 billion variable rate senior secured term loan due to changes in the LIBOR interest rate. In the fourth quarter of
2007, the Company entered into additional interest rate swaps designated as cash flow hedges of the variability in the interest payments on $4.5 billion of the
variable rate senior secured term loan due to changes in the LIBOR interest rate.
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