First Data 2008 Annual Report Download - page 186

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the summarized results of discontinued operations for the year ended December 31, 2006 (in millions):
Year ended
December 31,
2006
Revenue $ 3,351.1
Expenses 2,385.5
Operating profit 965.6
Other income (expense) 75.0
Income before income taxes 1,040.6
Income tax expense 360.0
Minority interest, net of tax (24.3)
Equity earnings in affiliates 9.4
Income from discontinued operations $ 665.7
Note 20: Fair Value Measurement
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". Although this statement does not require any new fair value
measurements, in certain cases its application has changed previous practice in determining fair value. SFAS 157 became effective for the Company
beginning January 1, 2008 as it relates to fair value measurements of financial assets and liabilities and non-financial assets and liabilities that are recognized
at fair value in its financial statements on a recurring basis (at least annually). It will be effective beginning January 1, 2009 for certain other non-financial
assets and non-financial liabilities.
SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. It establishes a hierarchy for fair value measurements based upon the inputs to the valuation and the degree to which
they are observable or not observable in the market. The three levels in the hierarchy are as follows:
• Level 1—Inputs to the valuation based upon quoted prices (unadjusted) for identical assets or liabilities in active markets that are accessible as of
the measurement date.
• Level 2—Inputs to the valuation include quoted prices in either markets that are not active, or in active markets for similar assets or liabilities,
observable inputs other than quoted prices, and inputs that are derived principally from or corroborated by observable market data.
• Level 3—Inputs to the valuation that are unobservable inputs for the asset or liability.
SFAS 157 assigns the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.
In connection with the adoption of SFAS 157, the Company adjusted, prospectively, its method of measuring the fair value of certain financial
instruments and, as a result, recorded a reduction in its derivative liabilities of $13.2 million and an increase in investment securities of $1.0 million as of the
date of adoption. The derivatives were adjusted to reflect the Company's own non-performance risk. Substantially all of the $13.2 million related to
derivatives that have been designated as cash flow hedges for accounting purposes and was recorded as a reduction of the unrealized losses in OCI. The
increase in investment securities was also recorded in OCI.
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