First Data 2009 Annual Report Download - page 110

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company tests contract and conversion costs greater than $1 million for recoverability on an annual
basis by comparing the remaining expected undiscounted cash flows under the contract to the net book value.
Any assets that are determined to be unrecoverable are written down to their fair value. In addition to this annual
test, these assets and all other long lived assets are tested for impairment upon an indicator of potential
impairment. The Company recorded impairment charges related to customer contracts and other intangibles as
described in Note 3.
Inventory
Inventories are stated at lower of cost or market and consist primarily of POS terminals, forms and
envelopes. The cost of inventory is determined using average cost for POS terminals and first-in first-out
(“FIFO”) for forms.
Investment Securities
The Company’s current settlement assets include short-term, liquid investments, primarily money market
funds, discounted commercial paper, and corporate bonds. The Company’s long-term settlement assets are
comprised of student loan auction rate securities (“SLARS”) and corporate bonds. Additionally, the Company
maintains investments in marketable and non-marketable securities, chiefly equity securities held for strategic
purposes, the majority of which are carried at cost and included in the “Other current assets” and “Other long-
term assets” line items of the Consolidated Balance Sheets. The specific identification method is used to
determine the cost basis of securities sold. At December 31, 2009 and 2008, all of the debt and equity securities
included in the above noted investments, except cost method investments, were classified as available-for-sale.
Unrealized gains and losses on these investments are included as a separate component of OCI, net of any related
tax effect. The Company assesses marketable securities for impairment quarterly. Cost method investments are
also evaluated quarterly to determine whether an event or change in circumstance has occurred in that period that
may have a significant adverse effect on the fair value and, if practicable to do so, the fair value is estimated.
For equity securities declines in value that are judged to be other than temporary in nature are recognized in
the Consolidated Statements of Operations. For public company equity securities, the Company’s policy is to
treat a decline in the investment’s quoted market value that has lasted for more than six months as an other than
temporary decline in value. For debt securities when the Company intends to sell an impaired debt security or it
is more likely than not it will be required to sell prior to recovery of its amortized cost basis, an other-than-
temporary-impairment (“OTTI”) has occurred. The impairment is recognized in earnings equal to the entire
difference between the debt security’s amortized cost basis and its fair value. When the Company does not intend
to sell an impaired debt security and it is not more likely than not it will be required to sell prior to recovery of its
amortized cost basis, the Company assesses whether it will recover its amortized cost basis. If the entire
amortized cost will not be recovered, a credit loss exists resulting in the credit loss portion of the OTTI being
recognized in earnings and the amount related to all other factors recognized in OCI. The Company adopted this
accounting for OTTI effective April 1, 2009 in accordance with new accounting guidance and the cumulative
effect is reported as “Adjustment resulting from adoption of new accounting guidance” on the accompanying
Consolidated Statements of Equity. Refer to Note 18 for a detailed discussion regarding the fair value of the
Company’s investments.
New Accounting Guidance
In September 2009, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards
Update for Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent). The
amendments in this update provide guidance on how companies should estimate the fair value of certain
investments that do not have readily determinable fair values. Examples of these investments may include hedge
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