First Data 2009 Annual Report Download - page 130

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents maturity information for the Company’s debt securities at December 31, 2009
(in millions):
Fair Value
Due within one year ........................................ $241.1
Due after one year through five years .......................... 30.7
Due after five years through 10 years ........................... 28.8
Due after 10 years .......................................... 421.0
Total debt securities .................................... $721.6
Note 7: Derivative Financial Instruments
Risk Management Objectives and Strategies
The Company is exposed to various financial and market risks, including those related to changes in interest
rates and foreign currency exchange rates, that exist as part of its ongoing business operations. The Company
utilizes certain derivative financial instruments to enhance its ability to manage these risks.
As of December 31, 2009, the Company uses derivative instruments to mitigate (i) cash flow risks with
respect to changes in interest rates (forecasted interest payments on variable rate debt), (ii) to protect the initial
net investment in certain foreign subsidiaries and/or affiliates with respect to changes in foreign currency
exchange rates and (iii) to protect the Company from foreign currency exposure related to an outsourcing
contract with a foreign vendor.
Derivative instruments are entered into for periods consistent with related underlying exposures and do not
constitute positions independent of those exposures. The Company applies strict policies to manage each of these
risks, including prohibition against derivatives trading, derivatives market-making or any other speculative
activities. Although certain derivatives do not qualify for hedge accounting, they are maintained for economic
hedge purposes and are not considered speculative.
The Company’s policy is to minimize its cash flow and net investment exposures related to adverse changes
in interest rates and foreign currency exchange rates. The Company’s objective is to engage in risk management
strategies that provide adequate downside protection.
Accounting for Derivative Instruments and Hedging Activities
The Company recognizes all derivatives in the “Other long-term assets”, “Other current liabilities” and
“Other long-term liabilities” captions in the Consolidated Balance Sheets at their fair values. The Company has
designated certain of its interest rate swaps as cash flow hedges of forecasted interest rate payments related to its
variable rate debt and certain of its cross currency swaps as a foreign currency hedge of its net investment in a
foreign subsidiary. Other interest rate swaps, cross currency swaps and forward contracts on various foreign
currencies no longer qualify or have not been designated as accounting hedges and do not receive hedge
accounting treatment.
With respect to derivative instruments that are afforded hedge accounting, the effective portion of changes
in the fair value of a derivative that is designated and qualifies as a cash flow hedge is recorded in OCI and
reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The
effective portion of changes in the fair value of a net investment hedge is recorded as part of the cumulative
translation adjustment in OCI. Any ineffectiveness is recorded immediately in the Consolidated Statements of
Operations.
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