First Data 2009 Annual Report Download - page 132

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2009, the notional amount of the foreign exchange rate collar was approximately
88 million Philippine pesos ($1.9 million). The notional amount of the cross-currency swaps was 91.1 million
euro (approximately $131.0 million). The notional amount of the interest rate swaps that no longer qualify for
hedge accounting was $3.0 billion.
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.
In the third quarter of 2007 and prior to the consummation of the merger, the Company entered into two
forward starting, deal contingent interest rate swaps. Such swaps did not qualify for hedge accounting until
consummation of the merger. From the date the swaps were entered into until designated as hedges on
September 24, 2007, the swaps were marked-to-market which resulted in a charge of approximately $19 million.
This amount was recorded as a successor transaction in “Other income (expense)” in the Consolidated Statements
of Operations.
DERIVATIVES THAT QUALIFY FOR HEDGE ACCOUNTING
Hedge of a Net Investment in a Foreign Operation
As of December 31, 2009, the Company had a cross currency swap that was designated as a hedge of net
investments in foreign operations. Since the existing derivative instrument was not at zero fair value at the time
of designation, the 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 Statement of Equity. As of December 31, 2009, the aggregate notional
amount of the cross currency swap was 115.0 million Australian dollars (approximately $102.0 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 Statements of Operations, see the tabular information
presented below.
Cash Flow Hedges
As of December 31, 2009, the Company had interest rate swaps which were designated as cash flow hedges
of the variability in the interest payments on $4.5 billion of the approximate $12.6 billion variable rate senior
secured term loan. As discussed above, the Company had additional interest rate swaps with notional amounts
totaling $3 billion that ceased to qualify for hedge accounting during the first and second quarters of 2009. The
Company also had basis rate swaps that modify the variable rates on $4.0 billion of the $7.5 billion interest rate
swaps and that lower the fixed interest rates on those interest rate swaps. The basis swaps pay interest at rates
equal to three-month-LIBOR and receive interest at rates equal to one-month-LIBOR plus a fixed spread. An
additional basis swap with a notional amount of $2.0 billion expired on June 24, 2009 and all other basis swaps
with a combined notional amount of $4.0 billion expire on September 24, 2010. The Company pays interest on
its senior secured term loan facility based on the one-month-LIBOR interest rate index to match the terms of the
basis swaps. Ineffectiveness associated with these hedges is recognized immediately in the Consolidated
Statements of Operations.
At December 31, 2009, the maximum length of time over which the Company is hedging its exposure is
approximately 3 years. The Company follows the hypothetical derivative method to measure hedge
ineffectiveness. An $11.3 million loss and a $16.0 million loss associated with ineffectiveness were recognized in
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