First Data 2009 Annual Report Download - page 176

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Assets and liabilities measured at fair value on a recurring basis
Fair value is defined 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. The Company uses the hierarchy
prescribed in the accounting guidance for fair value measurements, based upon the available 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—Quoted prices (unadjusted) for identical assets or liabilities in active markets that are
accessible as of the measurement date.
• Level 2 Inputs—Inputs other than quoted prices within Level 1 that are observable either directly or
indirectly, including but not limited to quoted prices in markets that are not active, quoted prices in
active markets for similar assets or liabilities and observable inputs other than quoted prices such as
interest rates or yield curves.
• Level 3 Inputs—Unobservable inputs reflecting the Company’s own assumptions about the
assumptions that market participants would use in pricing the asset or liability, including assumptions
about risk.
The Company maximizes the use of relevant observable inputs and minimizes the use of unobservable
inputs.
In connection with the adoption of new fair value measurement guidance on January 1, 2008, 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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