First Data 2011 Annual Report Download - page 88

Note 7: Fair Value Measurement
Fair value of financial instruments
Carrying amounts for certain of the Company's financial instruments (cash and cash equivalents and short-term borrowings)
approximate fair value due to their short maturities. Accordingly, these instruments are not presented in the following table. The
following table provides the estimated fair values of the remaining financial instruments:
As of December 31, 2011 As of December 31, 2010
(in millions) Carrying Value Fair Value (a) Carrying Value Fair Value (a)
Financial instruments:
Settlement assets:
Short-term investment securities $ 105.7 $ 105.7 $ 39.2 $ 39.2
Long-term investment securities $ 181.0 $ 181.0 $ 365.1 $ 365.1
Other long-term assets:
Long-term investment securities $ 0.5 $ 0.5 $ 0.5 $ 0.5
Cost method investments $ 23.7 $ 23.7 $ 24.5 $ 24.5
Derivative financial instruments $ 76.3 $ 76.3 $ 7.7 $ 7.7
Other current liabilities:
Derivative financial instruments $ 156.7 $ 156.7 $ 4.4 $ 4.4
Long-term borrowings:
Long-term borrowings $ 22,521.7 $ 20,189.8 $ 22,438.8 $ 20,914.6
Other long-term liabilities:
Derivative financial instruments $ 39.7 $ 39.7 $ 375.0 $ 375.0
(a) Represents cost for cost method investments. Refer to Note 5 of these Consolidated Financial Statements for a more detailed
discussion of cost method investments.
The estimated fair values of investment securities and derivative financial instruments are described below. Refer to Notes 5 and
6 of these Consolidated Financial Statements for additional information regarding the Company's investment securities and derivative
financial instruments, respectively.
The estimated fair market value of FDC's long-term borrowings was primarily based on market trading prices. For additional
information regarding the Company's borrowings, refer to Note 8 of these Consolidated Financial Statements.
Concentration of credit risk
The Company's investment securities are diversified across multiple issuers within its investment portfolio (investment
securities plus cash and cash equivalents). In addition to investment securities, the Company maintains other financial instruments
with various financial institutions. The Company's largest single issuer represents less than 12% of the total carrying value of the
investment portfolio and the Company limits its derivative financial instruments credit risk by maintaining contracts with
counterparties having a credit rating of "A" or higher. The Company periodically reviews the credit standings of these institutions.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Fair value is defined by accounting guidance 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.
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