First Data 2013 Annual Report Download - page 50


  
Accrued warranty balances $ 9.4 $ 10.9
Accrued recovery balances $ 27.2 $ 24.8
Accrued warranties are included in “Other current liabilities” and accrued recoveries are included in “Accounts receivable” in the Consolidated Balance
Sheets.
The Company establishes an incremental liability (and deferred revenue) for the fair value of the check guarantee. The liability is relieved and revenue is
recognized when the check clears, is presented to TeleCheck, or the guarantee period expires. The majority of the guarantees are settled within 30 days. The
incremental liability was approximately $0.9 million and $1.1 million as of December 31, 2013 and 2012, respectively. The following table details the check
guarantees of TeleCheck.

  
Aggregate face value of guaranteed checks (in billions) $ 38.9 $ 42.9 $ 45.6
Aggregate amount of checks presented for warranty (in millions) $ 285.4 $ 318.8 $ 351.8
Warranty losses net of recoveries (in millions) $66.4 $75.9 $85.1
The maximum potential future payments under the guarantees were estimated by the Company to be approximately $1.2 billion as of December 31,
2013 which represented an estimate of the total uncleared checks at that time.
. The determination of the Company’s provision for income taxes requires management’s judgment in the use of estimates and the
interpretation and application of complex tax laws. Judgment is also required in assessing the timing and amounts of deductible and taxable items. The
Company establishes contingency reserves for material, known tax exposures relating to deductions, transactions and other matters involving some
uncertainty as to the proper tax treatment of the item. The Company’s reserves reflect its judgment as to the resolution of the issues involved if subject to
judicial review. Several years may elapse before a particular matter, for which the Company has established a reserve, is audited and finally resolved or
clarified. While the Company believes that its reserves are adequate to cover reasonably expected tax risks, issues raised by a tax authority may be finally
resolved at an amount different than the related reserve. Such differences could materially increase or decrease the Company’s income tax provision in the
current and/or future periods. When facts and circumstances change (including a resolution of an issue or statute of limitations expiration), these reserves are
adjusted through the provision for income taxes in the period of change. As the result of interest and amortization expenses that the Company incurs, the
Company is currently in a tax net operating loss position. Judgment is required to determine whether some portion or all of the deferred tax assets will not be
realized. To the extent the Company determines that it will not realize the benefit of some or all of its deferred tax assets, then these assets are adjusted through
the Company’s provision for income taxes in the period in which this determination is made. Refer to Note 17 to the Company’s Consolidated Financial
Statements in Item 8 of this Form 10-K for additional information regarding the Company’s income tax provision.
. The Company has investment securities and derivative financial instruments that are carried at fair value.
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’s approach to estimating the fair value of its financial instruments varies depending upon
the nature of the instrument. In estimating fair values for investment securities and derivative financial instruments, the Company believes that third-party
market prices are the best evidence of exit price and where available, bases its estimates on such prices. If such prices are unavailable for the instruments held
by the Company, fair values are estimated using market prices of similar instruments, third-party broker quotes or a probability weighted discounted cash
flow analysis. Where observable market data is unavailable or impracticable to obtain, the valuation involves substantial judgment by the Company. All key
assumptions and valuations are the responsibility of management. Refer to Note 7 to the Company’s Consolidated Financial Statements in Item 8 of this
Form 10-K for additional information regarding the Company’s Fair Value Measurements.
Investment securities. As of December 31, 2013 and 2012, the Company held investments in short-term debt securities and Student Loan Auction Rate
Securities (“SLARS”). Many of the short-term debt securities are considered cash equivalents. Prices for the debt securities are not quoted on active exchanges
but are priced through an independent third-party pricing service based on quotations from market-makers in the specific instruments or, where appropriate,
other market inputs including interest rates, benchmark yields, reported trades, issuer spreads, two sided markets, benchmark securities, bids, offers, and
reference data. In certain
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