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SEC Filings

10-Q
FIRST DATA CORP filed this Form 10-Q on 10/31/2018
Entire Document
 
FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Fair Value Measurement

The carrying amounts for the Company's derivative financial instruments are the estimated fair value of the financial instruments. The Company’s derivatives are not exchange listed and therefore the fair value is estimated under an income approach using Bloomberg analytics models that are based on readily observable market inputs. These models reflect the contractual terms of the derivatives, such as notional value and expiration date, as well as market-based observables including interest and foreign currency exchange rates, yield curves, and the credit quality of the counterparties. The models also incorporate the Company’s creditworthiness in order to appropriately reflect non-performance risk. Inputs to the derivative pricing models are generally observable and do not contain a high level of subjectivity and, accordingly, the Company’s derivatives were classified within Level 2 of the fair value hierarchy. While the Company believes its estimates result in a reasonable reflection of the fair value of these instruments, the estimated values may not be representative of actual values that could have been realized or that will be realized in the future.

Effect of Derivative Instruments on the Unaudited Consolidated Financial Statements

Derivative gains and (losses) were as follows for the three and nine months ended September 30, 2018 and 2017:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2018
 
2017
 
2018
 
2017
(in millions, pretax)
 
Interest
Rate
Contracts
 
Foreign
Exchange
Contracts
 
Interest
Rate
Contracts
 
Foreign
Exchange
Contracts
 
Interest
Rate
Contracts
 
Foreign
Exchange
Contracts
 
Interest
Rate
Contracts
 
Foreign
Exchange
Contracts
Derivatives designated as hedging instruments:
 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
Gain (Loss) recognized in "Foreign currency translation adjustment" in the unaudited consolidated statements of comprehensive income (effective portion)
 
$

 
$
14

 
$

 
$
(42
)
 
$

 
$
70

 
$

 
$
(85
)
Gain recognized in "Derivative instruments" in the unaudited consolidated statements of comprehensive income (effective portion)
 
4

 

 
1

 

 
4

 

 

 

Derivatives not designated as hedging instruments:
 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
Gain recognized in "Other (expense) income" in the unaudited consolidated statements of income (a)
 

 
4

 

 

 

 

 

 

(a)
The Company entered into a deal contingent foreign exchange contract with a notional value of €375 million in June 2018 which settled in September 2018.

Accumulated Derivative Gains and Losses

The following table summarizes activity in other comprehensive income related to derivative instruments classified as cash flow hedges and net investment hedges held by the Company for the three and nine months ended September 30, 2018 and 2017:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions, after tax)
 
2018
 
2017
 
2018
 
2017
Accumulated gain included in other comprehensive income at beginning of period
 
$
163

 
$
133

 
$
121

 
$
177

Increase (Decrease) in fair value of derivatives that qualify for hedge accounting, net of tax(a) (b)
 
13

 
(41
)
 
55

 
(85
)
Accumulated gain included in other comprehensive income at end of period
 
$
176

 
$
92

 
$
176

 
$
92

(a)
Gains (losses) are included in "Derivative instruments" and “Foreign currency translation adjustment” in the unaudited consolidated statements of comprehensive income. 
(b) Net of tax of $5 million and $0 million for the three months ended September 30, 2018 and 2017, respectively, and $19 million and $0 million for the nine months ended September 30, 2018 and 2017, respectively.

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