First Data 2007 Annual Report Download - page 190

Chase Paymentech
NOTES TO COMBINED FINANCIAL STATEMENTS
For the years ended December 31, 2007 and 2006 and
the year ended December 31, 2005 (unaudited)
NOTE 1 – ORGANIZATION AND BUSINESS
Organization
The accompanying combined financial statements include all entities commonly owned by First Data Corporation and its subsidiaries (FDC) and JPMorgan
Chase & Co. and its subsidiaries (JPMorgan Chase). The common ownership of these entities, which are primarily joint ventures, occurred over the course of
several years and involved multiple transactions between FDC, JPMorgan Chase, Bank One Corporation (Bank One) and the joint ventures. The commonly
owned entities include corporations, a general partnership and limited liability companies (LLCs) and are functionally grouped into two operating divisions
and a group of holding companies. These entities and their form are shown below, by functional grouping, and are collectively referred to as Chase
Paymentech, or the Company:
Name of Entity Form of Entity
Holding Companies
FDC Offer Corp. Corporation (incorporated in Delaware in 1999)
Subsidiaries:
Paymentech, Inc. Corporation (incorporated in Delaware in 1995)
Paymentech Management Resources, Inc. Corporation (incorporated in Delaware in 1995)
Paymentech Employee Resources LLC LLC (formed in Delaware in 1999)
Chase Merchant Services, LLC LLC (formed in Delaware in 1997)
Chase Paymentech – U.S. Operations
Chase Paymentech Solutions, LLC LLC (formed in Delaware in 1996)
Subsidiaries:
Merchant-Link, LLC LLC (formed in Delaware in 1999)
Paymentech Salem Services, LLC LLC (formed in Delaware in 2003)
S3 Financial Services, LLC LLC (formed in Delaware in 2005)
Chase Alliance Partners, LLC LLC (formed in Delaware in 2007)
Paymentech, LLC LLC (formed in Delaware in 2007)
Chase Paymentech – Canadian Operations
Chase Paymentech Solutions General Partnership (formed in Ontario in 2002)
In June 2007, PTI General Partner, LLC and BOPS Holding, LLC, formerly subsidiaries of Chase Paymentech Solutions, LLC, were merged into Chase
Paymentech Solutions, LLC. Also in June 2007, Chase Alliance Partners, L.P. and Paymentech, L.P., formerly subsidiaries of Chase Paymentech Solutions,
LLC, were merged into Chase Alliance Partners, LLC and Paymentech, LLC, respectively. These mergers had no impact on the operations of the Company.
The aggregate beneficial ownership in Chase Paymentech is approximately 51% ownership by JPMorgan Chase and approximately 49% ownership by FDC.
On September 24, 2007, FDC was acquired by Kohlberg Kravis Roberts & Co (KKR). KKR's acquisition of FDC is a change in control, which gives
JPMorgan Chase the option to terminate the Company. FDC and JPMorgan Chase are in discussions as to the future structure of their relationship. If
JPMorgan Chase exercises its termination right, each owner has the right to receive their ownership share of the Company's net assets including merchant
contracts, by value, and their share of sales and certain service professionals. No changes to the Company's operations have occurred, to date, as a result of
KKR's acquisition.
With respect to FDC's ownership interest in Chase Paymentech, the Company met the significant subsidiary test provided in SEC Regulation S-X Rule
1-02(w), in that FDC's equity earnings in the Company exceeded 20% of FDC's consolidated income from continuing operations before income taxes for the
period from January 1, 2007 through September 24, 2007 (the predecessor period), and for the year ended December 31, 2006. In accordance with SEC
Regulation S-X Rule 3-09, these combined financial statements are filed with FDC's Form 10-K as part of Item 15(c). The Company did not meet the
significant subsidiary test for the year ended December 31, 2005, as FDC's equity earnings in the Company did not exceed the 20% threshold in SEC
Regulation S-X Rule 1-02(w). While the combined financial statements present financial information for the year ended December 31, 2005, this information
is unaudited because the Company was not audited in its combined form for that period.
Holding Companies
FDC Offer Corp. and its subsidiaries, Paymentech, Inc. and Paymentech Management Resources, Inc. (PMRI), are primarily holding companies whose main
source of income results from their ownership interests in the Company's U.S. operations. Paymentech Employee Resources LLC is the employer of
substantially all employees associated with the U.S. operations. The accompanying combined financial statements include the financial position, results of
operations, changes in owners' equity and cash flows for these entities for all periods presented.
188