First Data 2007 Annual Report Download - page 194

Chase Paymentech
NOTES TO COMBINED FINANCIAL STATEMENTS – CONTINUED
For the years ended December 31, 2007 and 2006 and
the year ended December 31, 2005 (unaudited)
expenses, as appropriate, on the combined balance sheets at fair value. Changes in the fair value of derivative contracts designated as cash flow hedges are
recorded as a component of accumulated other comprehensive income, and reclassified into foreign currency exchange in the combined statements of income
and comprehensive income when the underlying hedged item affects earnings.
Share-Based Payments
Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123R, Share-Based Payment (SFAS 123R) and all related interpretations under
the modified prospective method. SFAS 123R requires all share-based payments to employees, including employee stock options and stock appreciation
rights (SARs), to be measured at their grant date fair values and expensed over the requisite service periods. The Company had previously adopted the
expense provisions of SFAS No. 123, Accounting for Stock-Based Compensation. As a result of certain redemption features, discussed in Note 15, concurrent
with the adoption of SFAS 123R, the Company also applies the provisions of Accounting Series Release 268, Redeemable Preferred Stocks (ASR 268). ASR
268 requires the Company to reclassify amounts relating to outstanding options, and shares issued as a result of exercise of these options, outside of
permanent equity (to temporary equity). There were no effects on the Company's results of operations or cash flows as a result of adopting the provisions of
SFAS 123R or ASR 268.
Comprehensive Income
Comprehensive income includes net income, changes in unrealized gains and losses on available-for-sale investments, amounts resulting from cash flow
hedging activities, changes in the adjustment resulting from foreign currency translation, and certain adjustments to the Pension and SERP liabilities.
Revenue
Revenue represents fees earned for processing credit and debit card transactions for merchants (including merchant discount fees), partially offset by
interchange fees and debit network fees. Revenue also includes amounts earned from third party credit and debit authorization services, incentive payments
from card brands for participation in certain initiatives, the sale and rental of point-of-sale equipment, merchant call center help desk services, fees for the
deployment of point-of-sale supplies and repair of point-of-sale equipment. Revenue is recorded as services are performed or as merchandise is shipped.
Income Taxes
The Company's functional groups discussed in Note 1 have various treatments for tax purposes. FDC Offer Corp. and its subsidiaries are treated as a
corporation for U.S. federal and state income tax purposes. CMS is treated as a pass-through entity for U.S. federal and state income tax purposes. The
members include their share of the Company's taxable income in their applicable tax returns. The Company's U.S. operations are also treated as a pass-
through entity for U.S. federal and most state income tax purposes. Its members include their share of the Company's taxable income in their applicable tax
returns. The Company's Canadian operation is treated as a pass-through entity for Canadian federal and provincial income tax purposes. Its partners include
their share of the Company's taxable income in their applicable tax returns.
The Company uses the asset and liability method required by SFAS No. 109, Accounting for Income Taxes, in accounting for income taxes. Deferred tax
assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial
statements, using statutory tax rates for the applicable entity in effect for the year in which the differences are expected to reverse. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is
recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized.
Asset Impairment
In accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, management reviews the carrying
value of its long-lived assets whenever events indicate that their carrying amounts may not be recoverable. If, upon review, an impairment of the value of the
asset is indicated, an impairment loss would be recorded in the period such determination is made. No impairments were recorded for the years ended
December 31, 2007, 2006, or 2005.
NOTE 3 – NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Uncertainty in Income Taxes
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in Income Taxes, An
Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 provides a comprehensive model for how a company should recognize, measure, present and
disclose in its financial statements uncertain tax positions that the company
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