First Data 2007 Annual Report Download - page 201

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)
2007 2006
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
Due in one year or less $ 29,291 $ 29,310 $ 71,370 $ 71,357
Due in one through five years 5,614 5,761 17,158 17,089
Due in five through ten years 1,258 1,245 1,478 1,468
Due after ten years 4,007 3,800 6,527 6,481
Total $ 40,170 $ 40,116 $ 96,533 $ 96,395
NOTE 10 – DEBT
Pursuant to an asset purchase agreement, the Company was required to pay five annual non-interest bearing installments of CAD $20.0 million to The Bank
of Nova Scotia (Scotiabank), the first of which was paid in November 2003. The final payment was made in November 2007. The combined balance sheet as
of December 31, 2006 includes this amount as current portion of long-term debt, net of imputed interest (at a rate of 1.75%), of $246 thousand. Related
interest expense of $264 thousand, $552 thousand, and $781 thousand, is included in interest expense in the combined statements of income and
comprehensive income for the years ended December 31, 2007, 2006, and 2005, respectively.
NOTE 11 – CASH FLOW HEDGES
The Company's Canadian operations utilizes derivative financial instruments to enhance its ability to manage cash flow risks with respect to changes in
foreign currency exchange rates. These risks arise from the Canadian operation's U.S. dollar-denominated promissory note payable to the Company's U.S.
operations, and the repayment of such debt. The Company's derivative instruments consist of short-term foreign currency forward contracts. In 2005, the
maximum term of these forward contracts was three months. Throughout 2006 and 2007, the Company's strategy has been to hedge its foreign currency risks
using contracts that mature within one month.
The Company designates its forward derivative contracts as cash flow hedges accounted for pursuant to SFAS 133. Changes in the fair value of the contracts
are initially recorded to accumulated other comprehensive income, and in each reporting period, an amount that offsets the hedged item's transaction gain or
loss is reclassified to foreign currency exchange on the accompanying combined statements of income and comprehensive income. The net loss on derivatives
for the years ended December 31, 2007, 2006, and 2005, was $1.8 million, $2.3 million, and $956 thousand, respectively. No contracts were held as of
December 31, 2007 or 2006.
The Company formally documents all relationships between hedging instruments and the underlying hedged items, as well as its risk management objective
and strategy for undertaking the hedge transaction. The Company applies strict policies to manage risks, including prohibition against derivatives trading,
derivatives market-making or any other speculative activities.
The Company's counterparty in all derivative transactions is JPMorgan Chase. The credit risk inherent in these agreements represents the possibility that a
loss may occur from the nonperformance of the counterparty to the agreements. The Company believes its risk is minimal. The Company's exposure is in U.S.
dollars, so there is minimal risk that appropriate derivatives to maintain the hedging program would not be available in the future.
NOTE 12 – INCOME TAXES
The components of pretax income excluding minority interest are as follows (in thousands):
For the years ended December 31,
2007 2006 2005
Income before income taxes and minority interest - domestic $ 638,157 $ 535,640 $ 350,123
Income before income taxes and minority interest - foreign 24,893 12,476 (3,413)
Total $ 663,050 $ 548,116 $ 346,710
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