First Data 2007 Annual Report Download - page 95

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The majority of the TeleCheck Services, Inc. ("TeleCheck") business involves the guarantee of checks received by merchants. If the check is returned,
TeleCheck is required to purchase the check from the merchant at its face value and pursue collection from the check writer. A provision for estimated check
returns, net of anticipated recoveries, is recorded at the transaction inception based on recent history. At December 31, 2007 and 2006, the Company had
accrued warranty balances of $16.4 million and $18.1 million, and accrued recovery balances of $38.1 million and $37.4 million, respectively. Accrued
warranties are included in "Accounts payable and other liabilities" and accrued recoveries are included in "Accounts receivable" in the Consolidated Balance
Sheets.
Income Taxes
The Company and its domestic subsidiaries file a consolidated U.S. income tax return with its new parent "Holdings" as defined in Note 2. The
Company's foreign operations file income tax returns in their local jurisdictions. Income taxes are computed in accordance with SFAS No. 109, "Accounting
for Income Taxes" and reflect the net tax effects of temporary difference between the financial reporting carrying amounts of assets and liabilities and the
corresponding income tax amounts. The Company has deferred tax assets and liabilities and maintains valuation allowances where it is more likely than not
that all or a portion of 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 deferred tax assets will be adjusted through the Company's provision for income taxes in the period in which this determination
is made.
Cash and Cash Equivalents
Investments (other than those included in settlement assets) with original maturities of three months or less (that are readily convertible to cash) are
considered to be cash equivalents and are stated at cost, which approximates market value. Cash and cash equivalents that were restricted from use due to
regulatory requirements are included in "Other assets" in the Consolidated Balance Sheets and were immaterial at December 31, 2007 and 2006.
Accounts Receivable
Accounts receivable balances are stated net of allowance for doubtful accounts. Historically, the Company has not encountered significant write-offs.
The Company records allowances for doubtful accounts when it is probable that the accounts receivable balance will not be collected.
Property and Equipment
Property and equipment were stated at cost less accumulated depreciation in the predecessor period. As discussed in Note 2 and as a result of the
merger, the cost, net of accumulated depreciation, was carried forward from the predecessor period to the successor period as a current best estimate of fair
value. The Company is in the process of valuing fixed assets and expects to be completed in the second quarter 2008. Accumulated depreciation is computed
using the straight-line method over the lesser of the estimated useful life of the related assets (generally three to 10 years for equipment, furniture and
leasehold improvements, and 30 years for buildings) or the lease term. Maintenance and repairs which do not extend the useful life of the respective assets are
charged to expense as incurred. Amounts charged to expense for the depreciation and amortization of property and equipment, including equipment under
capital lease, were $65.0 million for the successor period September 25, 2007 through December 31, 2007, $165.1 million for the predecessor period
January 1, 2007 through September 24, 2007, $216.0 million in 2006, and $224.1 million in 2005.
Goodwill and Other Intangibles
As discussed in Note 2, the Company merged with an entity controlled by an affiliate of KKR on September 24, 2007. The total purchase price was
allocated to the Company's net tangible and identifiable intangible assets (including customer relationships, software and tradenames) based on their estimated
fair values. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill. The preliminary allocation of
the purchase price to identifiable intangible assets was based upon preliminary valuation data and the estimates and assumptions are subject to change.
Goodwill represents the excess of purchase price over tangible and other intangible assets acquired less liabilities assumed arising from business
combinations. Goodwill is tested annually for impairment using a fair value approach at the "reporting unit" level. The Company's reporting units are
businesses one level below the operating segment level for which discrete financial
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