First Data 2007 Annual Report Download - page 191

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)
Chase Merchant Services, LLC (CMS) is a joint venture formed by FDC and JPMorgan Chase in 1997. As discussed below, effective October 1, 2005, all of
the assets and liabilities of CMS were transferred to the Company's U.S. operations in exchange for an ownership interest in Chase Paymentech Solutions,
LLC. Subsequent to the October 1, 2005 transaction, CMS' primary source of income results from its ownership interests in the Company's U.S. operations.
The accompanying combined financial statements include the financial position, results of operations, changes in owners' equity and cash flows for CMS for
all periods subsequent to October 1, 2005.
U.S. Operations
Chase Paymentech Solutions, LLC (Chase Paymentech – U.S. or the Company's U.S. operations), formerly Banc One Payment Services, L.L.C. (BOPS), and
its subsidiaries comprise the Company's U.S.-based operations. Chase Paymentech – U.S. is a joint venture beneficially owned by FDC and JPMorgan Chase,
through direct investments as well as through investments in FDC Offer Corp. and CMS. Each of these members in the joint venture hold membership
interests which are of a single class and have substantially the same rights and privileges.
BOPS was originally formed as a joint venture between FDC and Bank One in 1996. As a result of JPMorgan Chase's merger with Bank One in July 2004,
FDC and JPMorgan Chase beneficially owned both BOPS and CMS, which while commonly owned, were controlled by different management committees
and were competitors in the marketplace. To benefit from the complementary technological and management knowledge, as well as the market presence of
each of these joint ventures, on October 1, 2005, through a series of transactions, all of the assets and liabilities of CMS were transferred to BOPS, and the
joint venture was subsequently renamed Chase Paymentech Solutions, LLC.
The results of the Company's U.S. operations and cash flows included in the accompanying combined financial statements for the nine month period ended on
September 30, 2005 represent the historical results of BOPS. The financial position, results of operations, changes in owners' equity and cash flows for all
periods presented subsequent to October 1, 2005 reflect the operations of Chase Paymentech – U.S. in its current form.
Canadian Operations
Chase Paymentech Solutions (Chase Paymentech – Canada or the Company's Canadian operations), formerly Paymentech Canada, is a joint venture
beneficially owned by FDC and JPMorgan Chase and comprises the Company's entire Canadian operations. Each of the partners in the joint venture holds
partnership interests which are of a single class and have the same rights and privileges.
Business
The Company engages in the electronic payment processing industry for businesses accepting credit, debit, fleet, and stored value card payments, as well as
alternative methods of payment via point-of-sale, internet, catalog and recurring billings. The Company provides these services for transactions that originate
throughout the world for financial institutions, sales agents and the Company's direct merchants, which are primarily located in North America.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined financial statements are presented in conformity with accounting principles generally accepted in the United States of America
(U.S. GAAP). All intercompany profits, accounts, and transactions have been eliminated.
Unaudited Financial Information
The unaudited combined financial statements for the year ended December 31, 2005 have been prepared in accordance with U.S. GAAP. These financial
statements were prepared on the same basis as the combined financial statements as of December 31, 2007 and 2006 and for the years then ended, and in the
opinion of management, reflect all adjustments and accruals considered necessary to fairly present the Company's combined results of operations, changes in
owners' equity and cash flows.
Reclassifications
Certain activities related to the Company's investments have been reclassified in the Company's combined statements of cash flows in order to present gross
cash flows from purchases, sales and maturities of investments in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting
for Certain Investments in Debt and Equity Securities. As a result, cash flows from operating activities and investing activities differ from previously filed
documents, which presented these activities on a net
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