First Data 2007 Annual Report Download - page 193

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)
Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation and amortization. Depreciation for furniture and equipment is recorded on a
straight-line basis over periods generally ranging from three to five years. Leasehold improvements are amortized over the lesser of the economic useful life
of the improvement or the term of the lease. The Company capitalizes computer software costs in accordance with Statement of Position No. 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use. These costs are amortized on a straight-line basis over the period of benefit
ranging from three to five years.
Advertising
Advertising costs are expensed as incurred. For the years ended December 31, 2007, 2006, and 2005, the Company incurred $5.2 million, $5.3 million, and
$4.1 million in advertising expense, respectively.
Goodwill and Intangible Assets
Goodwill represents the excess of purchase price over identifiable assets acquired, less liabilities assumed from business combinations. The Company's annual
impairment tests did not identify any impairment in 2007, 2006, or 2005.
Intangible assets primarily consist of purchased merchant portfolios, technology-based intangible assets, and non-compete/referral agreements. These
intangible assets are amortized over their estimated useful lives and are subject to impairment testing whenever events occur that would affect the
recoverability of the asset. The Company amortizes these intangible assets, primarily on a straight-line basis, over the estimated period to be benefited. On
January 1, 2006, a change in the estimated amortization period for purchased merchant portfolios occurred (as discussed in Note 7). These periods range from
four to ten years for the years ended December 31, 2007 and 2006.
Other Assets
Other assets consist primarily of deferred charges, company-owned life insurance (COLI) policies held in trust for the Company's deferred compensation plan
and deferred contract incentives. Deferred charges represent contributions for services paid on the Company's behalf, which are amortized on a straight-line
basis over the period that the services are to be performed. COLI assets are carried at the policies' respective cash surrender values. Deferred contract
incentives represent initial payments to merchants for new contracts and contract renewals, which are capitalized to the extent recoverable through future
operations and are amortized over the term of the contract as a reduction of the associated revenue.
Liabilities Related to Merchant Processing
Liabilities related to merchant processing primarily represent payables to merchants for transactions that have been processed.
Accrued Assessments
Accrued assessments represent fees payable to card brands for debit and credit card transactions that have been processed.
Other Liabilities
Other liabilities consist primarily of accrued liabilities for employee benefit plans, including the defined benefit pension plan, Supplemental Executive
Retirement Plan (SERP), deferred compensation plan and long-term incentive plan. The Company adopted SFAS No. 158, Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158) as of December 31, 2006 for
its pension plan and SERP. SFAS 158 requires a company to recognize the funded status of a benefit plan as an asset or liability in its statement of financial
position and to recognize previously unrecognized gains/(losses) and prior service costs as components of comprehensive income, net of tax. The effect of
applying the recognition provisions of SFAS 158 to the Company's pension plan was a $28 thousand (pre-tax) decrease in intangible assets related to
unrecognized prior service costs and a corresponding increase in accumulated other comprehensive income on the combined balance sheet as of December 31,
2006.
Minority Interest
Minority interest represents the minority stockholders' proportionate share of the equity and earnings of Paymentech, Inc. Minority interest represented 0.2%,
0.3% and 0.8% of Paymentech, Inc.'s outstanding stock at December 31, 2007, 2006, and 2005, respectively.
Cash Flow Hedges
The Company's Canadian operations utilize forward contracts to hedge exposure to foreign currency fluctuations in the exchange rate for U.S. dollars.
Derivative instruments are accounted for as cash flow hedges in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities (SFAS 133). The Company includes
derivatives in prepaid expenses and other current assets or other accrued
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