First Data 2014 Annual Report Download - page 153

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
(A Joint Venture)
Financial Statements
December 31, 2014 and 2013
(Dollars in thousands, unless otherwise noted)
 
The Company can be terminated in the event of certain termination events, set forth in the Membership Agreement with an effective date of January
1, 2014. These include merger or acquisition of either of the Members, and various other performance criteria. If the Company is terminated prior to
December 31, 2019, based on who initiates the termination, an early termination fee may apply in accordance with the provisions and criteria of the
agreement.
 
The members of a Delaware limited liability company are generally not liable for the acts and omissions of the Company, much in the same manner as
the shareholders, officers and directors of a corporation are generally not liable for the acts and omissions of the corporation. Such liability is
generally limited by the provisions of the Delaware Limited Liability Company Act and by applicable case law.
 
FASB ASC 825, Financial Instruments, requires the disclosure of the fair value of financial instruments, including assets and liabilities recognized in
the balance sheets. Management estimates that the aggregate fair value of financial instruments recognized in the balance sheets (including
receivables and payables) approximates their carrying value; as such financial instruments are short-term in nature or carry floating rates of interest.
 
Under the card companies’ rules, when a merchant processor acquires card transactions, it has certain liabilities for the transactions. This liability
arises from disputes between cardholders and merchants due to the cardholders’ dissatisfaction with merchandise quality or the merchants’ service,
which are not resolved with the merchant. In such cases, the transactions are “charged back” to the respective merchants and the related purchase
amounts are refunded to the cardholders by the card issuer. If the merchant does not fund the refund due to insolvency, bankruptcy or other
extraneous reasons, the Company, in certain circumstances is liable for the full amount of the transaction. This liability is considered a guarantee
under FASB ASC 460, Guarantees.
The Company’s legal obligation under these rules is to settle any individual chargeback for which an individual merchant fails to fulfill as noted
above. Contractually, the maximum exposure for this obligation is the total amount of transactions processed for the preceding four month period for
all merchants, which in the case of the Company is in the billions of dollars. It should be noted that the Company has not experienced material
chargeback loss activity as a result of merchant processing activities and advises that caution should be used when assessing the maximum exposure
described above. The Company records a provision for this estimated obligation based upon a number of factors which include historical losses,
credit risk of specific customers and other relevant factors. As shown below, for the years ended December 2014 and 2013, the Company incurred
aggregate merchant credit losses of $9,229 and $6,897, net of
153