EFTA01382865.pdf

X- I/A Table of Contents WELLS FARGO MERCHANT SERVICES,LW (A Joint Venture) Financial Statements December 31, 2014 and 2013 (Dollars in thousands, unless otherwise noted) (d) Merchant Collateral and Reserve for Merchant Credit and Fee Losses When a cardholder or a credit issuing institution disputes a transaction. within the Card Association guidelines. the Company's merchant customers have a liability for the disputed charges. However, in the case of merchant fraud, insolvency or bankruptcy, the Company may also be liable. Fee receivables that are ultimately deemed as uncollectable arc charged-off against the merchant credit and fee loss reserve. The Company's determination of the level of the reserve is calculated based on the level of sales volumes multiplied by loss factors taking into consideration charge-offs. recoveries and merchant collateral and rests upon various judgments and assumptions, including the review of historical data and a specific analysis of receivables due from merchants. Ow charge-off policy is to fully charge down the balance when the receivable is 60 days past due. The Company requires cash deposits, guarantees, letters of credit or other types of collateral by certain merchants to minimize its credit risk. Included in the balance sheet's settlement assets is $53,671 and 526.555 in Merchant collateral, as of December 31, 2014 and 2013, itzisAstively. Merchant collateral represents restricted cash held by the Company in a Wells Fargo bank account. The reserve for merchant credit losses is a valuation allowance for probable losses inherent as of the balance sheet date. The Company considers the resent for merchant credit losses adequate to cover losses inherent in the portfolio as of December 31, 2014 and 2013. (e) Intangibles The Company capitalizes initial payments for new contracts, contract renewals and conversion costs associated with customer processing relationships to the extent recoverable through future operations, contractual minimums and/or penalties in the case of early termination. The Company's accounting policy is to limit the amount of capitalized costs for a given contract to the lesser of the estimated ongoing future cash flows from the contract or the termination fees the Company would receive in the event of early termination of the contract by the customer. The company amortizes intangibles over the period of the contract. (I) Accounts Payable and Accrued Expenses The Company accrues for certain expenses that have been received and that are billed one month in arrears. These estimates arc classified within accounts payable and accrued expenses in the balance sheet. (g) Income Taxes No provision is made in the accounts of the Company for federal or state income taxes because all items of income expense and other items affecting taxable income arc allocated to the Members for inclusion in their income tax returns. In accounting for income taxes, the Company follows the guidance in PASS ASC 740 (formerly PASS Interpretation No. 48), as amended by ASU 2009-06, Accountingfor Uncertainty in Income Taxes. ASC 740 requires the Company to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or ligation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement which could result in the Company recording a tax liability that would reduce net assets. ASC 740 also provides guidance on thresholds, measurement, dc-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities. As an LLC and pass-through entity, the Company does not incur tax expense and is not F-112 httplAnnv.see.gov/Archivestedgar/datat883980/000119312515334479/d31022dsla.htmill0/14/2015 9:06:38 AM] CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0082385 CONFIDENTIAL SONY GM_00228589 EFTA01382865