First Data 2007 Annual Report Download - page 41

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Investment income, net—Revenue is derived primarily from interest generated by invested settlement assets within the IPS and Commercial Services
segments and realized net gains and losses from such assets. This revenue is recorded net of official check agents' commissions.
Product sales and other—Sales and leasing of POS devices in the Commercial Services and First Data International segments are the primary drivers of
this revenue component, providing a recurring revenue stream. This component also includes incentive payments, contract termination fees, royalty income
and gain/loss from the sale of merchant portfolios, all of which occur less frequently but are considered a part of ongoing operations. Also included within this
line item is revenue recognized from custom programming and system consulting services as well as software licensing and maintenance revenue generated
primarily from the VisionPLUS software in the First Data International segment and software licensing and maintenance revenue in the First Data Financial
Institution Services segment and in FDGS in All Other and Corporate.
Reimbursable debit network fees, postage and other—Debit network fees from PIN-debit card transactions acquired from merchants are recorded gross
with the associated network fee recorded in the corresponding expense caption, principally within the Commercial Services segment. In addition, the
reimbursable component and the offsetting expense caption include postage, telecommunications and similar costs that are passed through to customers
principally within the Financial Institution Services segment.
Cost of services—This caption includes the costs directly associated with providing services to customers and includes the following:
telecommunications costs, personnel and infrastructure costs to develop and maintain applications and operate computer networks and associated customer
support, losses on check guarantee services and merchant chargebacks, depreciation and amortization expense, and other operating expenses.
Cost of products sold—These costs include those directly associated with product and software sales such as cost of POS devices, merchant terminal
leasing costs, and software licensing and maintenance costs and associated amortization and depreciation.
Selling, general and administrative—This caption primarily consists of salaries, wages and related expenses paid to sales personnel, administrative
employees and management as well as advertising and promotional costs and other selling expenses.
Results of Operations
The following discussion for both consolidated results and segment results for 2007 will be discussed on a successor basis for the period from
September 25 to December 31, 2007 and on a predecessor basis for the period January 1 to September 24, 2007 in comparison to the predecessor year ended
December 31, 2006. On a supplemental basis, pro forma results for the year ended December 31, 2007 will be compared to the predecessor year ended
December 31, 2006. The consolidated results and segment results for the year ended December 31, 2006 versus the same period in 2005 will also be
presented. Consolidated results should be read in conjunction with segment results, which provide more detailed discussions concerning certain components
of the Consolidated Statements of Income. All significant intercompany accounts and transactions have been eliminated.
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