First Data 2007 Annual Report Download - page 93

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Interchange fees and assessments charged by credit card associations to the Company's consolidated subsidiaries and network fees related to PIN-debit
transactions charged by debit networks are as follows (in millions):
Successor Predecessor
Period from
September 25
through
December 31,
2007
Period from
January 1
through
September 24,
2007
Year Ended December 31,
2006 2005
Interchange fees and assessments $ 2,129.8 $ 5,241.9 $ 6,396.5 $ 5,556.3
Debit network fees 303.1 719.8 810.9 665.5
The Company charges processing fees to its merchant alliance joint ventures. In situations where an alliance is accounted for under the equity method,
the Company's consolidated revenues include the processing fees charged to the alliance, as presented on the face of the Consolidated Statements of Income.
Revenue from check verification, settlement and guarantee services is recognized at the time of sale less the fair value of the guarantee. The fair value
of the guarantee is deferred until the later of the Company being called upon to honor the guarantee or the expiration of the guarantee. Check verification fees
generally are a fixed amount per transaction while check guarantee fees generally are a percentage of the check amount.
The purchase and sale of merchant contracts is an ordinary element of the Company's Commercial Services and International businesses, and therefore,
the gains from selling these revenue-generating assets are included within the "Product sales and other" component of revenues.
Fees based on cardholder accounts on file, both active and inactive, are recognized after the requisite services or period has occurred. Fees for PIN-debit
transactions where the Company is the debit card processor for the financial institution are recognized on a per transaction basis. Revenues for output services
are derived primarily on a per piece basis and consist of fees for the production, materials and postage related to mailing finished products.
Software licensing revenue, which is reported in the "Product sales and other" line item of the Consolidated Statements of Income, is not recognized
until each of the following four criteria are met: evidence of an agreement exists, delivery and acceptance has occurred or services have been rendered, the
selling price is fixed or determinable, and collection of the selling price is reasonably assured.
The sale and leasing of point-of-sale devices ("terminals") are also reported in "Product Sales and Other". Revenue for terminals sold or sold under a
sales-type lease transaction is recognized when the following four criteria are met: evidence of an agreement exists, delivery has occurred, the selling price or
minimum lease payments are fixed or determinable, and collection of the selling price or minimum lease payments is reasonably assured. Revenue for
operating leases is recognized on a straight-line basis over the lease term.
Services not specifically described above are generally transaction based fees that are recognized at the time the transactions are processed or
programming services that are recorded as work is performed.
Stock-Based Compensation
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" ("SFAS 123R"),
using the modified prospective method. SFAS 123R requires all share-based compensation to employees to be measured at their respective grant date fair
values and expensed over the requisite service periods and also requires an estimate of forfeitures when calculating compensation expense. The Company
recognizes compensation cost on awards with graded vesting on a straight-line basis over the requisite service period for the entire award. In accordance with
the Company's chosen method of adoption, results for prior periods have not been adjusted. Prior to the adoption of SFAS 123R, the Company followed
Accounting Principles Board Opinion No. 25 ("APB 25") which accounts for share-based payments to employees using the intrinsic value method and, as
such, generally recognized no compensation cost for employee stock options. In conjunction with the merger, all stock-based compensation plans were
terminated and vesting provisions were accelerated and all unrecognized stock-based compensation was recognized in the predecessor period. The Company
established a new stock-based compensation plan in October 2007. Refer to Note 15 for additional discussion regarding details of the Company's share-based
compensation plan and the adoption of SFAS 123R.
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