First Data 2013 Annual Report Download - page 65

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In the case of merchant contracts that the Company owns and manages, revenue is primarily comprised of fees charged to the merchant, net of
interchange and assessments charged by the credit card associations, and is recognized at the time of sale. The fees charged to the merchant are a percentage of
the credit card and signature based debit card transaction’s dollar value, a fixed amount or a combination of the two. Personal identification number based
debit (“PIN-debit”) network fees are recognized in “Reimbursable debit network fees, postage and other” revenues and expenses in the Consolidated Statements
of Operations. STAR network access fees charged to merchants are assessed on a per transaction basis.
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:
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   
Interchange fees and assessments $19,367.7 $18,373.0 $18,826.1
Debit network fees $2,914.9 $2,786.3 $2,959.1
The Company charges processing fees to its merchant alliances. 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 Operations.
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 Retail and Alliance 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 Operations, 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 (“POS”) 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.
The official check and money order services and merchant acquiring business generate revenue through the ability to invest funds pending settlement.
Gains and losses associated with the above noted investments are recognized in revenue.
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.
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Stock-based compensation to employees is measured at the grant date fair values of the respective stock options and restricted stock awards and
expensed over the requisite service periods. An estimate of forfeitures is applied 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. During 2010, the Company
modified the terms of its plan and, due to the nature of call rights and vesting conditions associated with the options and awards, the Company will recognize
expense associated with the modifications and grants subsequent to the modifications only upon the occurrence of certain liquidity or employment termination
events. Refer to Note 13 of these Consolidated Financial Statements for details regarding the Company’s stock-based compensation plan.
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