First Data 2008 Annual Report Download - page 48

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
primarily of fees charged to merchants and processing fees charged to alliances accounted for under the equity method. Merchant discount revenue from
credit card and signature debit card transactions acquired from merchants is recorded net of interchange and assessments charged by the credit card
associations. Check services revenues include check verification, settlement and guarantee fees which are charged on a per transaction basis or as a percentage
of the face value of the check. Card services revenue related to credit and retail card processing is comprised primarily of fees charged to the client based on
cardholder accounts on file, both active and inactive. Card services revenue for output services consists of fees for printing statements and letters and
embossing plastics. Debit network processing service fees included in Card services revenues are typically based on transaction volumes processed. Other
services revenue includes all other types of transactional revenue not specifically related to the classifications noted above.
Investment income, net—Revenue is derived primarily from interest generated by invested settlement assets within the IPS, Merchant Services,
Financial Services and International 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 Merchant Services and 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 International segment and software licensing and maintenance revenue in the Financial Services segment and 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 Merchant 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 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, operate computer networks and provide associated
customer support, losses on check guarantee services and merchant chargebacks, 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.
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.
Depreciation and amortization—This caption consists of the Company's depreciation and amortization expense. Excluded from this caption is the
amortization of initial payments for contracts which is recorded as a contra-revenue within the "Transaction and processing services fees" line as well as
amortization related to equity method investments which is netted within the "Equity earnings in affiliates" line.
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