First Data 2009 Annual Report Download - page 105

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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
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. In conjunction with
the merger, all predecessor 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 14 for additional
discussion regarding details of the Company’s stock-based compensation plan.
Foreign Currency Translation
The U.S. dollar is the functional currency for most of the Company’s U.S. based businesses and certain
foreign based businesses. Significant operations with a local currency as their functional currency include
operations in the United Kingdom, Australia, Germany, Greece and Argentina. Foreign currency denominated
assets and liabilities for these units and other less significant operations are translated into U.S. dollars based on
exchange rates prevailing at the end of the period, and revenues and expenses are translated at average exchange
rates during the period. The effects of foreign exchange gains and losses arising from the translation of assets and
liabilities of those entities where the functional currency is not the U.S. dollar are included as a component of
Other Comprehensive Income (“OCI”). Intercompany loans were considered invested on a long-term basis in the
predecessor period and accordingly foreign exchange gains and losses were recorded in OCI. In the successor
period, the intercompany loans are not considered invested on a long-term basis and such foreign currency gains
and losses were recorded in income. Transaction gains and losses related to operating assets and liabilities were
included in the “Cost of services” and “Selling, general and administrative” lines of the Consolidated Statements
of Operations and were immaterial. Non-operating transaction gains and losses derived from non-operating assets
and liabilities are included in the “Other income (expense)” line of the Consolidated Statements of Operations
and are separately disclosed in Note 10.
Derivative Financial Instruments
The Company utilizes derivative instruments to enhance its ability to manage interest rate risk and foreign
exchange risk. The Company recognizes all derivative financial instruments in the Consolidated Balance Sheets
as assets or liabilities at fair value. Such amounts are recorded in either the “Other long-term assets”, “Other
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