First Data 2009 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, Retail and Alliance 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 Retail and Alliance Services and
International segments are the primary drivers of this revenue component, providing a recurring revenue stream.
This component also includes 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 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 Retail and Alliance 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. Reimbursable debit network fees,
postage and other revenue and the corresponding expense are not included in segment results.
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.
Results of Operations
The following discussion for both consolidated results and segment results are for the year ended
December 31, 2009 compared to the year ended December 31, 2008 as well as for the year ended December 31,
2008 compared to the successor period from September 25, 2007 to December 31, 2007 and the predecessor
period from January 1, 2007 to September 24, 2007. On a supplemental basis, the year ended December 31, 2008
is compared to pro forma results for the year ended December 31, 2007 which reflects consolidated results of
operations as if the merger had occurred on January 1, 2007. Consolidated results should be read in conjunction
with segment results, which provide more detailed discussions concerning certain components of the
Consolidated Statements of Operations. All significant intercompany accounts and transactions have been
eliminated.
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