First Data 2010 Annual Report Download - page 71

Table of Contents
FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Business Description
First Data Corporation ("FDC" or "the Company") operates electronic commerce businesses providing a variety of services to financial institutions,
commercial establishments and consumers. Such services include merchant transaction processing and acquiring; credit, retail and debit card issuing and
processing; and check verification, settlement and guarantee services.
Consolidation
The accompanying Consolidated Financial Statements of FDC include the accounts of FDC and its controlled subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Investments in unconsolidated affiliated companies are accounted for under the equity method and are
included in "Investment in affiliates" in the accompanying Consolidated Balance Sheets. The Company generally utilizes the equity method of accounting
when it has an ownership interest of between 20% and 50% in an entity, provided the Company is able to exercise significant influence over the investee's
operations.
The Company consolidates an entity's financial statements when the Company either will absorb a majority of the entity's expected losses or residual
returns, in the case of a variable interest entity ("VIE"), or has the ability to exert control over a subsidiary. Control is normally established when ownership
interests exceed 50% in an entity; however, when the Company does not exercise control over a majority-owned entity as a result of other investors having
rights over the management and operations of the entity, the Company accounts for the entity under the equity method. As of December 31, 2010 and 2009,
there were no greater-than-50%-owned affiliates whose financial statements were not consolidated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ from
those estimates.
Presentation
Effective January 1, 2010, the Integrated Payment Systems operating segment is being reported within All Other and Corporate. Results for 2009 and
2008 have been adjusted to reflect the change. Other amounts in 2009 and 2008 have been adjusted to conform to current year presentation.
The Company sold a merchant acquiring business in Canada as well as a debit and credit card issuing and acquiring processing business in Austria and
Active Business Services, Ltd, all reported within the International segment, in November 2009, August 2009 and July 2008, respectively, and Peace Software
("Peace"), reported within the Financial Services segment, in October 2008. The results of divested businesses are excluded from segment results. The
International and Financial Services performance measures have been adjusted for 2009 and 2008 to exclude the results of divested businesses. Retail and
Alliance Services segment performance measures have been adjusted for 2008 to reflect the sale of 12.5% of the Company's ownership interest in the Wells
Fargo Merchant Services alliance that occurred on December 31, 2008.
Depreciation and amortization presented as a separate line item on the Company's Consolidated Statements of Operations does not include amortization
of initial payments for new contracts which is recorded as a contra-revenue within "Transaction and processing service fees." Also not included is
amortization related to equity method investments which is netted within the "Equity earnings in affiliates" line. The following table presents the amounts
associated with such amortization (in millions):
Year ended December 31,
2010 2009 2008
Amortization of initial payments for new contracts $ 38.6 $ 27.7 $ 10.9
Amortization related to equity method investments $ 73.0 $ 73.8 $ 179.0
Revenue Recognition
The majority of the Company's revenues are comprised of transaction-based fees, which typically constitute a percentage of dollar volume processed, or
a fee per transaction processed, or account on file or some combination thereof. In limited circumstances, revenue is allocated to the separate units of
accounting in a multiple element transaction based on relative selling prices, provided each element has stand alone value to the customer, and delivery of any
undelivered items is probable and substantially within the Company's control.
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