First Data 2011 Annual Report Download - page 70

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.
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:
Year ended December 31,
(in millions) 2011 2010 2009
Interchange fees and assessments $ 18,826.1 $ 17,834.8 $ 14,325.2
Debit network fees 2,959.1 2,798.3 2,091.9
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. With respect to official checks, IPS paid some of its agents commissions based on short-term variable
interest rates and the balance of outstanding official checks attributable to the individual agent. IPS netted the commissions paid to
agents against the revenues it earned from its investments. Gains and losses associated with the above noted investments are
recognized in revenue.
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