First Data 2012 Annual Report Download - page 25

Transaction and processing service fees. Transaction and processing service fee revenue is comprised of fees related to
merchant acquiring; check processing; credit, retail and debit card processing; output and remittance processing; and payment
management services. Revenues are based on a per transaction fee, a percentage of dollar volume processed, accounts on file or some
combination thereof. These revenues represent approximately 60% of FDC’s 2012 revenue and are most reflective of the Company’s
core business performance. “Merchant related services” revenue is comprised primarily of fees charged to merchants and processing
fees charged to alliances accounted for under the equity method. For segment reporting purposes, the proportionate consolidation
presentation results in revenue including the alliance partners’ share of processing fees charged to both consolidated and
unconsolidated alliances. 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 processing and network 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.
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, software licensing and maintenance revenue generated primarily from the VisionPLUS software in the
International segment and investment income generated by invested settlement assets, realized net gains and losses and, if applicable,
impairment losses from such assets within the Retail and Alliance Services, Financial Services and International segments and All
Other and Corporate.
Reimbursable debit network fees, postage and other. Debit network fees from personal identification number (“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, 2012 compared
to the year ended December 31, 2011 as well as for the year ended December 31, 2011 compared to the year ended December 31,
2010. 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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