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SEC Filings

10-Q
FIRST DATA CORP filed this Form 10-Q on 10/31/2018
Entire Document
 
FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Contract Liabilities
The Company records deferred revenue when it receives payments or invoices in advance of delivery of products or the performance of services. A significant portion of this balance relates to service contracts where the Company received payments from customers for upfront conversions/implementation type activities which do not transfer a service to the customer but rather are used in fulfilling the related performance obligations that transfer over time. The advance consideration received from customers is deferred over the contract term or a longer period if it provides the customer with a material right.
The following table presents the changes in deferred revenue for the nine months ended September 30, 2018:
(in millions)
 
Nine months ended 
 
September 30, 2018
Balance, beginning of the period
 
$
344

New Revenue Standard adjustments
 
(39
)
Deferral of revenue
 
169

Recognition of unearned revenue
 
(159
)
Other (primarily foreign currency translation)
 
(11
)
Balance, end of period
 
$
304

Remaining Performance Obligation
Over 95% of the Company’s performance obligations relate to transaction and processing services or hardware that are subject to a practical expedient (e.g., variable consideration) or point in time recognition, respectively. The Company's contracts with customers typically do not specify fixed revenues to be realized. Certain customer contracts contain fixed minimums and non-refundable up-front fees (fixed price guarantees). However, the amounts which are considered fixed price guarantees are not material to total consolidated revenue. The Company's contracts with Small Medium Business (SMB) merchants within the Global Business Solutions segment typically have a contractual duration of less than one year. Larger contracts in the Global Business Solutions, Global Financial Solutions, and Network & Security Solutions segments typically have contractual terms ranging from one to fifteen years with variability being resolved on a daily basis.
Costs to Obtain and Fulfill a Contract
The Company capitalizes incremental costs to obtain new contracts and contract renewals and amortizes these costs on a straight-line basis as a reduction of revenue over the benefit period, which is generally the contract term, unless a commensurate payment is not expected at renewal. As of September 30, 2018 and December 31, 2017, the Company had $155 million and $145 million, respectively, of capitalized contract costs included within "Other intangibles, net" on the unaudited consolidated balance sheets. For the three and nine months ended September 30, 2018, the Company had $14 million and $40 million, respectively, of contra-revenue related to these costs and $20 million and $58 million for the comparable periods in 2017.
The Company expenses sales commissions as incurred for the Company's sales commission plans that are paid on recurring monthly revenues, portfolios of existing customers, or have a substantive stay requirement prior to payment.
The Company capitalizes conversion related costs associated with enabling customers to receive its processing services. These costs are amortized straight-line over the expected benefit period of seven years based on the related services being provided, and are reflected within “Depreciation and amortization” in the Company's unaudited consolidated statement of income. As of September 30, 2018 and December 31, 2017, the Company had $173 million and $160 million, respectively, of capitalized conversion costs, net of amortization, included within "Other intangibles, net" on the unaudited consolidated balance sheets. For the three and nine months ended September 30, 2018, the Company had $10 million and $30 million, respectively, of amortization expense related to these costs and $7 million and $21 million for the comparable periods in 2017.

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