First Data 2007 Annual Report Download - page 56

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Remittance processing services revenue
Remittance processing services revenue for the 2007 predecessor and successor periods was negatively impacted due to the deconversion of a large
customer and consumer conversion from paper to electronic payment methods. The Company expects remittance revenue to remain relatively flat in 2008
compared to 2007 with growth offsetting consumer conversion from paper to electronic payment methods.
Remittance processing services revenue decreased for 2006 compared to 2005 due to lost business and consumer conversion from paper to electronic
payment methods. These decreases were partially offset by new business. In response to the decline in revenue, the Company closed one facility in 2006.
Product sales and other revenue
Product sales and other revenue in the 2007 predecessor period was favorably impacted by the receipt of contract termination fees and both the
predecessor and successor periods were favorably impacted by professional service fees and software licensing and maintenance revenue resulting from the
acquisition of Peace Software in the third quarter of 2006.
Product sales and other revenue decreased in 2006 compared to 2005 due to contract termination fees of approximately $50 million that were received
in 2005 associated with deconversions.
Reimbursable postage and other revenue
New business and an increase in the postage rates in May 2007 positively impacted the 2007 predecessor and successor periods for reimbursable
postage and other revenue. Negatively impacting the same periods was lost business.
Reimbursable postage and other revenue increased for the year ended December 31, 2006 in comparison to the same period in 2005 as a result of new
business and a postage rate increase in January 2006 partially offset by lost business.
Operating profit
In addition to the favorable and unfavorable items noted above, the First Data Financial Institution Services segment operating profit for the 2007
successor period was negatively impacted by purchase accounting of approximately $35 million due most significantly to amortization expense due to the
purchase price assigned to intangible assets from the merger. Negatively impacting the predecessor segment operating profit as a result of the merger was the
acceleration of restricted stock awards.
Operating profit decreased for pro forma 2007 compared to historical 2006 due to the factors noted above partially offset by the significant benefits
from cost savings initiatives implemented in 2006 and continuing into pro forma 2007 in anticipation of continued price compression. Purchase accounting
related to the merger, mostly amortization of identifiable intangible assets, negatively impacted the operating profit growth rate by 32 percentage points for
pro forma 2007.
The segment operating profit decreased for the year ended December 31, 2006 compared to 2005 due to contract termination fees received in 2005,
account deconversions, price compression, higher incentive compensation recognized in 2006 compared to 2005 due to achieving certain financial targets and
other factors noted above. Partially offsetting this decline were reduced payroll expenses due to 2005 restructuring activities. Operating margins were flat for
2006 compared to 2005 as a result of the items discussed above.
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