First Data 2007 Annual Report Download - page 62

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Cash Flows from Operating Activities from Continuing Operations
Successor Predecessor
Period from
September 25
through
December 31,
2007
Period from
January 1
through
September 24,
2007
Year ended December 31,
Source/(use) (in millions) 2006 2005
Net (loss) income from continuing operations $ (301.9) $ 464.4 $ 847.7 $ 807.5
Depreciation and amortization 427.2 540.2 700.8 689.0
Other non-cash and non-operating items, net 38.2 88.7 (56.1) (12.4)
Increase (decrease) in cash, excluding the effects of acquisitions and dispositions, resulting from
changes in:
Accounts receivable (316.9) (145.4) (183.8) (110.9)
Other assets 130.0 5.8 81.0 3.3
Accounts payable and other liabilities (100.8) (4.8) (60.0) (82.5)
Income tax accounts (61.4) 69.6 117.8 (73.6)
Excess tax benefit from share-based payment arrangement — (219.8) (124.2) —
Net cash (used in) provided by operating activities from continuing operations $ (185.6) $ 798.7 $ 1,323.2 $ 1,220.4
Depreciation and amortization in the successor period increased significantly due to the merger. The predecessor period trend was in line with 2006 and
2005. The increase from 2005 to 2006 is attributable to acquisitions partially offset by the 2005 write-off of intangibles in conjunction with account
deconversions in the Financial Institution Services segment.
Other non-cash and non-operating items, net include restructuring, impairments, litigation and regulatory settlements, other, investment gains and
losses, divestitures, debt repayment gain/(loss) and non-operating foreign exchange gains and losses, as well as undistributed earnings in affiliates, stock
compensation and employee stock purchase plan ("ESPP") expense and gains on the sale of merchant portfolios, the proceeds from which are recognized in
investing activities. The Company did not have ESPP expense in the third and fourth quarter 2007 due to the termination of the Plan as a result of the merger.
The most significant source of cash in the 2007 predecessor period related to ESPP and stock options. The use in 2006 resulted largely from activity related to
the value of interest rate swaps that did not qualify for hedge accounting and the Visa litigation settlement. The activity in 2005 relates to equity earnings in
affiliates associated with the Company's merchant alliances.
The use of cash in accounts receivable in the successor and predecessor periods resulted from restructuring certain settlement arrangements and the
timing of collections compared to billings. The 2006 and 2005 trend resulted from differences in timing of collections and billings. The source of cash in other
assets for the successor period is largely due to distributions related to equity earnings in affiliates related to the predecessor period. The use of cash in all
periods presented for accounts payable and other liabilities resulted from timing of payments and accruals for various liabilities. The use of cash in the
successor period in income tax accounts resulted from a tax benefit in part offset by a net tax refund. The source of cash in the predecessor period was related
to a higher tax benefit associated with the exercising of options and restricted stock. The source of cash in 2006 was due to a tax benefit associated with the
significant number of stock options exercised during the first quarter of 2006. Also included in net cash used in/provided by operating activities in 2007 was a
use of cash of approximately $73 million (all but $3 million in the predecessor period) resulting from the payment of merger related costs. The Company
expects approximately $125 million of cash payments in 2008 related to restructuring activities, including payments related to the fourth quarter 2007 actions
described in the "Merger" section above, and approximately $75 million of cash payments in 2008 related to global sourcing initiatives.
The use of cash in the predecessor period in excess tax benefit from share-based payment arrangement relates to the accelerated payout of stock options
and restricted stock in the third quarter 2007. The use of cash in 2006 is due to the Company adopting SFAS 123(R) in 2006 and electing to follow the
alternative transition method allowed by FASB Staff Position FAS 123(R)-3 "Transition Election Related to Accounting for the Tax Effects of Share-Based
Payment Awards" in the fourth quarter of 2006.
61