First Data 2007 Annual Report Download - page 33

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
First Data Corporation ("FDC" or "the Company"), with headquarters in Greenwood Village, Colorado, is a provider of electronic commerce providing
services that include merchant transaction processing and acquiring services; credit, retail and debit card issuing and processing services; official check
issuance; and check verification, settlement and guarantee services. During 2007, FDC operated in four business segments: First Data Commercial Services,
First Data Financial Institution Services, First Data International and Integrated Payment Systems ("IPS").
To achieve its financial objectives, the Company focuses on internal revenue growth and, to a lesser extent subsequent to the merger noted below,
growth through acquisitions. Internal growth is achieved through building its consumer brands, the development of new technologies and payment methods,
focused sales force efforts and entering into new and strengthening existing alliance partner relationships. Internal growth also is driven through increased
demand through growth of clients and partners. The Company has long-standing relationships and long-term contracts with these clients and partners. The
length of the contracts varies across the Company's business units, but the majority are for multiple years.
Presentation
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") excludes the accounts of Parent and
Holdings (both defined below) described in the Merger discussion below. Post merger, FDC continued as the surviving corporation and the accompanying
Consolidated Financial Statements included elsewhere in this annual report on Form 10-K are presented for two periods for 2007: predecessor and successor,
which primarily relate to the period preceding the merger and the period succeeding the merger, respectively. Note that the successor period also contains the
results of Sub's (defined below) operations from March 29, 2007 (formation date) to September 24, 2007. Sub had no assets, liabilities or results of operations
other than those related to two forward starting contingent interest rate swaps entered into prior to consummation of the merger that were entered into to hedge
a portion of the debt incurred to finance the merger.
The discussion in this MD&A is presented with the predecessor and successor periods for 2007 and on a pro forma basis for the full year 2007. The
Company believes that the discussion on a pro forma basis allows the 2007 results of operations to be analyzed on a more comparable basis to 2006. See the
2007 pro forma Condensed Consolidated Statements of Income and segment results below. Note that there were no adjustments in the calculation of pro
forma revenue and the most significant pro forma adjustments in the calculation of pro forma expense pertained to amortization of the valued intangibles and
interest expense on the new debt.
2007 Financial Summary
This financial summary presents comparative information for the year ended December 31, 2007 on a pro forma basis versus the historical results for
the year ended December 31, 2006 and the year ended December 31, 2006 compared to the year ended December 31, 2005. The 2007 discussion of results for
the predecessor and successor periods are presented later in this MD&A. The Company believes the presentation of the 2007 results on a pro forma basis
throughout this MD&A is a useful supplement to the historical results as it allows comparative analysis and is generally more indicative of future operations
as it comprehends the impact of the merger transaction discussed below.
• Total 2007 pro forma revenues increased 14% compared to historical 2006 and 2006 increased 8% compared to 2005. Commercial Services
segment revenue grew 9% for pro forma 2007 compared to historical 2006 and 10% for 2006 compared to 2005. Financial Institution Services
segment revenue grew 8% for pro forma 2007 compared to historical 2006 and decreased 2% for 2006 compared to 2005. Lastly, the First Data
International segment revenue grew 32% for pro forma 2007 compared to historical 2006 and 38% for 2006 compared to 2005.
• For 2007 compared to historical 2006, domestic merchant transactions increased 12% to 28.4 billion; domestic debit issuer transactions increased
11% to 10.5 billion; and international transactions increased 19% to 5.5 billion.
• Consolidated EBITDA, representing a measure for debt covenant compliance determination purposes, for the last twelve months ended
December 31, 2007 was $2,904.4 million. A table describing Consolidated EBITDA and a reconciliation to income (loss) from continuing
operations is presented in Capital Resources and Liquidity. Management believes that Consolidated EBITDA is useful to investors to provide
additional information regarding items impacting covenant compliance under the Company's new credit facilities.
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