First Data 2007 Annual Report Download - page 58

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Revenue growth in EMEA for the 2007 pro forma results was due mostly to acquisitions, foreign currency exchange rate movements and the net impact
of new and lost business and growth from existing clients. The acquisition growth mostly relates to business supporting switching debit and ATM transactions
as well as debit card transactions and card issuer processing. Revenue growth in ANZ for the 2007 pro forma results is due mostly to foreign currency
exchange rate movements while other contributors such as new business and growth of existing clients were substantially offset by the negative impact of lost
business and price compression. Revenue growth in LAC for the same periods is due mostly to the First Data Cono Sur acquisition while other contributors
such as growth of existing merchant acquiring businesses as a result of increased volumes, increases in card accounts on file and the benefit from foreign
exchange rate movements were partially offset by the negative net impact of new and lost business and price compression. Revenue growth for the year ended
December 31, 2006 compared to 2005 increased due mostly to similar items to those noted above.
As noted above, transaction and processing service fee revenue is driven by accounts on file and transactions. The spread between growth in these two
indicators and revenue growth is driven mostly by the change in the mix of transaction types resulting from acquisitions. The effects of foreign currency
exchange rate fluctuations also contributed to the spread.
At December 31, 2007, the International segment had approximately 2.1 million accounts in the pipeline the majority of which were retail. The
Company expects to convert these accounts in 2008.
Product sales and other revenue
Product sales and other revenue for the 2007 predecessor and successor periods was positively impacted by terminal-related revenue driven mainly by
the above described acquisitions in the LAC and EMEA regions as well as professional services fees associated with the VisionPLUS managed service
supported by the Company's Singapore office. Negatively impacting the successor period was a decrease in gains from merchant portfolio sales. On a 2007
pro forma basis compared to historical 2006, the terminal-related revenue from the above noted acquisitions and new sales in the LAC region accounted for
most of the growth.
The increase in product sales and other revenue for the year ended December 31, 2006 over the same period in 2005 resulted from increased terminal-
related revenue driven mainly by acquisitions in the EMEA and Asia regions as well as a gain of approximately $11 million from a merchant portfolio sale in
the LAC region in 2006.
Operating profit
In addition to the items noted above, First Data International segment operating profit and segment margins were negatively impacted by expenditures
on strategic business initiatives in EMEA. Also negatively impacting segment operating profit as a result of the merger was the acceleration of restricted stock
awards in the predecessor period. Negatively impacting operating profit for the 2007 successor period was purchase accounting of approximately $7 million
as a result of the merger.
The items that had the largest benefit to the pro forma 2007 results in comparison to historical 2006 were acquisitions, internal growth, foreign
exchange rate movements and merger related purchase accounting. Acquisitions and foreign exchange rate movements accounted for approximately 26 and
11 percentage points of operating profit growth, respectively, for the 2007 pro forma period. The items with the most significant negative impact for the same
period were the strategic business initiatives, expansion into regions such as Asia and pricing.
The segment's operating profit increased for 2006 compared to 2005 due to the growth in revenues described above. Higher incentive compensation
accruals due to achieving certain financial targets and significant investments in business development, infrastructure and platform consolidation in 2006
compared to 2005 adversely impacted operating profit growth. Also offsetting growth for 2006 compared to 2005 is a decrease resulting from an account
deconversion in EMEA completed during the first quarter 2005. Acquisitions and foreign exchange rate movements accounted for approximately 22 and 3
percentage points, respectively, of the operating profit growth for the year ended December 31, 2006. Segment margins continue to be impacted by the
investment in business development, infrastructure and platform consolidation in EMEA and the expansion of regions such as South Asia and China.
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