First Data 2008 Annual Report Download - page 62

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Merchant Services Segment Results
Historical Pro Forma Historical
Successor Successor Predecessor Percent Change
(in millions)
Year ended
December 31,
2008
Year ended
December 31,
2007
Period from
September 25
through
December 31,
2007
Period from
January 1
through
September 24,
2007
Year ended
December 31,
2006
Historical
2008
vs.
Pro Forma
2007
Pro Forma
2007
vs.
Historical
2006
Revenues:
Transaction and processing service fees $ 2,125.0 $ 1,982.0 $ 533.6 $ 1,448.4 $ 1,911.1 7% 4%
Product sales and other 325.6 351.4 87.6 263.8 370.4 (7)% (5)%
Reimbursable debit network fees, postage and other 1,388.7 1,043.8 308.4 735.4 831.4 33% 26%
Equity earnings in affiliates 267.1 316.4 95.6 220.8 283.3 (16)% 12%
Other revenues 21.4 48.9 12.1 36.8 46.8 (56)% 4%
Total revenue $ 4,127.8 $ 3,742.5 $ 1,037.3 $ 2,705.2 $ 3,443.0 10% 9%
Operating profit $ 391.9 $ 373.1 $ 100.9 $ 713.3 $ 978.2 5% (62)%
Operating margin 9% 10% 10% 26% 28% (1)pt (18)pts
Year ended December 31,
2008 2007 2006
Key indicators:
Domestic merchant transactions (a) 26,856.9 25,359.0 22,626.0 6% 12%
(a) Domestic merchant transactions include acquired VISA and MasterCard credit and signature debit, PIN-debit, electronic benefits transactions, and
processed-only or gateway customer transactions at the point of sale ("POS"). Domestic merchant transactions include 100% of the Chase Paymentech
Solutions alliance transactions through the November 1, 2008 termination date. Subsequent to the termination of the alliance, domestic merchant
transactions include transactions related to the Company's 49% proportionate share of the joint venture's assets rather than 100% of alliance activity.
Summary
Discussed in more detail below, the total segment revenue growth rate in 2008 compared to pro forma 2007 was positively impacted by almost 11
percentage points from increased debit network fees, annual fees included in 2008 but not recognized in 2007 due to purchase accounting and the termination
of the Chase Paymentech Solutions alliance effective November 1, 2008 and the inclusion of the segment's proportionate 49% share of the assets of the joint
venture on a consolidated basis for the last two months of 2008 (which contributed 3 percentage points).
Transaction and processing service fees revenue
Revenue in 2008 was positively impacted by new acquiring revenue related to the termination of the Chase Paymentech Solutions alliance. Effective
November 1, 2008, merchant acquiring revenues associated with the segment's proportionate 49% share of the assets of the joint venture were included within
the Company's transaction and processing service fees revenue but were previously netted within the "Equity earnings in affiliates" line within the
Consolidated Statements of Operations, as the alliance was accounted for under the
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