First Data 2008 Annual Report Download - page 69

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Reimbursable postage and other revenue
Reimbursable postage and other revenue in 2008 benefited from growth of existing clients and an increase in the postage rates in May 2007 and 2008
partially offset by lost business. Reimbursable postage and other revenue will be positively impacted in 2009 by an increase in postage rates in May.
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 in comparison to 2006. Negatively impacting the same periods was lost business.
Operating profit
Financial Services segment operating profit in 2008 and the 2007 successor period was negatively impacted due to an increase in amortization expense
resulting from the purchase price assigned to intangible assets from the merger. Operating profit was further negatively impacted by the items noted above in
the revenue discussion and incremental spending on platform consolidation, data center consolidation and global labor sourcing initiatives. Benefiting 2008
were decreases in compensation and other operating expenses resulting from restructurings in the fourth quarter 2007 and other reductions in staff in 2008.
Such reductions in expenses were significant enough to substantially offset the impact of price reductions and lost business. Operating profit in 2008
decreased compared to the pro forma 2007 period due to the items noted above excluding the impact of increased amortization expense which was already
adjusted for in the pro forma 2007 period.
In addition to the favorable and unfavorable items noted above in the revenue discussion, the Financial Services segment operating profit for the 2007
successor period was negatively impacted by purchase accounting of approximately $54 million due most significantly to amortization expense due to the
purchase price assigned to intangible assets from the merger. Negatively impacting the predecessor 2007 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 26 percentage points for
pro forma 2007.
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