First Data 2008 Annual Report Download - page 71

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Transaction and processing service fee revenue
Transaction and processing service fees revenue benefited in 2008 due generally to the factors noted above. Acquisitions benefited revenue most
significantly followed by growth of existing clients driven by increased transaction volumes. Revenue from the acquisitions related mostly to merchant
businesses and growth from existing clients was driven mostly by activity in Argentina, Slovakia, Greece, Korea and the UK acquiring business. Negatively
impacting 2008 was price compression. Foreign currency exchange rates did not have a significant impact on growth rates in 2008.
Acquisitions contributed 9 percentage points to transaction and processing service fee revenue growth for the full year 2008 compared to the same 2007
pro forma period. Growth from existing clients positively impacted growth rates by 6 percentage points in 2008 over the comparable 2007 pro forma period.
Price compression negatively impacted growth rates by 3 percentage points for these same periods.
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 was 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 in 2007.
Acquisitions and impact of foreign currency exchange rate movements positively impacted the 2007 predecessor and successor periods in comparison
to 2006 with the exception that revenue from the FDD acquisition only benefited the predecessor period in 2007. Transaction and processing service fee
revenue increased in 2007 on a pro forma basis compared to 2006 due most significantly to acquisitions. The 2007 pro forma results were also positively
impacted by an increase in POS and ATM transactions resulting from growth of both existing clients and new business and, to a lesser extent, an increase in
accounts on file in Canada, Austria, Italy, Germany, Argentina and China as well as continued expansion of the Australian ATM business. Negatively
impacting the pro forma 2007 period compared to 2006 was lost business and price compression.
Product sales and other revenue
Product sales and other revenue benefited in 2008 from increased terminal-related revenue and the impact of acquisitions but was negatively impacted
by a decrease in professional services fees in 2008 due to the completion of projects in 2007 as well as contract termination fees received in 2007.
Product sales and other revenue for the 2007 predecessor and successor periods compared to 2006 was positively impacted by terminal-related revenue
driven mainly by the above described acquisitions 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 recognized in 2006. On a 2007
pro forma basis compared to historical 2006, the terminal-related revenue from the FDD and First Data Polska acquisitions and new sales in Canada
accounted for most of the growth.
Operating profit
The segment's operating profit in 2008 was impacted by the factors noted above. Negatively impacting 2008 operating profit was the impact of
amortization expense resulting from the purchase price assigned to intangible assets from the merger, an assessment for delays in a conversion project,
increased depreciation and amortization expense resulting from capital expenditures and acquisitions, and incremental infrastructure and platform
consolidation expenses. Benefiting 2008 were lower employee related expenses due to merger related
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