First Data 2008 Annual Report Download - page 9

(3) Check verification, settlement and guarantee; and
(4) Other services including output, remittance processing and government services.
Financial Services revenues from external customers, operating profit, and assets represent the following percentages of FDC's consolidated revenues,
total reported segment operating profit and consolidated assets:
Successor Predecessor
Year ended
December 31,
2008
Period from
September 25, 2007
through
December 31,
2007
Period from
January 1, 2007
through
September 24,
2007
Year ended
December 31,
2006
Revenue from external customers 31% 33% 36% 37%
Operating profit 1, 2 59% 47% 51% 39%
Assets (at December 31)2 16% 16% 14%
1 – Operating profit, as a percentage of total segment and all other and corporate operating profit, for the predecessor period from January 1, 2007
through September 24, 2007 includes accelerated vesting of stock options and restricted stock awards and units and transaction costs related to the
merger of $265.2 million that were recognized in All Other and Corporate. The exclusion of these costs from the calculation would decrease Financial
Services operating profit percentage shown above by approximately 12 percentage points for the predecessor period from January 1, 2007 through
September 24, 2007.
2 – Operating profit and assets were impacted by purchase accounting in the successor period from September 25, 2007 through December 31, 2007 and
for the year ended December 31, 2008. Assets at December 31, 2008 were additionally impacted by a goodwill impairment recorded in the fourth
quarter of 2008 as described in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-K.
Description of Financial Services Segment Operations
Financial Services provides financial institutions and other third parties with credit, debit and retail card processing; debit network services; check
verification, settlement and guarantee services; and other services including output, remittance processing and government services. Revenue and profit
growth in these businesses is derived from growing the core business, expanding product offerings, and improving the overall cost structure. Growing the core
business comes primarily from an increase in debit and credit card usage, growth from existing clients and sales to new clients and the related account
conversions.
Growth from expanded product offerings is driven by the development or acquisition of new products as well as expansion into adjacent markets. The
Company will enter adjacent markets where it can leverage its existing infrastructure and core competencies around high volume transaction processing and
management of customer account information.
The Company has relationships and many long-term customer contracts with card issuers providing credit and retail card processing, output services for
printing and embossing items, debit card processing services and STAR Network services. These contracts generally require a notice period prior to the end of
the contract if a client chooses not to renew. Additionally, some contracts may allow for early termination upon the occurrence of certain events such as a
change in control. The termination fees paid upon the occurrence of such events are designed primarily to cover balance sheet exposure related to items such
as capitalized conversion costs or signing bonuses associated with the contract and, in some cases, may cover a portion of lost future revenue and profit.
Although these contracts may be terminated upon certain occurrences, the contracts provide the segment with a steady revenue stream since a vast majority of
the contracts are honored through the contracted expiration date.
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