First Data 2009 Annual Report Download - page 44

FIRST DATA CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
repositioning of the portfolio to taxable investments. On a pre-tax equivalency basis, investment income
decreased significantly in 2008 due to reduced investment balances and lower interest rates as noted above. The
impact of this segment presentation in the 2007 predecessor and successor periods was eliminated for
consolidated reporting purposes.
As the IPS settlement portfolio balances continue to decrease and the business continues to wind-down,
investment income will diminish to insignificant amounts in 2010.
Product sales and other—Revenues decreased for 2009 compared to 2008 due most significantly to a
decrease of approximately $76 million in royalty income reflected in All Other and Corporate. Also contributing
to the decrease were declines resulting from divested businesses as well as declines in equipment and terminal
sales, primarily internationally. Partially offsetting the decrease in 2009 compared to 2008 was an increase due to
contract termination fees recognized in 2009 related to the termination of services by a customer in the Financial
Services segment. The recognition of contract termination fees positively impacted the product sales and other
revenue growth rate in 2009 by 4 percentage points.
Revenue benefited in 2008 from increased terminal sales in the International segment, higher royalty
income within All Other and Corporate and acquisitions. Negatively impacting 2008 were lower contract
termination fees and merchant portfolio sales than in the 2007 predecessor period within the Financial Services
and Retail and Alliance Services segments, declines in terminal sales in the Retail and Alliance Services segment
due to slowing demand and price compression, and declines in professional services revenue due to completed
projects. The Company had portfolio sales in the fourth quarter of 2008, however no gain was recognized due to
the effects of purchase accounting for the merger. For the year ended December 31, 2008, royalty income
increased approximately $27 million compared to the same pro forma 2007 period.
Reimbursable debit network fees, postage and other—Revenues and expense increased in 2009 compared to
2008 most significantly due to the incremental impact of the BAMS alliance and the net impact of the CPS and
WFMS alliance transactions described above which benefited the reimbursable debit network fees, postage and
other growth rate by 11 and 19 percentage points, respectively. Also contributing to the increase was continued
growth of PIN-debit transaction volumes as well as rate increases imposed by the debit networks and an increase
in postage rates. Partially offsetting these increases was a decrease in print and plastic volumes as a result of the
termination of services discussed above as well as the reduction in the number of accounts and account activity
due to adverse economic conditions. The termination of services impacted the reimbursable debit network fees,
postage and other revenue growth rate by 3 percentage points.
Revenues and expense benefited in 2008 most significantly due to an increase in debit network fees upon
consolidation of revenues from merchant contracts received from the termination of the CPS alliance effective
November 1, 2008. These fees are now included within the Company’s revenue but were previously netted
within the “Equity earnings in affiliates” line within the Consolidated Statements of Operations, as the alliance
was previously accounted for under the equity method. This positively impacted the reimbursable debit network
fees, postage and other growth rate by 5 percentage points in 2008 compared to pro forma 2007. Also benefiting
2008 were increases in debit network fees resulting from the continued growth of PIN-debit transaction volumes
as well as rate increases imposed by the debit networks and an increase in postage rates.
Operating expenses overview
Cost of services—Expenses increased for 2009 compared to 2008 due to the incremental impact of the
BAMS alliance, the net impact of the CPS and WFMS alliance transactions and increases in expenses related to
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