First Data 2009 Annual Report Download - page 57

FIRST DATA CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Check processing revenue
Check processing revenue decreased in 2009 compared to 2008 resulting from a decrease in overall check
volumes, particularly with the regional merchants, and, to a lesser extent, a shift in transactions to national
merchants which have lower processing revenue due to volume.
Check processing revenue for 2008 was negatively impacted by a decrease in revenue from existing clients
due to declines in overall check volumes from those seen in 2007 with the check verification volumes
experiencing the most significant decrease. The decrease in revenue from existing clients negatively impacted the
2008 check services revenue growth rate by 9 percentage points compared to pro forma 2007.
Prepaid revenue
Prepaid revenue decreased in 2009 compared to 2008 due to transaction volume and card shipment declines
as a result of an adverse economy. Partially offsetting the decrease was an increase due to new business.
Prepaid revenue for 2008 benefited from growth of existing clients due to transaction growth as well as
having a full year of results for an acquisition that was completed in the fourth quarter of 2007. Prepaid services
revenue for 2008 was negatively impacted by net lost business primarily in ATM services.
Processing fees and other revenue from alliance partners
The decrease in processing fees and other revenue from alliance partners is due to the termination of the
CPS alliance partially offset by processing fees related to the BAMS alliance. Processing fees and other revenue
from alliance partners in 2008 compared to 2007 was negatively impacted due most significantly as a result of
the CPS termination on November 1, 2008 (two fewer months in 2008 compared to 2007).
Product sales and other revenue
Product sales and other revenue growth for 2009 compared to 2008 remained flat. Revenue for 2008 was
negatively impacted by decreased terminal sales resulting from slowing in equipment demand in part due to
elevated prior year placements associated with merchants having to remain compliant with association rules,
price compression and merchant portfolio sales in the first three quarters of 2007. 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.
Segment EBITDA
In addition to the impact of the items noted above in the revenue discussion, Retail and Alliance Services
segment EBITDA in 2009 compared to 2008 was negatively impacted by the effects of the economy on spending
patterns, increased credit losses due to a higher level of merchant failures and bankruptcy filings and by the
negative impact of the BAMS alliance due to third party processing of the bank contributed merchants in the
short-term. This negative impact will gradually reverse over time as the Company operationalizes the alliance,
captures synergies and converts merchants to its platform. Increased credit losses negatively impacted segment
EBITDA growth rates by 3 percentage points for 2009 compared to 2008. Partially offsetting these decreases was
an increase due to lower incentive compensation in 2009 that contributed 1 percentage point to the segment
EBITDA growth rate for 2009 compared to 2008 as well as general reductions in work force.
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