First Data 2012 Annual Report Download - page 27

Revenue increased in 2011 compared to 2010 due to growth in merchant transactions and dollar volumes both domestically and
internationally, growth in debit issuer transactions, new business, lower debit interchange rates as a result of the Dodd-Frank Act
described in the “Regulatory Reform” section above, and foreign currency exchange rate movements. Partially offsetting these
increases were decreases due to price compression, changes in merchant and pricing mix, lower overall check volumes and lost
business. Foreign currency exchange rate movements positively impacted the transaction and processing service fees growth rate by
approximately 1 percentage point.
Product sales and other. Revenue increased in 2012 compared to 2011 due to increases in software licensing and maintenance
revenue, primarily internationally, as well as professional services revenue. These increases were partially offset by decreases in
terminal sales both domestically and internationally and foreign currency exchange rate movements. Foreign currency exchange rate
movements adversely impacted the product sales and other growth rate in 2012 compared to 2011 by approximately 2 percentage
points.
Revenue increased in 2011 compared to 2010 mainly resulting from an increase in equipment sales internationally due in part to
new regulations and new business, increases in the leasing business domestically and internationally resulting from new lease
originations as well as fees associated with lease renewals and an increase in investment income due to a lesser impairment of Student
Loan Auction Rate Securities (“SLARS”) recognized in 2011 compared to 2010 as discussed below. In addition, foreign currency
exchange rate movements positively impacted the product sales and other growth rate in 2011 compared to 2010 by approximately 1
percentage point. Partially offsetting these increases were decreased contract termination fees mostly related to Financial Services and
a decrease in professional services revenue due to the completion of prior year projects in Financial Services and All Other and
Corporate
Reimbursable debit network fees, postage and other. Revenue and expense decreased in 2012 compared to 2011 due to the
cap on debit interchange rates imposed by the Dodd-Frank Act in October 2011 partially offset by growth of PIN debit transaction and
dollar volumes. The cap on debit interchange rates imposed by the Dodd-Frank Act impacted the reimbursable debit network fees,
postage and other growth rate in 2012 compared to 2011 by approximately 13 percentage points.
Revenue and expense increased in 2011 compared to 2010 due to growth of PIN-debit transaction volumes as well as an
increase in debit network fees resulting from rate increases imposed by the debit networks. Partially offsetting these increases was a
decrease due to the cap on debit interchange rates imposed by the Dodd-Frank Act described above which impacted the reimbursable
debit network fees, postage and other growth rate by approximately 5%.
Operating expenses overview.
Cost of services. Expenses decreased slightly in 2012 compared to 2011 due most significantly to cost efficiencies as a result of
the shift in processing from the alliance partner to the Company related to the Banc of America Merchant Services, LLC (“BAMS”)
alliance beginning in October 2011 and the impact of foreign currency exchange rate movements. In addition, the expense growth rate
in 2012 benefited from the 2011 error correction described below. Partially offsetting these decreases were increases in outside
professional services expenses. Foreign currency exchange rate movements benefited the “Cost of services” expense growth rate in
2012 compared to 2011 by 1 percentage point.
Expenses decreased in 2011 compared to 2010 due most significantly to decreases in certain costs associated with the BAMS
alliance and net check warranty expense. Certain costs associated with the BAMS alliance decreased due to lower technology costs
and improved expense management. Net check warranty expense decreased due to lower check volumes and better risk assessment
data. Expenses associated with outside professional services and lower merchant credit losses also contributed to the decrease.
Partially offsetting these decreases was the 2011 correction of cumulative errors in the amortization of initial payments for new
contracts related to purchase accounting associated with the Company’s 2007 merger with an affiliate of Kohlberg Kravis and
Roberts & Co. (“KKR”) which totaled a $10.2 million expense in “Cost of services” (the correction of related errors totaled a $58.5
million benefit in aggregate) and occurred over a four year period. Foreign currency exchange rate movements also partially offset the
aforementioned decreases by approximately 1 percentage point.
Cost of products sold. Expenses decreased in 2012 compared to 2011 driven by the International segment due most significantly
to lower terminal sales, lower cost terminal replacements, the write-off of capitalized commissions in 2011 relating to the international
leasing business and foreign currency exchange rate movements. Foreign currency exchange rate movements positively impacted the
growth rate in 2012 compared to 2011 by approximately 2 percentage points. The impact of the write-off benefited the growth rate by
approximately 2 percentage points.
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