First Data 2012 Annual Report Download - page 28

Expenses decreased in 2011 compared to 2010 resulting mostly from the write-off of international terminal inventory and
leasing receivables in 2010 as well as exiting low margin businesses in 2011. These decreases are partially offset by the write-off of
capitalized commissions related to the international leasing business in 2011, growth in the leasing business both domestically and
internationally and foreign currency exchange rate movements. The net impact of the 2010 and 2011 write-offs benefited the cost of
products sold growth rate by 4 percentage points while foreign currency exchange rate movements had an approximate 1 percentage
point offsetting impact.
Selling, general and administrative. Expenses increased in 2012 compared to 2011 due most significantly to growth in outside
commissions, primarily payments made to independent sales organizations (“ISO’s”). Growth in outside commissions resulted mostly
from the Company increasing the number of ISO’s and an increase in ISO transaction volumes which negatively impacted the selling,
general and administrative growth rate for 2012 versus 2011 by approximately 4 percentage points. Additionally, expenses increased
due to legal fees related primarily to the debt restructurings that occurred during the third quarter of 2012 as well as increased
employee related expenses. Partially offsetting these increases was a decrease resulting from the impact of foreign currency exchange
rate movements which benefited the growth rate in 2012 compared to 2011 by 1 percentage point.
Expenses increased in 2011 compared to 2010 due to growth in payments made to ISO’s as a result of the Company increasing
its number of ISO partners as well as an increase in ISO transaction volumes, higher incentive compensation expense and net
increases in various expense items that were not individually significant. The payments to ISO’s impacted the selling, general and
administrative growth rate by approximately 5 percentage points. Foreign currency exchange rate movements also contributed to the
increase in expenses by approximately 1 percentage point.
Depreciation and amortization. Expenses decreased in 2012 compared to 2011 due to decreases in amortization of certain
intangible assets that are being amortized on an accelerated basis resulting in higher amortization in the prior periods, certain other
intangible assets that have been fully amortized and decreases resulting from foreign currency exchange rate movements. These
decreases were partially offset by an increase driven by the benefit recorded in 2011 related to the correction of errors described
below. The error corrections adversely impacted the depreciation and amortization growth rate in 2012 versus 2011 by 5 percentage
points.
Expenses decreased in 2011 compared to 2010 due most significantly to the 2011 correction of cumulative depreciation and
amortization errors related to purchase accounting associated with the Company’s 2007 merger with an affiliate of KKR and certain
assets becoming fully amortized. The errors and the cumulative correction, which totaled a $57.7 million benefit in “Depreciation and
amortization” (the correction of total depreciation and amortization errors was a $58.5 million benefit in aggregate) and occurred over
a four year period, were deemed immaterial to prior years and the current year, respectively. In addition, depreciation and amortization
declined due to a decrease in the amortization of certain intangible assets that are being amortized on an accelerated basis resulting in
higher amortization in the prior period. These decreases were partially offset by increases due to newly capitalized assets and foreign
currency exchange rate movements. The error corrections benefited the depreciation and amortization growth rate by 4 percentage
points in 2011 compared to 2010.
Other operating expenses, net.
2012 Activities
The Company recorded restructuring charges during 2012 primarily related to employee reduction and certain employee
relocation efforts in Germany. The Company expects to record approximately $2 million of additional restructuring charges in 2013 in
connection with the restructuring event in Germany. Additional restructuring charges were recorded in 2012 in connection with
management’s alignment of the business with strategic objectives as well as refinements of estimates. Approximately 650 employees
28
Pretax Benefit (Charge)
Year ended December 31, 2012
(in millions)
Retail and
Alliance
Services
Financial
Services International
All Other
and
Corporate Totals
Restructuring charges $(7.5) $
—
$(18.5) $ (2.2) $(28.2)
Restructuring accrual reversals 1.0
—
2.8 1.3 5.1
Impairments
—
(5.1)
—
—
(5.1)
Total pretax charge, net of reversals
$(6.5)$(5.1)$ (15.7) $(0.9) $ (28.2)