First Data 2013 Annual Report Download - page 29

Revenue increased in 2012 compared to 2011 due to new business, growth in merchant transactions and dollar volumes both domestically and
internationally and lower debit interchange rates as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). Lower
debit interchange rates positively impacted the transaction and processing service fees growth rate by approximately 1 percentage point. Partially offsetting
these increases were decreases due to lost business, price compression, changes in merchant and pricing mix and foreign currency exchange rate movements.
Foreign currency exchange rate movements negatively impacted the transaction and processing service fees growth rate in 2012 compared to 2011 by
approximately 1 percentage point.
Product sales and other. Revenue decreased in 2013 compared to 2012 due to a decline in domestic terminal sales, including lower bulk sales, a
decrease in international software license sales and foreign currency exchange rates partially offset by growth in professional services revenue resulting from
new projects. Foreign currency exchange rate movements adversely impacted the product sales and other growth rate in 2013 compared to 2012 by
approximately 2 percentage points.
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.
Reimbursable debit network fees, postage and other. Revenue and expense increased in 2013 compared to 2012 due to transaction and volume growth
related to debit network fees partially offset by rate decreases.
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.
Operating expenses overview.
Cost of services. Expenses decreased in 2013 compared to 2012 due most significantly to decreases in expenses resulting mostly from cost reduction
initiatives offset by increases in product development costs.
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 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 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” in 2011. 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.
Cost of products sold. Expenses decreased in 2013 compared to 2012 due most significantly to lower domestic terminal sales partially offset by a
settlement of a dispute with a vendor during 2012 resulting in a reduction of cost of products sold in the prior year.
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.
Selling, general and administrative. Expenses increased in 2013 compared to 2012 due most significantly to increases in stock compensation related to
executive management and net increases in various expense items that were not individually significant.
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
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