First Data Reports First Quarter 2008 Revenue Growth of 16%
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DENVER--(BUSINESS WIRE)--
First Data Corp. today reported its financial results for the first quarter of 2008. Consolidated revenues were up 16% to $2.1 billion. The adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were up 8% to $586 million.
Loss from continuing operations was $222 million, but included $303 million of incremental interest expense, net of tax, and $118 million of incremental depreciation and amortization, net of tax, compared to the first quarter of 2007. Both the incremental interest expense and depreciation and amortization are primarily attributable to the transaction with affiliates of Kohlberg Kravis Roberts & Co. (the "Transaction."). A table describing adjusted EBITDA and reconciling income (loss) from continuing operations to adjusted EBITDA is included in the accompanying schedules.
"Our solid performance in a difficult market reflects our laser focus on execution," said Michael Capellas, Chairman and Chief Executive Officer of First Data. "Going forward you will see us continue to invest actively in new product development and technology innovation."
Effective January 1, 2008, First Data adopted a revised segment reporting structure. The company's segments include Merchant Services, Financial Services, International, Prepaid Services and Integrated Payment Systems. For prior year periods, the company has made available financials realigned to these segments. The business activities of each of these new segments are described in our Quarterly Report on Form 10-Q which was filed today with the Securities and Exchange Commission (SEC).
Segment Results
Merchant Services
For the quarter, Merchant Services generated revenues of $926 million, a growth rate of 10% or 3% excluding reimbursable debit network fees. Revenue growth was primarily driven by continued strong transaction growth. Operating profit was $73 million, down 63% or up 8% to $211 million excluding purchase accounting adjustments comprised principally of increased amortization expense related to the Transaction. Operating profit margin improved to 33.2% excluding reimbursable debit network fees and purchase accounting adjustments, compared to 31.7% in the first quarter of 2007. Reported operating profit margin for the quarter was 7.9%.
Financial Services
For the quarter, Financial Services generated revenue of $706 million, up 1% or flat excluding reimbursables and purchase accounting adjustments. Operating profit was $103 million, down 29% or down 4% to $139 million excluding purchase accounting adjustments comprised principally of increased amortization expense related to the Transaction. The decrease in operating profit was primarily the result of anticipated price compression related to contract renewals and lost business in 2007. Operating profit margin for the quarter was 27% excluding reimbursables and purchase accounting adjustments, compared to 28% in the first quarter of 2007. Reported operating margin was 14.5% for the quarter.
International
For the quarter, International generated revenue of $445 million, up 23%. Revenue growth on a constant currency basis, excluding acquisitions and divestitures, was 5%. This 5% growth was negatively impacted by price compression and lost contracts primarily in our Western European and Asia Pacific businesses. Operating profit was $21 million, down 38% or down 32% to $23 million excluding purchase accounting adjustments related to the Transaction. Operating margin was 5.2% excluding purchase accounting adjustments related to the Transaction compared to 9.5% in the first quarter of 2007. Operating profit included a loss reserve of approximately $6 million for a failed airline in one of International's merchant acquiring alliances and approximately $5 million in incremental investments in data center consolidation, platform initiatives and other expenses related to cost reduction initiatives, which negatively impacted the 5.2% operating margin by 2.4 percentage points during the quarter. Reported operating margin was 4.8%.
Significant Events
On April 28, 2008, First Data announced that it had reached an agreement to acquire InComm Holdings Inc. ("InComm"). The transaction is subject to customary closing conditions and regulatory approvals. InComm is a distributor of gift cards, prepaid wireless products, reloadable debit cards, digital music downloads, content, games, software, and bill payment solutions. InComm also provides stored value product marketing and technology solutions to international markets in Europe and Canada. First Data will acquire InComm for approximately $980 million, plus contingent future payments of up to $250 million over a three year performance period. This acquisition is expected to close in the second half of 2008. InComm will be reported as part of the Prepaid Services segment.
First Data's largest merchant alliance, Chase Paymentech, is 51% owned by J.P. Morgan Chase Bank, N.A. ("JPMorgan"), and 49% owned by First Data. The current term of the existing alliance agreement expires in 2010; however, JPMorgan had the right to terminate the alliance due to the change of control upon the closing of the merger. First Data has extended the time period to exercise this right to allow for further discussions regarding the alliance; however, the company expects the alliance to end prior to its existing expiration date in 2010.
Presentation of Financial Information
The financial information presented in the company's Quarterly Report on Form 10-Q filed with the SEC and in the attached financial schedules for the quarter ended March 31, 2008 is presented for two periods: Predecessor and Successor, which primarily relate to the periods preceding the Transaction and the period succeeding the Transaction, respectively.
Non-GAAP Measures
In certain circumstances, results have been presented that are non-GAAP measures and should be viewed in addition to, and not in lieu of, the company's reported results. Reconciliations to the comparable generally accepted accounting principles (GAAP) are available in the accompanying schedules and in the "Investor Relations" section of the company's website at www.firstdata.com.
Investor and Analyst Conference Call
First Data will hold an investor and analyst conference call and tomorrow, Friday, May 16, at 8:00 a.m. MDT to review first quarter 2008 results. Capellas will lead the call. Also participating will be Kim Patmore, Chief Financial Officer, Ed Labry, President of First Data U.S.A., David Yates, President of First Data International and Silvio Tavares, Senior Vice President, Investor Relations.
To listen to the call, dial +1-877-397-0297 (U.S.) or +1-719-325-4929 (outside the U.S.) ten minutes prior to the start of the call. The call will also be webcast on the First Data website, www.firstdata.com. Please click on the webcast link at least 15 minutes prior to the call. A slide presentation to accompany the call will be included in the webcast and will be made available under the "Investor Relations" section of the website (http://ir.firstdatacorp.com/events.cfm).
A replay of the call will be available through May 25, 2008 at +1-888-203-1112 (U.S.) or +1-719-457-0820 (outside the U.S.) and via webcast on www.firstdata.com. The passcode is "2373479."
Please note: All statements made by First Data officers on this call are the property of First Data and subject to copyright protection. Other than the replay, First Data has not authorized, and disclaims responsibility for any recording, replay or distribution of any transcription of this call.
About First Data
First Data is a global technology leader in information commerce. The company processes transaction data of all kinds, harnesses the power of that data and delivers innovations in secure infrastructure, intelligence and insight for its customers. With operations in 37 countries, First Data serves more than 5.4 million merchant locations and more than 2,000 card issuers and their customers. It powers the global economy by making it easy, fast and secure for people and businesses around the world to buy goods and services using virtually any form of payment. The company's portfolio of services and solutions includes merchant transaction processing services; credit, debit, private-label, gift, payroll and other prepaid card offerings; fraud protection and authentication solutions; electronic check acceptance services through TeleCheck; as well as Internet commerce and mobile payment solutions. The company's STAR Network offers PIN-secured debit acceptance at 2.1 million ATM and retail locations. Through First Data's centers of excellence, such as security, analytics, customer loyalty and mobile payments, it offers data-driven commerce solutions for customers around the globe. For more information, visit www.firstdata.com.
FIRST DATA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions)
Successor Predecessor
------------------ ------------------
Three months ended Three months ended
March 31, March 31,
2008 2007 Change
------------------ ------------------ ------
Revenues:
Transaction and
processing service fees
(a):
Merchant related
services $634.9 $568.8 12%
Check services 100.6 96.1 5%
Card services 506.5 461.1 10%
Other services 137.7 141.7 -3%
Investment income, net 56.0 (30.3) NM
Product sales and other 212.0 188.0 13%
Reimbursable debit
network fees, postage
and other 478.8 410.9 17%
------------------ ------------------
2,126.5 1,836.3 16%
------------------ ------------------
Expenses:
Cost of services
(exclusive of items
shown below) 756.8 691.4 9%
Cost of products sold 70.9 66.7 6%
Selling, general and
administrative 304.3 294.8 3%
Reimbursable debit
network fees, postage
and other 478.8 410.9 17%
Depreciation and
amortization 319.1 158.8 101%
Other operating
expenses:
Restructuring, net - 2.0 NM
Impairments - 16.3 NM
------------------ ------------------
1,929.9 1,640.9 18%
------------------ ------------------
Operating profit 196.6 195.4 1%
------------------ ------------------
Interest income 9.0 8.0 13%
Interest expense (517.7) (34.5) NM
Other income (expense)
(b) (43.2) 1.0 NM
------------------ ------------------
(551.9) (25.5) NM
------------------ ------------------
(Loss) income before
income taxes, minority
interest, equity
earnings in affiliates
and discontinued
operations (355.3) 169.9 NM
Income tax (benefit)
expense (130.5) 37.4 NM
Minority interest (29.0) (29.1) 0%
Equity earnings in
affiliates (a) 32.1 68.3 -53%
------------------ ------------------
(Loss) income from
continuing operations (221.7) 171.7 NM
Income from discontinued
operations, net of taxes
of $(4.1) - 3.5 NM
------------------ ------------------
Net (loss) income $(221.7) $175.2 NM
================== ==================
(See accompanying notes)
FIRST DATA CORPORATION
SUMMARY SEGMENT DATA
(Unaudited)
(in millions)
Successor Predecessor
------------------ ------------------
Three months ended Three months ended
March 31, March 31,
2008 2007 Change
------------------ ------------------ -------
Revenues:
------------------------
Merchant Services $925.8 $845.0 10%
Financial Services 705.5 695.4 1%
International 444.6 360.7 23%
Prepaid Services 46.0 46.1 0%
Integrated Payment
Systems 45.0 18.8 139%
------------------ ------------------
Subtotal segment
revenues 2,166.9 1,966.0 10%
All Other and Corporate 59.6 35.5 68%
------------------ ------------------
2,226.5 2,001.5 11%
------------------ ------------------
Adjustments for items
included in segment
and All Other and
Corporate revenues:
(c)
Equity earnings in
affiliates (d) (80.3) (77.0) 4%
Eliminations (e) (19.7) (88.2) NM
------------------ ------------------
Consolidated revenue $2,126.5 $1,836.3 16%
================== ==================
Operating profit: (f)
------------------------
Merchant Services $72.9 $195.1 -63%
Financial Services 102.5 144.9 -29%
International 21.3 34.2 -38%
Prepaid Services 2.7 9.1 -70%
Integrated Payment
Systems 34.0 3.0 NM
------------------ ------------------
Subtotal segment
operating profit 233.4 386.3 -40%
All Other and Corporate (33.7) (72.6) -54%
------------------ ------------------
199.7 313.7 -36%
------------------ ------------------
Adjustments for items
included in segment
and All Other and
Corporate operating
profit: (c)
Equity earnings in
affiliates (32.1) (68.3) -53%
Minority interest from
segment operations (g) 29.0 29.0 0%
Eliminations (e) - (60.7) NM
Interest expense (517.7) (34.5) NM
Interest income 9.0 8.0 13%
Items excluded from
segment operations (h) (43.2) (17.3) NM
------------------ ------------------
(Loss) income before
income taxes,
minority interest,
equity earnings in
affiliates and
discontinued
operations $(355.3) $169.9 NM
================== ==================
Depreciation and
Amortization: (a)
------------------------
Merchant Services $194.5 $55.2 252%
Financial Services 99.1 64.2 54%
International 61.6 50.0 23%
Prepaid Services 7.9 1.9 316%
Integrated Payment
Systems 0.1 1.5 -93%
All Other and Corporate 5.2 8.0 -35%
------------------ ------------------
Total consolidated
depreciation and
amortization from
continuing
operations $368.4 $180.8 104%
================== ==================
(See accompanying notes)
FIRST DATA CORPORATION
NOTES TO FINANCIAL SCHEDULES
(Unaudited)
A new Chief Executive Officer, the Company's chief operating decision
maker, was appointed as a result of the September 24, 2007 merger
with an entity controlled by affiliates of Kohlberg Kravis Roberts &
Co. In connection with this change in leadership, changes were made
to the Company's senior management and organization of the business.
Effective January 1, 2008, the Company's new Chief Executive Officer
began making strategic and operating decisions with regards to
assessing performance and allocating resources based on a new segment
structure. Segment results for 2007 have been adjusted to reflect the
new structure. In connection with this segment realignment the
Company also reclassified certain revenue components, primarily the
prepaid business from "Merchant related services" to "Other services"
and the debit network business from "Merchant related services" to
"Card services." Additionally, consolidated expenses for 2007 have
been adjusted to present certain depreciation and amortization
amounts as a separate component of expenses.
(a) Includes amortization of customer contracts which is recorded as a
contra-revenue within "Transaction and processing service fees" of
$1.5 million and $13.9 million for the three months ended March 31,
2008 and 2007, respectively, and amortization related to equity
method investments described in note (d) below which is netted within
the "Equity earnings in affiliates" line of $47.8 million and $8.1
million for the three months ended March 31, 2008 and 2007,
respectively.
(b) Other income (expense) includes investment gains and (losses),
derivative financial instruments gains and (losses), divestitures,
net, debt repayment gains and (losses) and non-operating foreign
currency gains and (losses).
(c) Reconciles the total segment and All Other and Corporate revenue
to consolidated revenue or total segment and All Other and Corporate
operating profit to income before income taxes, minority interest,
equity earnings in affiliates and discontinued operations as reported
on the Consolidated Statements of Operations.
(d) Excludes equity losses that were recorded in expense and the
amortization related to the excess of the investment balance over the
Company's proportionate share of the investee's net book value.
(e) Represents elimination of adjustment to record Integrated Payment
Systems segment investment income and its related operating profit on
a pretax equivalent basis in 2007 (no adjustment is necessary in 2008
as the portfolio was repositioned to taxable investments) and
elimination of intersegment revenue.
(f) Segment and All Other and Corporate operating profit includes
minority interest from segment operations and equity earnings in
affiliates. Segment and All Other and Corporate operating profit
excludes other operating expenses, interest expense, interest income
and other income (expense).
(g) Minority interest from segment operations excludes minority
interest attributable to items excluded from segment operations
discussed in note (h) below.
(h) Includes restructuring charges, asset impairments, significant
litigation and regulatory settlements, other charges and other income
(expense).
FIRST DATA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS - ADJUSTED FOR RECLASSIFICATIONS
(Unaudited)
(in millions)
Predecessor
----------------------------------------
Three Three
Twelve Months Months Period
Months Ended Ended from July
Ended March June 1 through
December 31, 30, September
31, 2006 2007 2007 24, 2007
---------- -------- -------- ----------
Revenues:
-------------------------
Transaction and processing
service fees:
Merchant related services $2,345.1 $568.8 $646.7 $618.1
Check services 353.6 96.1 107.6 100.4
Card services 1,767.1 461.1 482.0 468.8
Other services 571.8 141.7 141.5 133.1
Investment income, net (128.6) (30.3) (7.5) (29.1)
Product sales and other 699.8 188.0 199.5 228.9
Reimbursable debit network
fees, postage and other 1,467.6 410.9 430.9 415.7
---------- -------- -------- -----------
7,076.4 1,836.3 2,000.7 1,935.9
---------- -------- -------- -----------
Expenses:
-------------------------
Cost of services (exclusive
of items shown below) 2,493.3 691.4 720.3 795.6
Cost of products sold 281.0 66.7 72.9 69.6
Selling, general and
administrative 1,129.3 294.8 330.9 433.1
Reimbursable debit network
fees, postage and other 1,467.6 410.9 430.9 415.7
Depreciation and amortization 619.7 158.8 162.2 155.4
Other expenses
Restructuring, net 24.0 2.0 5.9 -
Impairments 16.1 16.3 - 4.3
Litigation and regulatory
settlements (34.8) - 5.0 (2.5)
Other (0.3) - (7.7) -
---------- -------- -------- -----------
5,995.9 1,640.9 1,720.4 1,871.2
---------- -------- -------- -----------
Operating profit 1,080.5 195.4 280.3 64.7
---------- -------- -------- -----------
Interest income 55.5 8.0 12.9 9.9
Interest expense (248.0) (34.5) (35.9) (33.2)
Other income (expense) 22.6 1.0 2.4 1.5
---------- -------- -------- -----------
(169.9) (25.5) (20.6) (21.8)
---------- -------- -------- -----------
Income (loss) before income
taxes, minority interest,
equity earnings in
affiliates and discontinued
operations 910.6 169.9 259.7 42.9
Income tax expense (benefit) 203.7 37.4 70.2 18.2
Minority interest (142.3) (29.1) (40.0) (36.2)
Equity earnings in affiliates 283.1 68.3 79.4 75.3
---------- -------- -------- -----------
Income (loss) from continuing
operations 847.7 171.7 228.9 63.8
Income (loss) from
discontinued operations, net
of taxes of $360.0, $(4.1),
$0, $7.1, $0 and $0,
respectively 665.7 3.5 - (7.1)
---------- -------- -------- -----------
Net income (loss) $1,513.4 $175.2 $228.9 $56.7
========== ======== ======== ===========
FIRST DATA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS - ADJUSTED FOR RECLASSIFICATIONS
(Unaudited)
(in millions)
Successor
--------------------------------------
Period from
September 25 Three Months
through September Ended December
30, 2007 31, 2007
-------------------- -----------------
Revenues:
---------
Transaction and processing
service fees:
Merchant related services $42.6 $648.4
Check services 6.7 106.9
Card services 35.2 535.5
Other services 11.3 166.7
Investment income, net (0.8) (7.4)
Product sales and other 12.0 211.0
Reimbursable debit network
fees, postage and other 28.3 482.1
-------------------- -----------------
135.3 2,143.2
-------------------- -----------------
Expenses:
---------
Cost of services (exclusive of
items shown below) 48.4 741.9
Cost of products sold 4.9 82.4
Selling, general and
administrative 24.9 343.0
Reimbursable debit network
fees, postage and other 28.3 482.1
Depreciation and amortization 20.8 347.0
Other expenses
Restructuring, net - (0.2)
Impairments - -
Litigation and regulatory
settlements - -
Other - -
-------------------- -----------------
127.3 1,996.2
-------------------- -----------------
Operating profit 8.0 147.0
-------------------- -----------------
Interest income 3.6 14.3
Interest expense (34.6) (550.1)
Other income (expense) (27.7) (46.3)
-------------------- -----------------
(58.7) (582.1)
-------------------- -----------------
Income (loss) before income
taxes, minority interest,
equity earnings in affiliates
and discontinued operations (50.7) (435.1)
Income tax expense (benefit) (21.2) (154.9)
Minority interest (2.5) (36.5)
Equity earnings in affiliates 3.3 43.5
-------------------- -----------------
Income (loss) from continuing
operations (28.7) (273.2)
Income (loss) from
discontinued operations, net
of taxes of $360.0, $(4.1),
$0, $7.1, $0 and $0,
respectively - -
-------------------- -----------------
Net income (loss) $(28.7) $(273.2)
==================== =================
FIRST DATA CORPORATION
SUMMARY SEGMENT DATA - ADJUSTED FOR SEGMENT REALIGNMENT
(Unaudited)
(in millions)
Predecessor
----------------------------------------
Twelve Three Three Period
Months Months Months from July
ended ended ended 1 through
December March 31, June 30, September
31, 2006 2007 2007 24, 2007
--------- --------- --------- ----------
Revenues:
---------------------------
Merchant Services $3,443.0 $845.0 $953.2 $907.0
Financial Services 2,670.8 695.4 714.0 690.8
International 1,258.3 360.7 395.0 387.0
Prepaid Services 191.4 46.1 47.1 44.8
Integrated Payment Systems 71.0 18.8 39.8 12.9
--------- --------- --------- ----------
Subtotal segment revenues 7,634.5 1,966.0 2,149.1 2,042.5
All Other and Corporate 125.6 35.5 28.5 58.5
--------- --------- --------- ----------
7,760.1 2,001.5 2,177.6 2,101.0
--------- --------- --------- ----------
Adjustments for items
included in segment and
All Other and Corporate
revenues:
Equity earnings in
affiliates (313.6) (77.0) (88.1) (83.5)
Eliminations (370.1) (88.2) (88.8) (81.6)
--------- --------- --------- ----------
Consolidated revenue $7,076.4 $1,836.3 $2,000.7 $1,935.9
========= ========= ========= ==========
Operating profit:
---------------------------
Merchant Services $978.2 $195.1 $261.1 $257.1
Financial Services 567.2 144.9 153.0 138.8
International 153.5 34.2 34.8 29.3
Prepaid Services 37.3 9.1 6.7 8.4
Integrated Payment Systems 12.1 3.0 25.3 1.8
--------- --------- --------- ----------
Subtotal segment
operating profit 1,748.3 386.3 480.9 435.4
All Other and Corporate (272.6) (72.6) (97.0) (276.0)
--------- --------- --------- ----------
1,475.7 313.7 383.9 159.4
--------- --------- --------- ----------
Adjustments for items
included in segment and
All Other and Corporate
operating profit:
Equity earnings in
affiliates (283.1) (68.3) (79.4) (75.3)
Minority interest from
segment operations 138.8 29.0 40.2 37.1
Eliminations (245.9) (60.7) (61.2) (54.7)
Interest expense (248.0) (34.5) (35.9) (33.2)
Interest income 55.5 8.0 12.9 9.9
Items excluded from
segment operations 17.6 (17.3) (0.8) (0.3)
-------- --------- --------- ----------
Income (loss) before
income taxes, minority
interest, equity earnings
in affiliates and
discontinued operations $910.6 $169.9 $259.7 $42.9
========= ========= ========= ==========
FIRST DATA CORPORATION
SUMMARY SEGMENT DATA - ADJUSTED FOR SEGMENT REALIGNMENT
(Unaudited)
(in millions)
Successor
---------------------
Period
from
September Three
25 Months
through ended
September December
30, 2007 31, 2007
---------- ---------
Revenues:
------------------------------------------------
Merchant Services $61.3 $976.0
Financial Services 46.8 733.3
International 29.2 467.6
Prepaid Services 5.2 71.6
Integrated Payment Systems 2.0 32.3
----------- ---------
Subtotal segment revenues 144.5 2,280.8
All Other and Corporate 1.8 42.6
----------- ---------
146.3 2,323.4
----------- ---------
Adjustments for items included in segment and
All Other and Corporate revenues:
Equity earnings in affiliates (5.3) (100.4)
Eliminations (5.7) (79.8)
----------- ---------
Consolidated revenue $135.3 $2,143.2
=========== =========
Operating profit:
------------------------------------------------
Merchant Services $10.1 $90.8
Financial Services 4.8 96.6
International 2.8 46.3
Prepaid Services 0.2 13.0
Integrated Payment Systems 1.2 20.1
----------- ---------
Subtotal segment operating profit 19.1 266.8
All Other and Corporate (6.4) (61.2)
----------- ---------
12.7 205.6
----------- ---------
Adjustments for items included in segment and
All Other and Corporate operating profit:
Equity earnings in affiliates (3.3) (43.5)
Minority interest from segment operations 2.5 36.5
Eliminations (3.9) (51.8)
Interest expense (34.6) (550.1)
Interest income 3.6 14.3
Items excluded from segment operations (27.7) (46.1)
---------- ---------
Income (loss) before income taxes, minority
interest, equity earnings in affiliates and
discontinued operations $(50.7) $(435.1)
=========== =========
FIRST DATA CORPORATION
HISTORICAL KEY INDICATORS - ADJUSTED FOR SEGMENT REALIGNMENT
(Unaudited)
(in millions)
Predecessor
------------------------------------
Three Three
Twelve Months Months Period
Months Ended Ended from July
Ended March June 1 through
December 31, 30, September
31, 2006 2007 2007 24, 2007
--------- ------- ------- ---------- -
Merchant Services
-------------------------------
Domestic merchant transactions
(a) 22,626.0 5,778.3 6,346.4 6,062.0
Financial Services
-------------------------------
Domestic debit issuer
transactions (b) 10,572.4 2,747.4 2,985.4 2,777.4
(a)Domestic merchant transactions include acquired VISA and MasterCard
credit and signature debit, PIN-debit, electronic benefits
transactions, and processed-only or gateway customer transactions at
the point of sale.
(b)Domestic debit issuer transactions include VISA and MasterCard
signature debit, STAR ATM, STAR PIN-debit POS, and ATM and PIN-debit
POS gateway transactions.
FIRST DATA CORPORATION
HISTORICAL KEY INDICATORS - ADJUSTED FOR SEGMENT REALIGNMENT
(Unaudited)
(in millions)
Successor
---------------------
Period
from
September Three
25 Months
through Ended
September December
30, 2007 31, 2007
----------- ---------
Merchant Services
-------------------------------------------------
Domestic merchant transactions (a) 419.9 6,752.4
Financial Services
-------------------------------------------------
Domestic debit issuer transactions (b) 191.3 2,949.9
(a)Domestic merchant transactions include acquired VISA and MasterCard
credit and signature debit, PIN-debit, electronic benefits
transactions, and processed-only or gateway customer transactions at
the point of sale.
(b)Domestic debit issuer transactions include VISA and MasterCard
signature debit, STAR ATM, STAR PIN-debit POS, and ATM and PIN-debit
POS gateway transactions.
FIRST DATA CORPORATION
RECONCILIATION OF NON-GAAP MEASURES
(Unaudited)
($ in millions)
Management believes the following non-GAAP measures provide meaningful
supplemental information to assist investors in understanding our
financial results and to better analyze trends in our underlying
business. These non-GAAP financial measures should not be considered
in isolation or as a substitute for the most comparable GAAP
financial measures. The non-GAAP financial measures reflect an
additional way of viewing aspects of our operations that, when viewed
with our GAAP results and the reconciliation to the corresponding
GAAP financial measures, provide a more complete understanding of our
business. Investors are strongly encouraged to review our financial
statements and publicly-filed reports in their entirety and not to
rely on any single financial measure. A reconciliation of the non-
GAAP measures to the most directly comparable GAAP financial measures
is included below.
Non-GAAP measures for the company's domestic segments exclude revenue
earned from reimbursements of pass-through costs such as debit
network fees and postage. Non-GAAP measures for the company's
international segment exclude acquisitions less than a year old,
divestitures and foreign exchange impact from revenue. Non-GAAP
measures for the company's international and domestic segments also
exclude purchase accounting adjustments, comprised principally of
increased amortization expense, related to the Transaction.
For the purpose of analyzing the company's liquidity an "Adjusted
EBITDA" metric is used. "Adjusted EBITDA" is different than
"Consolidated EBITDA" (or "Debt Covenant EBITDA") as defined in the
Credit Agreement dated September 24, 2007 ("Senior Secured Credit
Facilities") among the company, the lenders or other entities that
are a party thereto from time to time and Credit Suisse, Cayman
Islands Branch, as Administrative Agent and Collateral Agent. The
differences primarily relate to adjustments for cost savings
projected to be achieved within twelve months, minority interest,
losses on equity method investments, certain non capitalized
acquisition expenses, and depreciation, amortization and income taxes
within the company's equity method investments. Management believes
that these non-GAAP measures provide insight into the company's
financial results and trends.
The financial information presented for the quarter ended March 31,
2008 is presented for two periods: Predecessor and Successor, which
primarily relate to the periods preceding the Transaction and periods
succeeding the Transaction, respectively.
Successor Predecessor
--------- -----------
Three Three
months months
ended ended
March 31, March 31,
2008 2007 Change
--------- ----------- ------
(Loss) income from continuing operations $(221.7) $171.7 NM
Interest expense, net (1) 508.7 26.5
Income tax (benefit) expense (130.5) 37.4
Depreciation and amortization 368.4 180.8
--------- -----------
EBITDA 524.9 416.4
--------- -----------
Stock based compensation (2) 4.4 27.8
Other items (3) 43.2 18.7
Debt repayment (4) - (1.4)
Pretax equivalency adjustment (5) - 60.3
Official check and money order EBITDA (6) (34.1) (4.5)
Cost of data center, technology and other
savings initiatives (7) 32.3 8.0
Transaction related fees 3.0 5.0
Purchase accounting (8) 6.2 -
Sponsor's annual management fee 5.0 -
Pre-acquisition EBITDA of acquired
businesses (9) 0.7 12.4
--------- -----------
Adjusted EBITDA $585.6 $542.7 8%
========= ===========
Successor Predecessor
--------- -----------
Three Three
months months
ended ended
March 31, March 31,
2008 2007 Change
--------- ----------- ------
Merchant Services
-----------------------------------------
Revenue $925.8 $845.0 10%
Purchase accounting adjustments 0.8 -
--------- -----------
Revenue excluding purchase accounting
adjustments $926.6 $845.0 10%
========= ===========
Operating profit $72.9 $195.1 -63%
Purchase accounting adjustments 138.3 -
--------- -----------
Operating profit excluding purchase
accounting adjustments $211.2 $195.1 8%
========= ===========
Profit margin 7.9% 23.1%
Revenue $925.8 $845.0 10%
Reimbursable debit network fees (DNF) (289.7) (228.9)
--------- -----------
Revenue excluding DNF $636.1 $616.1 3%
========= ===========
Revenue $925.8 $845.0 10%
Purchase accounting adjustments 0.8 -
DNF (289.7) (228.9)
--------- -----------
Revenue excluding purchase accounting
adjustments and DNF $636.9 $616.1 3%
========= ===========
Operating profit $72.9 $195.1 -63%
Purchase accounting adjustments 138.3 -
--------- -----------
Operating profit excluding purchase
accounting adjustments $211.2 $195.1 8%
========= ===========
Profit margin excluding purchase
accounting adjustments and DNF 33.2% 31.7%
Successor Predecessor
--------- -----------
Three Three
months months
ended ended
March 31, March 31,
2008 2007 Change
--------- ----------- ------
Financial Services
-----------------------------------------
Revenue $705.5 $695.4 1%
Purchase accounting adjustments (6.8) -
--------- -----------
Revenue excluding purchase accounting
adjustments $698.7 $695.4 0%
========= ===========
Operating profit $102.5 $144.9 -29%
Purchase accounting adjustments 36.8 -
--------- -----------
Operating profit excluding purchase
accounting adjustments $139.3 $144.9 -4%
========= ===========
Profit margin 14.5% 20.8%
Profit margin excluding purchase
accounting adjustments 19.9% 20.8%
Revenue $705.5 $695.4 1%
Purchase accounting adjustments (6.8) -
Reimbursable postage and other (183.0) (177.4)
--------- -----------
Revenue excluding purchase accounting
adjustments and reimbursable postage and
other $515.7 $518.0 0%
========= ===========
Operating profit $102.5 $144.9 -29%
Purchase accounting adjustments 36.8 -
--------- -----------
Operating profit excluding purchase
accounting adjustments $139.3 $144.9 -4%
========= ===========
Profit margin excluding purchase
accounting adjustments and reimbursable
postage and other 27.0% 28.0%
Successor Predecessor
--------- -----------
Three Three
months months
ended ended
March 31, March 31,
2008 2007 Change
--------- ----------- ------
International
-----------------------------------------
Revenue $444.6 $360.7 23%
Purchase accounting adjustments (1.3) -
--------- -----------
Revenue excluding purchase accounting
adjustments $443.3 $360.7 23%
========= ===========
Operating profit $21.3 $34.2 -38%
Purchase accounting adjustments 1.8 -
--------- -----------
Operating profit excluding purchase
accounting adjustments $23.1 $34.2 -32%
========= ===========
Profit margin 4.8% 9.5%
Profit margin excluding purchase
accounting adjustments 5.2% 9.5%
Organic Revenue Constant Currency
-----------------------------------------
Revenue $444.6 $360.7 23%
Acquisitions less than a year old (36.1) -
Divestitures - (0.5)
Foreign exchange impact (10) (29.6) -
--------- -----------
Organic revenue on a constant currency
basis $378.9 $360.2 5%
========= ===========
Organic Revenue Constant Currency
Excluding Purchase Accounting
-----------------------------------------
Revenue $444.6 $360.7 23%
Purchase accounting adjustments (1.3) -
Acquisitions less than a year old (36.1) -
Divestitures - (0.5)
Foreign exchange impact (10) (29.6) -
--------- -----------
Organic revenue on a constant currency
basis excluding purchase accounting
adjustments $377.6 $360.2 5%
========= ===========
(1) Includes interest expense and interest income.
(2) Stock based compensation recognized as expense and related payroll
taxes.
(3) Other items include items such as net restructuring, impairments,
investment gains and losses, derivative financial instruments gains
and losses, net divestiture gains and foreign exchange gains and
losses (operating and non operating).
(4) Gain resulting from the early repayment of long-term debt.
(5) Represents an adjustment to reflect Integrated Payment Systems
segment operating results as if the underlying investments were held
in taxable securities rather than the tax-exempt variable rate demand
notes in which they were actually held through 2007. The adjustment
was no longer necessary after December 31, 2007 since the company
invested in taxable securities in 2008.
(6) Represents an adjustment to exclude the official check and money
order business from EBITDA due to the company's announcement to wind
down these businesses.
(7) Represents implementation costs associated with initiatives to
reduce operating expenses including items such as platform and data
center consolidation initiatives in the International segment,
expense related to the reorganization of global application
development resources, expense associated with domestic data center
consolidation initiatives and planned workforce reduction expenses,
all of which are considered one-time projects (excludes costs accrued
in purchase accounting).
(8) Represents the effect of purchase accounting on EBITDA which is
primarily the result of revenue recognition adjustments.
(9) Reflects the EBITDA of companies acquired after January 1, 2007
through March 31, 2008 as if these companies had been acquired on
January 1, 2007.
(10) Foreign exchange impact represents the difference between actual
2008 revenue and 2008 revenue calculated using 2007 exchange rates.
NM= Not Meaningful
FDC-1
Source: First Data Corp.
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