Source: First Data
First Data Corp. today reported its financial results for the second quarter of 2008. Consolidated revenues were up 10% to $2.2 billion. The adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were up 7% to $653 million.
Loss from continuing operations was $161 million, but included $260 million of incremental interest expense, net of tax, and $131 million of incremental depreciation and amortization, net of tax, compared to the second 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").
"Our focus on investment in product development is starting to pay off with significant customer wins in multiple segments," said Michael Capellas, Chairman and Chief Executive Officer of First Data. "Despite difficult economic conditions, we continued to grow revenue and improve profitability."
For the quarter, Merchant Services generated revenues of $1 billion, a growth rate of 8% or flat excluding reimbursable debit network fees. Revenue was positively impacted by the continued signing of merchant locations in the quarter as well as 11% transaction growth. This impact was offset by a transaction volume shift to large nationwide discounters as well as higher transaction growth for debit cards versus credit cards. Operating profit was $109 million, down 58% or down 2% to $256 million excluding purchase accounting adjustments comprised principally of increased amortization expense related to the Transaction. Operating profit margin was 36.8% excluding reimbursable debit network fees and purchase accounting adjustments, compared to 37.6% in the second quarter of 2007. The decline in the adjusted operating profit margin was primarily the result of the aforementioned transaction volume shifts. Operating profit was impacted by approximately $11 million of certain costs related to cost reduction initiatives, which negatively impacted the 2% decline noted above by four percentage points and negatively impacted the 36.8% operating profit margin by two percentage points during the quarter. Reported operating profit margin for the quarter was 10.6%.
For the quarter, Financial Services generated revenue of $704 million, down 1% or down 4% excluding reimbursables and purchase accounting adjustments. Revenue reflects growth in the debit business and the addition of new business offset by anticipated price compression from contract renewals and by lost business in 2007. Operating profit was $112 million, down 27% or up 1% to $154 million excluding purchase accounting adjustments comprised principally of increased amortization expense related to the Transaction. Operating profit margin for the quarter was 29.5% excluding reimbursables and purchase accounting adjustments, compared to 28.0% in the second quarter of 2007 but included an incremental $7 million in contract termination fees. Operating profit was impacted by approximately $10 million of certain costs related to cost reduction initiatives, which negatively impacted the 1% growth noted above by six percentage points and negatively impacted the 29.5% operating profit margin by two percentage points during the quarter. Reported operating margin was 15.9% for the quarter.
For the quarter, International generated revenue of $473 million, up 20%. Revenue benefited from acquisitions in prior periods and 23% transaction growth. Operating profit was $32 million, down 9% or up 2% to $36 million excluding purchase accounting adjustments related to the Transaction. Operating margin was 7.5% excluding purchase accounting adjustments related to the Transaction compared to 8.8% in the second quarter of 2007. Operating profit included an additional loss reserve of approximately $2 million for the failed airline in one of International's merchant acquiring alliances and approximately $4.5 million in incremental investments in data center consolidation, platform initiatives and other expenses related to cost reduction initiatives, which negatively impacted the 2% growth above by 20 percentage points and the 7.5% operating margin by one percentage point during the quarter. Reported operating margin was 6.7%.
Merchant Services signed more than 175,000 domestic merchant locations in the quarter up 7%. Domestic merchant transactions grew 11%.
Financial Services signed an agreement with Nordstrom fsb. The seven year agreement calls for First Data to provide card processing, call center and back office automation tools, fraud and risk management, customer analytics as well as e-statements and email alerts for Nordstrom's entire card portfolio including Nordstrom Visa, private label credit and debit cards and commercial cards for Nordstrom employees. The portfolio totals about 4.5 million card accounts on file.
International signed an agreement to acquire a significant ownership interest in EUFISERV. Connecting First Data's and EUFISERV's assets creates a European payments network capable of accessing more than 74,000 ATMs, 1.5 million POS merchants and more than 165 million debit and credit card accounts.
Chase Paymentech, First Data's merchant alliance, is 51% owned by J.P. Morgan Chase Bank, N.A. and 49% owned by First Data. The alliance is in the process of being wound down. We have made significant progress in allocating the merchant contracts and sales forces in a manner consistent with our respective ownership percentages. We have also agreed to jointly provide processing and related services to each other's clients for a transitional period. We remain on track to complete the wind down by the end of the year.