FIRST DATA CORP 
By First Data Corp. (NYSE: FDC) today reported its financial results for the second quarter of 2007. Consolidated revenues were up 16% to $2 billion. Earnings per share was $0.31 excluding items or $0.30 from continuing operations. The items were comprised of transaction costs related to the pending merger with an affiliate of Kohlberg Kravis Roberts & Co. (?KKR?) as well as net expenses resulting from litigation, restructuring and all other items.
Second quarter 2007 earnings per share of $0.30 from continuing operations compares with last year's second quarter earnings per share of $0.33 from continuing operations. However, the second quarter of 2006 included $0.07 of items favorable to earnings, primarily related to a non-cash SFAS 133 derivative accounting restatement. Accordingly, when comparing the second quarter of 2006 to the second quarter of 2007, excluding all items, First Data's earnings per share grew from $0.26 to $0.31, an increase of 19%.
Total earnings per share of $0.60 in the second quarter of 2006 included $0.27 from discontinued operations principally related to the spin-off of Western Union.
?Our results demonstrated strong continuing momentum across all of our businesses. The growth in each segment is a testament to the very predictable and recurring business model underlying our operations,? said Ric Duques, Chairman and Chief Executive Officer. ?Our employees around the world delivered another quarter of results that met or exceeded our expectations.?
Segment Results
Commercial Services
For the quarter, Commercial Services generated revenues of $1.1 billion, a growth rate of 11% or 7% excluding reimbursable debit network fees. Revenue growth was primarily driven by strong transaction growth. Operating profit was $297 million, up 7%. Compared to the second quarter of 2006, operating margin stayed relatively constant at 33.5% excluding reimbursable debit network fees. Reported operating margin for the quarter was 26.0%.
Financial Institution Services
For the quarter, Financial Institution Services generated revenue of $487 million, up 8% or 7% excluding reimbursables. Operating profit was $99 million, up 4%. Operating margin for the quarter was 20.3%, or 30.5% excluding reimbursables.
First Data International
For the quarter, First Data International generated revenue of $403 million, up 35%. Revenue growth on a constant currency basis, excluding acquisitions and divestitures, was 9%. Operating profit was $41 million, up 21%, and operating margin was 10.1%.
Overall, results reflected continued progress in executing our four key strategies: 1) Growing the core business; 2) Expanding product offerings; 3) Improving the overall cost structure, and; 4) Expanding the business globally.
Cash Flow
Year to date free cash flow was $534 million and operating cash flow from continuing operations was $657 million. ?These results demonstrate First Data's continued ability to generate high levels of cash flow,? said Duques.
Outlook
On April 1, 2007, First Data entered into an agreement to be acquired by KKR in a transaction with a total value of approximately $29 billion or $34 per share in cash. Following the completion of the transaction, Michael D. Capellas, former CEO of MCI Inc. and Compaq Computer Corporation, will become CEO of First Data. Capellas will succeed Henry C. ?Ric? Duques, the current Chairman and CEO of First Data. Duques announced his intention to retire within two years when he returned as Chairman and CEO in late 2005.
Duques said, ?The significant items required to complete this historic transaction with KKR are on track, we already have committed financing, and we remain on schedule to close in the third quarter.?
For the full year 2007, First Data affirmed its earnings per share guidance from continuing operations in the range of $1.20-$1.26. This guidance excludes costs related to the KKR transaction as well as the effect of the wind-down of the Official Check and Money Order business, which the company is not able to accurately estimate at this time. Due to the scheduled closing of the transaction in the third quarter, First Data will no longer update financial guidance.
Duques concluded, ?For more than 11 years across two tenures, it has been my privilege to serve as Chairman and CEO of First Data, and I have many people to thank. First, our customers who became more like partners in pioneering and building the electronic payments business around the world. Second, our Board of Directors who gave us consistent support and guidance over our many years as a public company. Third, a highly talented senior management team who, quarter after quarter, delivers the kind of results we reported today. And, most importantly, a team of 29,000 employees who have made First Data a leader in its industry -- and who will continue to do so well into the future.?
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 comparable GAAP (generally accepted accounting principles) measures are available in the accompanying schedules and in the ?Invest? section of the company's web site at www.firstdata.com.
Investor and Analyst Conference Call
First Data will hold an investor and analyst conference call and webcast tomorrow, Friday, July 20, at 8:00 a.m. EDT to review second quarter 2007 results. Ric Duques, Chairman and CEO of First Data, will lead the call. Also participating will be Kim Patmore, Chief Financial Officer, and Silvio Tavares, Senior Vice President, Investor Relations.
To listen to the call, dial 888-831-9087 (U.S. only) or +1-773-799-3935 (outside the U.S.) ten minutes prior to the start of the call. The passcode is "FDC". 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 Invest section of firstdata.com (http://ir.firstdatacorp.com/events.cfm).
The company noted that due to the pending merger with KKR, there will be no live question and answer session on the call.
A replay of the call will be available through July 27 at 5:00 p.m. EDT at 800-239-4561 (U.S.) or +1-402-220-9697 (outside the U.S.) and via webcast on www.firstdata.com. No passcode is required.
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 Corp. (NYSE: FDC) is a leading provider of electronic commerce and payment solutions for businesses worldwide. Serving over 5 million merchant locations, 1,900 card issuers and their customers, First Data 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 million ATM and retail locations. For more information, visit www.firstdata.com.
Additional Information About the Merger and Where to Find It
In connection with the proposed transaction announced on April 2, 2007 among First Data Corporation (the ?Company?) and affiliates of Kohlberg Kravis Roberts & Co. (the ?Merger?), the Company filed a definitive proxy statement with the Securities and Exchange Commission (?SEC?) on June 26, 2007. STOCKHOLDERS ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT CAREFULLY AND IN ITS ENTIRETY BECAUSE IT CONTAINS IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. The final proxy statement was mailed to the Company's stockholders. In addition, stockholders may obtain the proxy statement and all other relevant documents filed by the Company with the SEC free of charge at the SEC's website, www.sec.gov, or from First Data Corporation, Investor Relations Department at 6200 S. Quebec Street, Suite 340, Greenwood Village, Colorado 80111, 303-967-6756.
Participants in the Solicitation
First Data Corporation and its directors, executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from the stockholders of the Company in connection with the Merger. Information about the Company and its directors and executive officers, and their ownership of the Company's securities, is set forth in the definitive proxy statement filed with the SEC.
Notice to Investors, Prospective Investors and the Investment Community; Cautionary Information Regarding Forward-Looking Statements
Statements in this press release regarding First Data Corporation's business which are not historical facts, including the earnings estimates, are "forward-looking statements." All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Important factors upon which the Company's forward-looking statements are premised include: (a) continued growth at rates approximating recent levels for card-based payment transactions and other product markets; (b) successful conversions under service contracts with major clients; (c) renewal of material contracts in the Company's business units consistent with past experience; (d) timely, successful and cost-effective implementation of processing systems to provide new products, improved functionality and increased efficiencies; (e) successful and timely integration of significant businesses and technologies acquired by the Company and realization of anticipated synergies; (f) continuing development and maintenance of appropriate business continuity plans for the Company's processing systems based on the needs and risks relative to each such system; (g) absence of further consolidation among client financial institutions or other client groups which has a significant impact on FDC client relationships and no material loss of business from significant customers of the Company; (h) achieving planned revenue growth throughout the Company, including in the merchant alliance program which involves several joint ventures not under the sole control of the Company and each of which acts independently of the others, and successful management of pricing pressures through cost efficiencies and other cost-management initiatives; (i) successfully managing the credit and fraud risks in the Company's business units and the merchant alliances, particularly in the context of the developing e-commerce markets; (j) anticipation of and response to technological changes, particularly with respect to e-commerce; (k) attracting and retaining qualified key employees; (l) no unanticipated changes in laws, regulations, credit card association rules or other industry standards affecting FDC's businesses which require significant product redevelopment efforts, reduce the market for or value of its products or render products obsolete; (m) continuation of the existing interest rate environment so as to avoid increases in agent fees related to IPS' products and increases in interest on the Company's borrowings; (n) no unanticipated developments relating to previously disclosed lawsuits, investigations or similar matters; (o) no catastrophic events that could impact the Company's or its major customer's operating facilities, communication systems and technology or that has a material negative impact on current economic conditions or levels of consumer spending; (p) no material breach of security of any of our systems; (q) successfully managing the potential both for patent protection and patent liability in the context of rapidly developing legal framework for expansive software patent protection; (r) the occurrence of any effect, event, development or change that could give rise to the termination of the Merger Agreement; (s) the outcome of any legal proceedings instituted against the Company and others relating to the Merger Agreement; (t) the inability to complete the Merger due to the failure to obtain shareholder approval or the failure to satisfy other conditions to completion of the Merger, including the receipt of certain foreign and domestic regulatory approvals; (u) the failure to obtain the necessary financing arrangements set forth in commitment letters received in connection with the proposed transactions; (v) risks that the proposed transactions disrupt current plans and operations and the potential difficulties in employee retention; (w) risks that the proposed transactions cause the Company's alliance partners, customers or service providers to terminate or reduce their relationship with the Company; (x) the amount of the costs, fees, expenses and charges related to the Merger and the actual terms of certain financings that will need to be obtained for the Merger; and (y) the impact of the substantial indebtedness that will need to be incurred to finance the consummation of the Merger; and other risks that are set forth in the ?Risk Factors,? ?Legal Proceedings? and ?Management Discussion and Analysis of Results of Operations and Financial Condition? sections of the Company's filings with the Securities and Exchange Commission (?SEC?).
| FIRST DATA CORPORATION | |||||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||
| (Unaudited) | |||||||||||||
| (in millions, except per share amounts) | |||||||||||||
| Three Months Ended June 30, | |||||||||||||
| 2007 | 2006 | Change | |||||||||||
| Revenues: | |||||||||||||
| Transaction and processing service fees: | |||||||||||||
| Merchant services | $ 725.7 | $ 669.4 | 8 | % | |||||||||
| Check services | 104.0 | 79.3 | 31 | % | |||||||||
| Card services | 458.7 | 408.0 | 12 | % | |||||||||
| Other services | 89.4 | 86.8 | 3 | % | |||||||||
| Investment income, net | (7.5 | ) | (34.5 | ) | NM | ||||||||
| Product sales and other | 199.5 | 163.0 | 22 | % | |||||||||
| Reimbursable debit network fees, postage and other | 430.9 | 359.1 | 20 | % | |||||||||
| 2,000.7 | 1,731.1 | 16 | % | ||||||||||
| Expenses: | |||||||||||||
| Cost of services | 864.3 | 742.9 | 16 | % | |||||||||
| Cost of products sold | 81.0 | 77.5 | 5 | % | |||||||||
| Selling, general and administrative | 341.0 | 287.1 | 19 | % | |||||||||
| Reimbursable debit network fees, postage and other | 430.9 | 359.1 | 20 | % | |||||||||
| Other operating expenses: | |||||||||||||
| Restructuring, net | 5.9 | 0.4 | NM | ||||||||||
| Impairments | - | (2.0 | ) | NM | |||||||||
| Litigation and regulatory settlements | 5.0 | (7.5 | ) | NM | |||||||||
| Other | (7.7 | ) | - | NM | |||||||||
| 1,720.4 | 1,457.5 | 18 | % | ||||||||||
| Operating profit | 280.3 | 273.6 | 2 | % | |||||||||
| Other income (expense): | |||||||||||||
| Interest income | 12.9 | 7.1 | 82 | % | |||||||||
| Interest expense | (35.9 | ) | (60.9 | ) | -41 | % | |||||||
| Investment gains and (losses) | (0.1 | ) | 86.9 | NM | |||||||||
| Divestitures, net | 2.5 | 0.8 | NM | ||||||||||
| (20.6 | ) | 33.9 | NM | ||||||||||
Income before income taxes, minority interest, equity earnings in affiliates and discontinued operations | 259.7 | 307.5 | -16 | % | |||||||||
| Income taxes (a) | 70.2 | 82.9 | -15 | % | |||||||||
| Minority interest | (40.0 | ) | (40.3 | ) | -1 | % | |||||||
| Equity earnings in affiliates | 79.4 | 72.4 | 10 | % | |||||||||
| Income from continuing operations | 228.9 | 256.7 | -11 | % | |||||||||
Income from discontinued operations, net of taxes of $0 and $107.1, respectively (b) | - | 205.9 | NM | ||||||||||
| Net income | $ 228.9 | $ 462.6 | -51 | % | |||||||||
| Earnings per share from continuing operations: | |||||||||||||
| Basic | $ 0.31 | $ 0.34 | -9 | % | |||||||||
| Diluted | $ 0.30 | $ 0.33 | -9 | % | |||||||||
| Earnings per share: | |||||||||||||
| Basic | $ 0.31 | $ 0.61 | -49 | % | |||||||||
| Diluted | $ 0.30 | $ 0.60 | -50 | % | |||||||||
| Weighted-average shares outstanding: | |||||||||||||
| Basic | 750.3 | 764.4 | -2 | % | |||||||||
| Diluted | 763.6 | 777.4 | Share
© Business Wire - 2007
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