Saddled with Post-IPO Debt, First Data Shaves Costs with Layoffs

The ax is falling at First Data Corp. two months after the huge processor's $29 billion leveraged buyout by private-equity firm Kohlberg Kravis Roberts & Co. Greenwood Village, Colo.-based First Data announced Thursday that it is cutting 6% of its workforce, or about 1,700 employees. Thanks to recent acquisitions, however, the company's head count at year-end still will be about the same as a year ago, approximately 29,000. “These decisions are never easy to make and we understand the impact on people's lives,” a First Data spokesperson said in an e-mailed statement. “We will do everything that we can to support the affected employees through this transition.” She added that all the employees who lost their jobs would be eligible for severance and outplacement services. The spokesperson also said First Data would consolidate a number of smaller sites it inherited through acquisitions over the years. “A reallocation of resources will allow First Data to reinvest in state-of-the art technology and new-product innovation,” the spokesperson said. The company earlier this year said it would reduce its number of major processing facilities. On Wednesday, First Data reported third-quarter revenues of $2.07 billion, up 16% from $1.79 billion in the year-earlier quarter. Income from continuing operations fell 73% to $35.1 million from last year's $131.3 million, but results included $208 million in buyout-related expenses. First Data's largest segment, Commercial Services, which handles merchant processing, posted revenues of $1.17 billion, up 11% from $1.06 billion in 2006's third quarter, and operating profit of $304.9 million, up 4% from the year-earlier $294.1 million. The struggling Financial Institution Services unit, which handles cardholder processing, posted a 10% increase in third-quarter revenues to $502.1 million from last year's $455.2 million, but operating profit fell 9% to $87.5 million from last year's $96.3 million. First Data attributed the decline to “anticipated price compression” in contract renewals. The fast-growing international unit saw revenues increase 28% to $425.2 million (8% when adjusted for currency fluctuations) and operating profits rise 20% to $38.5 million. Change may be coming quickly under new chairman and chief executive Michael D. Capellas, who has implemented a “100-day” plan to change the company's strategic direction. According to First Data's earnings release, plan elements include ideas to boost sales effectiveness, including more organic growth, accelerated product development and targeted international expansion. “The plan also captures efficiencies related to the simplification of U.S. and international operations and other near-term cost-saving initiatives as well as certain reductions in personnel,” the release says. First Data is under pressure to cut costs to service its huge new debt load from the LBO. The consolidated balance sheet in First Data's third-quarter report to the Securities and Exchange Commission shows debts of $22.4 billion as of Sept. 30, six days after the LBO, compared with $2.52 billion a year earlier.