Financial Overview
We firmly believe that our diversification strategies and our focus on small to mid-sized businesses provide us with the stability we need to not only sustain ourselves but continue to grow, even in this current economic climate. The Nilson Report, a publication specializing in consumer payment systems worldwide, listed us in its 2007 ranking of the top bank card acquirers, or owners of merchant card processing contracts, as one of the largest providers of card-based payment processing services in the United States.
Due to the challenging economic environment, our merchant processing volume, which represents the total value of transactions processed by us, declined slightly to $26,783 million in 2008 compared to $26,797 million in 2007.
Corresponding to the decrease in charge volume in the fourth quarter of 2008, our revenues also decreased. We expect this trend to continue in 2009. However, we believe our ability to recruit and retain independent sales groups, combined with our experience in identifying, completing and integrating acquisitions, provides us with significant opportunities for future growth in an economic recovery.
Our strategy has been to increase profits by increasing our penetration of the expanding small merchant marketplace for payment services. Our operating results point to our successful execution of this strategy during 2008. Charge volume remained consistent at $26,783 million in 2008, compared to $26,797 million in 2007.
The deterioration in the United States’ economic environment has impacted the growth in charge volumes in the industry. Industry sources indicated weakening charge volume growth in the third quarter of 2008, with charge volume in the fourth quarter declining when compared to the prior year. We currently expect this trend to continue in 2009. Likewise, our revenue declined in the fourth quarter despite the acquisitions of two businesses since the fourth quarter of 2007.
Despite the downturn in the economy principally in the fourth quarter, revenues for the year increased 4.7% to $794.8 million in 2008 from $759.1 million in 2007. This increase was due to the acquisitions of two businesses. Income from operations increased to $82.4 million in 2008, from $71.5 million in 2007. Income from operations for the year ended December 31, 2007 included closing costs for the Chicago operating center as discussed in Note 9 of the Notes to Consolidated Financial Statements.
Net interest expense decreased to $56.3 million in 2008 from $60.2 million in 2007, reflecting a lower average interest rate and lower funded debt. Our effective income tax rate also decreased to approximately 41.3% in 2008, from approximately 52.5% in 2007, primarily due to expenses incurred through the adoption of FIN 48 and an increase in the valuation allowance for certain state net operating losses in 2007.
