0000950144-95-002558.txt : 19950914
0000950144-95-002558.hdr.sgml : 19950914
ACCESSION NUMBER: 0000950144-95-002558
CONFORMED SUBMISSION TYPE: 8-K
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 19950911
ITEM INFORMATION: Other events
ITEM INFORMATION: Financial statements and exhibits
FILED AS OF DATE: 19950911
SROS: CSX
SROS: NYSE
SROS: PHLX
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FIRST FINANCIAL MANAGEMENT CORP
CENTRAL INDEX KEY: 0000036326
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-CONSUMER CREDIT REPORTING, COLLECTION AGENCIES [7320]
IRS NUMBER: 581107864
STATE OF INCORPORATION: GA
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 8-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-10442
FILM NUMBER: 95572783
BUSINESS ADDRESS:
STREET 1: 3 CORPORATE SQ STE 700
CITY: ATLANTA
STATE: GA
ZIP: 30329
BUSINESS PHONE: 4043210120
MAIL ADDRESS:
STREET 1: 3 CORPORATE SQ STE 700
CITY: ATLANTA
STATE: GA
ZIP: 30329
8-K
1
FIRST FINANCIAL MANAGEMENT CORP. 8-K
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10442
-----------
Date of Report (Date of earliest event reported) SEPTEMBER 11, 1995
-----------------------
FIRST FINANCIAL MANAGEMENT CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-1107864
------------------------------------ ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 CORPORATE SQUARE, SUITE 700, ATLANTA, GEORGIA 30329
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (404) 321-0120
----------------
NOT APPLICABLE
--------------------------------------------------------------------------------
(Former name, former address and formal fiscal year, if changed
since last report)
This is page 1 of 25 pages.
The exhibit index can be found on page 24.
2
Item 5. Other Events
As previously disclosed in First Financial Management Corporation's ("FFMC" or
"First Financial") Current Report on Form 8-K dated June 22, 1995, First
Financial entered into an Agreement and Plan of Merger (the "Merger"), dated as
of June 12, 1995, among First Financial, First Data Corporation ("FDC" or
"First Data") and FDC Merger Corp., a wholly owned subsidiary of First Data.
The Merger Agreement provides for the merger of F.C. Merger Corp. with and into
First Financial, with First Financial remaining as the surviving corporation in
the merger and thus becoming a wholly owned subsidiary of First Data. Pursuant
to the Merger Agreement, and subject to the terms and conditions thereof, each
share of First Financial's common stock will be converted into 1.5859 shares of
common stock of First Data.
First Financial and First Data had previously completed preparation of certain
Unaudited Pro Forma Condensed Combined Financial Statements reflecting the
combined operations of First Financial and First Data through March 31, 1995,
which were included in First Financial's Current Report on Form 8-K dated July
25, 1995. Such pro forma financial statements have now been updated by both
First Financial and First Data to reflect the most recent interim results of
both companies through June 30, 1995 and revised to reflect the effect of
completed acquisitions. The pro forma effect of completed acquisitions by FDC
and FFMC was previously included in FFMC's Current Report cited above as
supplemental information.
First Financial is filing this Current Report on Form 8-K to make publicly
available these updated Unaudited Pro Forma Condensed Combined Financial
Statements and is also including interim financial statements previously filed
by First Data but not yet part of First Financial's publicly filed reports.
The pro forma financial information for the 1994 interim period is reflected in
a note to the pro forma statements of income as it only reflects the effects of
the proposed merger of FDC and FFMC (the "Merger"), as required by Regulation
S-X, Rule 11-02(c)(2)(ii). FFMC has also included, in a note to the pro forma
financial statements, historical condensed combined income statement
information giving effect only to the merger for the year ended December 31,
1994 and the six months ended June 30, 1995 as this reflects FDC's income
statement information as it will be restated subsequent to consummation of the
Merger.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Constituent Corporations.
For the financial statements of First Financial for the six months
ended June 30, 1995 and 1994, see First Financial's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995.
The following financial statements of First Data are included herein:
First Data Corporation Financial Statements:
Independent Accountants' Review Report
Consolidated Statements of Income for the three and six months ended
June 30, 1995 and 1994 (Unaudited)
Consolidated Balance Sheets as of June 30, 1995 (Unaudited) and
December 31, 1994
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3
Consolidated Statements of Cash Flows for the six months ended June
30, 1995 and 1994 (Unaudited)
Notes to Unaudited Consolidated Financial Statements
(b) Pro Forma Combined Financial Statements (Unaudited):
Pro Forma Condensed Combined Balance Sheet as of June 30, 1995 and
Condensed Combined Statements of Income for the six months ended June
30, 1995 reflecting combined pro forma operations of First Data
Corporation and First Financial Management Corporation and acquired
entities.
Pro Forma Condensed Combined Statement of Income for the six months ended
June 30, 1995 reflecting combined operations of First Data Corporation
and CESI Holdings, Inc.
(c) Exhibits
15.1 Letter of Ernst & Young, LLP
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Independent Accountants' Review Report
The Stockholders and Board of Directors
First Data Corporation
We have reviewed the accompanying consolidated balance sheet of First Data
Corporation as of June 30, 1995, and the related consolidated statements of
income for the three-month and six-month periods ended June 30, 1995 and 1994,
and the consolidated statements of cash flows for the six-month periods ended
June 30, 1995 and 1994. These financial statements are the responsibility of
the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of First Data Corporation as of
December 31, 1994, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended (not presented
herein) and in our report dated February 3, 1995, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1994, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
New York, New York
August 4, 1995
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5
FIRST DATA CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
REVENUES:
Fee revenues, net $447,362 $362,884 $830,703 $696,932
Fees related to sale of TRS financial
instruments, net 55,250 46,701 109,420 88,473
-------- -------- -------- --------
Total 502,612 409,585 940,123 785,405
-------- -------- -------- --------
EXPENSES:
Human resources 194,896 161,363 369,229 311,808
Equipment, supplies and facilities 84,686 59,595 151,946 112,986
Depreciation and amortization 51,714 34,810 94,616 65,891
Professional, advertising and other 73,503 66,466 138,813 124,532
-------- -------- -------- --------
Total 404,799 322,234 754,604 615,217
-------- -------- -------- --------
OPERATING INCOME 97,813 87,351 185,519 170,188
INTEREST EXPENSE (14,580) (10,652) (25,191) (21,471)
OTHER INCOME 77,937 1,800 80,937 3,600
-------- -------- -------- --------
PRETAX INCOME 161,170 78,499 241,265 152,317
INCOME TAXES 103,223 31,952 133,106 62,068
-------- -------- -------- --------
NET INCOME $ 57,947 $ 46,547 $108,159 $ 90,249
======== ======== ======== ========
NET INCOME PER COMMON SHARE $ 0.49 $ 0.42 $ 0.94 $ 0.81
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 119,355 111,438 115,615 111,530
======== ======== ======== ========
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.03 $ -- $ 0.06 $ 0.03
======== ======== ======== ========
See notes to consolidated financial statements.
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FIRST DATA CORPORATION
CONSOLIDATED BALANCE SHEET
($ in thousands)
(Unaudited)
JUNE 30, DECEMBER 31,
ASSETS 1995 1994
---------- ----------
Cash and cash equivalents $ 111,434 $ 166,203
Short-term investments 58,189 197,134
Equity securities available for sale 209,480 --
Proceeds including proceeds due from financial instruments sold 3,794,862 3,058,829
Funds and funds due relating to merchant processing 284,833 --
Accounts receivable, less allowance: 1995, $8,577; 1994, $7,117 303,912 262,847
Land, buildings and equipment at cost, net of depreciation:
1995, $286,175; 1994, $262,590 367,288 303,294
Goodwill, net of amortization: 1995, $160,096; 1994, $149,374 1,581,173 832,349
Other intangibles, net of amortization: 1995, $133,733; 1994, $108,337 424,718 348,886
Other assets 260,365 249,902
---------- ----------
$7,396,254 $5,419,444
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Drafts outstanding $ 58,097 $ 197,046
Liabilities relating to financial instruments sold 3,753,000 3,069,000
Liabilities relating to merchant processing 277,422 --
Short-term debt 372,000 35,000
Long-term debt 468,292 474,680
Accounts payable 129,092 92,470
Income taxes payable 117,839 60,019
Employee-related liabilities 82,359 84,356
Accrued and other liabilities 378,588 391,614
---------- ----------
Total liabilities 5,636,689 4,404,185
---------- ----------
Stockholders' equity:
Common stock, par value $.01 per share,
authorized 300,000,000 shares; issued 119,527,317
shares in 1995 and 110,352,000 in 1994 1,195 1,104
Capital surplus 939,682 412,779
Net unrealized securities gains (losses) 30,460 (6,611)
Foreign currency translation adjustment (18,088) (17,033)
Retained earnings 843,229 755,558
Less treasury stock at cost, 714,720 shares in 1995
and 2,710,360 in 1994 (36,913) (130,538)
---------- ----------
Total stockholders' equity 1,759,565 1,015,259
---------- ----------
$7,396,254 $5,419,444
========== ==========
See notes to consolidated financial statements.
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FIRST DATA CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
--------------------------
1995 1994
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 108,159 $ 90,249
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 47,421 34,236
Amortization (1995 and 1994 include charges
of $16,561 and $10,128, respectively, against revenues) 63,756 41,783
Gain on sale of businesses (80,937) (3,600)
Other non-cash charges, net 20,674 5,944
Changes in operating assets and liabilities:
Short-term investments 138,945 13,987
Proceeds including proceeds due from
financial instruments sold (684,000) (231,000)
Funds and funds due relating to merchant processing (18,639) --
Accounts receivable (55,564) (22,137)
Other assets (6,564) 5,636
Drafts outstanding (138,949) (13,859)
Liabilities relating to financial
instruments sold 684,000 231,000
Liabilities relating to merchant processing 27,186 --
Accounts payable and other liabilities 40,959 24,303
--------- ---------
Net cash provided by operating activities 146,447 176,542
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of variable rate cap agreements -- (28,850)
Deferred contract costs (75,022) (46,205)
Purchase of land, buildings and equipment (90,547) (70,823)
Acquisition-related expenditures (219,959) (91,256)
Divestitures 11,210 --
--------- ---------
Net cash used by investing activities (374,318) (237,134)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt, net 337,000 --
Principal payments of long-term debt (142,530) (8,850)
Proceeds from exercise of stock options 17,482 4,341
Purchase of treasury stock (32,821) (25,210)
Dividends paid (6,698) (6,610)
--------- ---------
Net cash provided (used) by financing activities 172,433 (36,329)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 669 2,055
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (54,769) (94,866)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 166,203 298,041
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 111,434 $ 203,175
========= =========
See notes to consolidated financial statements.
-7-
8
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements of First Data Corporation (the Company or
FDC) should be read in conjunction with the Company's consolidated financial
statements for the year ended December 31, 1994. Significant accounting
policies disclosed therein have not changed. However, in 1995 the Company has
incurred software development costs for major new product and platform
offerings and has capitalized a portion of such costs as required by Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed". Historically, software
development costs have been principally for product enhancements or refinements
and expensed as incurred. Amounts capitalized through June 30, 1995 for new
product and platform offerings approximated $3.3 million.
The consolidated financial statements are unaudited; however, in the opinion of
management, they include all normal recurring adjustments necessary for a fair
presentation of the consolidated financial position of the Company at June 30,
1995 and the consolidated results of its operations for the three and six
months ended June 30, 1995 and 1994 and cash flows for the six months ended
June 30, 1995 and 1994. Results of operations reported for interim periods are
not necessarily indicative of results for the entire year. Certain prior year
amounts have been reclassified to conform to the current year presentation.
The Company recently completed a study of goodwill and other intangible assets
arising from purchase business combinations and has concluded it is appropriate
to reclassify certain costs associated with the July 1991 acquisition of First
Data Resources Limited (FDRL) from "Goodwill" to acquired contract and
conversion costs which are included in "Other intangibles" on the Company's
Consolidated Balance Sheet. Conversion costs primarily include systems and
programming and other related costs associated with the conversion of new
client accounts to the Company's processing systems. The reclassified costs
represent those necessary to modify the acquired FDRL processing system in 1992
to provide the functionality of the Company's processing system to FDRL's
customer base. The result of the reclassification, as of December 31, 1994,
was an increase of $53 million in acquired contract and conversion costs, net
of accumulated amortization, which will be amortized over the remaining
six-year estimated life of the contracts. The $169 million remaining carrying
value of goodwill relating to FDRL will be amortized over its remaining
estimated life of 26 years. Previously, all acquired intangibles resulting
from the FDRL acquisition were amortized over their estimated aggregate life of
20 years from the date of acquisition. The impact of these changes is
immaterial to the Company's results of operations.
2. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Net income taxes paid during the six months ended June 30, 1995 were
approximately $44 million. Net income taxes paid during the same period in
1994 were approximately $60 million, net of a $1.1 million refund from American
Express Company. Interest paid during the six months ended June 30, 1995 and
1994 was approximately $31 million and $21 million, respectively.
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FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995
(UNAUDITED)
3. ACQUISITIONS/DISPOSITION
On June 13, 1995, the Company announced execution of a merger agreement with
First Financial Management Corporation (FFMC), a leading worldwide information
services provider. Pursuant to the terms of the merger agreement, each
outstanding share of FFMC common stock will be converted into 1.5859 shares of
FDC common stock at closing. The transaction is valued at approximately $6.7
billion based on FDC's closing price on June 12, 1995 of $56.875. The
transaction, which will be accounted for as a pooling of interests, requires
the approval of the stockholders of both companies as well as various
regulatory agencies. The Company anticipates closing the transaction in late
1995 or early 1996; however, no assurance can be given with respect to the
timing or likelihood of such transaction closing.
Upon closing, FDC will incur one-time merger expenses including (i) investment
banking, legal and miscellaneous transaction costs, currently estimated to be
$52.3 million on an after-tax basis; (ii) costs associated with termination
benefits of certain employees of FFMC, currently estimated to be $143.1 million
on an after-tax basis, and (iii) costs associated with the integration and
consolidation of the companies which are not presently estimable. The
accounting policies utilized by FDC and FFMC are currently being studied from a
conformity perspective; however, the impact of any potential adjustments is
presently estimated to be immaterial.
On June 6, 1995, the Company completed the acquisition of the merchant
processing and point-of-sale unit of ENVOY Corporation (ENVOY). ENVOY was
combined with the existing merchant operations of the Company's U.S.
transaction card processing unit and is reflected in the accompanying financial
statements from its date of acquisition.
A summary of the purchase price paid and the preliminary allocation thereof to
tangible assets acquired less liabilities assumed is as follows (thousands):
Total consideration paid $174,533
Tangible assets acquired less liabilities
assumed at fair value 32,426
--------
Excess of purchase price over tangible
assets acquired less liabilities assumed $142,107
========
The total consideration paid primarily represents the issuance of 3 million
shares of FDC common stock to ENVOY stockholders valued at approximately $171
million. An additional payment of up to $21 million in FDC common stock will
be required over a one- to three-year period if the acquired entity attains
certain performance objectives. The excess of purchase price over tangible
assets acquired less liabilities assumed is being amortized over 30 years.
This acquisition has been accounted for using the purchase method.
On March 9, 1995, the Company completed the acquisition of CESI Holdings, Inc.
and its subsidiary, Card Establishment Services Inc., (CES) a leading merchant
transaction processor. CES was combined with the Company's U.S. transaction
card processing unit to strengthen both front-end and back-office merchant
transaction processing capabilities and is reflected in the accompanying
financial statements from its date of acquisition.
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FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995
(UNAUDITED)
The following table lists the unaudited pro forma financial information
reflecting the estimated effect on the Company of the CES acquisition as if it
had occurred at the beginning of each of 1995 and 1994 (in thousands, except
per share amounts):
Three Months Six Months Ended
Ended June 30,
June 30, 1994 1995 1994
------------- ---------------------------
Revenue $461,555 $978,495 $884,113
Net income 45,959 103,472 86,819
Net income per
common share 0.38 0.87 0.72
The pro forma financial information presented above does not give pro forma
effect to the ENVOY acquisition as the effect on pro forma earnings in the
aggregate would be immaterial.
Adjustments made in arriving at pro forma unaudited results of operations
include the preliminary revaluation of CES assets to their fair value,
reduction of interest expense on existing debt due to lower borrowing rates of
the Company, amortization of goodwill and related tax adjustments. The pro
forma results do not, however, include any adjustments for cost savings or
benefits from economies of scale that the Company believes would have been
achieved had the transaction occurred at the beginning of each of 1995 and
1994. The pro forma financial information is presented for informational
purposes and is not necessarily indicative of the future results of operations
of the combined companies.
Pro forma results present revenues net of interchange and association fees.
Interchange fees represent a standardized fee charged by the Visa and
MasterCard credit card associations to compensate card issuing banks for the
risk of transaction fraud, processing expenses and funding costs and are
settled with the card issuing banks. Historically, CES presented its revenues
on a gross basis. The Company presents revenues on a net basis on its
consolidated financial statements as generally there is no risk to the Company
associated with the interchange fees. CES' interchange and association fees
were $172 million and $140 million for the three months ended June 30, 1995 and
1994, respectively, and $314 million and $258 million for the six months ended
June 30, 1995 and 1994, respectively.
During the 1995 second quarter, the Company completed the sale of its health
systems business to HBO & Company (HBOC) in exchange for 4 million shares of
HBOC common stock valued at approximately $205 million, resulting in a pretax
gain of $68.9 million which has been included in "Other income" on the
Company's Consolidated Statement of Income. This pretax gain was substantially
offset by income taxes of $67.7 million relating thereto. The investment in
HBOC common stock is presented as "Equity securities available for sale" on the
Company's Consolidated Balance Sheet. The health systems business accounted
for approximately 8 percent of the Company's 1994 annual consolidated revenues
and a lesser percentage of its 1994 annual consolidated operating income.
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FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995
(UNAUDITED)
4. DEBT OFFERING
On July 24, 1995, the Company completed a $200 million public debt offering of
6 3/4% Notes (the Notes) due July 15, 2005. Interest on the Notes is payable
semi-annually in arrears on January 15 and July 15 of each year, commencing
January 15, 1996. There is no sinking fund obligation applicable to the Notes,
nor are the Notes redeemable prior to maturity. The Company received net
proceeds of approximately $197 million of which $165 million was used to pay
down the Company's short-term borrowings under its revolving credit facilities.
The remainder was used for general corporate purposes.
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UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF INCOME
The following unaudited pro forma condensed combined statements of income give
effect to the Merger of First Data Corporation ("First Data") and First
Financial Management Corporation ("First Financial") under the pooling of
interests method of accounting as well as First Data's acquisition of CESI
Holdings, Inc. ("CESI Holdings") in March, 1995 and First Financial's
acquisition of Western Union Financial Services, Inc. ("Western Union") in
November, 1994 as if the Merger and such acquisitions had taken place as of
January 1, 1994. For further detail relating to First Data's acquisition of
CESI Holdings for the year ended December 31, 1994 see First Financial's
Current Report on Form 8-K dated July 25, 1995, and for the six months ended
June 30, 1995 see the First Data and CESI Holdings Unaudited Pro Forma
Condensed Combined Statement of Income included herein. For further detail
relating to First Financial's acquisition of Western Union for the year ended
December 31, 1994, see First Financial's Current Report on Form 8-K dated March
28, 1995. The data presented for the year ended December 31, 1994 combine CESI
Holdings' results of operations and First Data's results of operations for the
year ended December 31, 1994; Western Union's results of operations for the
period January 1, 1994 to October 31, 1994; and First Financial's results of
operations for the year ended December 31, 1994 which included Western Union's
results of operations from November 1, 1994. The data presented for the six
months ended June 30, 1995 combine CESI Holdings' results of operations for the
period January 1, 1995 through March 8, 1995; First Data's results of
operations for the six months ended June 30, 1995 which included CESI Holdings'
results of operations from March 9, 1995; and First Financial's results of
operations for the six months ended June 30, 1995. The pro forma information
is based on the historical consolidated statements of income of each of First
Data, First Financial, CESI Holdings and Western Union and has been prepared
under the assumptions and adjustments set forth below and in the accompanying
notes to the pro forma condensed combined statements of income.
The unaudited pro forma condensed combined statements of income have been
prepared by the managements of First Data and First Financial based upon their
respective consolidated financial statements, as well as available information
and certain assumptions which the managements believe are reasonable. Pro
forma combined per share amounts are based on a conversion ratio of 1.5859
shares of First Data Common Stock for each share of First Financial Common
Stock ("the Conversion Number"). The unaudited pro forma condensed combined
statements of income, which include results of operations as if the Merger had
been consummated on January 1, 1994, do not reflect the merger expenses
anticipated to be incurred or the effects of potential increased revenues or
operating synergies and cost savings anticipated to result from the Merger. In
addition to the assumptions contained herein relating to the Merger of First
Data and First Financial, the pro forma condensed combined statements of income
for the year ended December 31, 1994 and the six months ended June 30, 1995
also reflect a number of assumptions related to the amortization of goodwill,
the issuance of common stock and convertible debt and other adjustments related
to the preliminary purchase price allocations of CESI Holdings and Western
Union, as further explained in First Financial's Current Report cited above and
in the First Data and CESI Holdings Unaudited Pro Forma Condensed Combined
Statement of Income included herein. These pro forma statements
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UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF INCOME (Continued)
of income are presented for illustrative purposes only, and therefore are not
necessarily indicative of the operating results that might have been achieved
had the Merger, First Data's acquisition of CESI Holdings and First Financial's
acquisition of Western Union occurred as of an earlier date, nor are they
necessarily indicative of operating results which may occur in the future. The
pro forma condensed combined statements of income do not give pro forma effect
to the November 30, 1994 disposition of First Data's Cable Services Group,
Inc. subsidiary, the June 6, 1995 acquisition of ENVOY Corporation by First
Data or the June 17, 1995 disposition of First Data's subsidiary First Data
Health Systems Corporation, as they would have had less than a 5% effect on pro
forma earnings in the aggregate. It also does not give effect to the pending
acquisition of Employee Benefit Plans, Inc. by First Financial as the effect on
pro forma earnings in the aggregate would be immaterial.
The unaudited pro forma condensed combined statements of income should be read
in conjunction with the historical consolidated financial statements and notes
thereto in the companies' separate Annual Reports on Form 10-K for the year
ended December 31, 1994 and Quarterly Reports on Form 10-Q for the period ended
June 30, 1995 which, in the case of First Data, such quarterly consolidated
financial statements are included herein.
On August 28, 1995 First Data and First Financial announced that First Data and
the Federal Trade Commission staff had reached an agreement to be presented to
the Commission. Approval of the agreement, which involves only the consumer
money transfer businesses of both companies, would permit consummation of the
Merger. Under the terms of the preliminary agreement, First Data will be
allowed to perform processing services for each of MoneyGram(SM) and Western
Union, however, it will be permitted to retain only the sales and marketing
functions of one. Pursuant to the agreement, the required divestiture must
occur no later than fourteen months after formal approval by the Commission.
First Data and First Financial are in the process of evaluating their
alternatives under the preliminary agreement, however, it is more likely than
not that the required divestiture, when combined with the negotiation of a
processing agreement, will not have a material impact on the combined entity's
ongoing results of operations.
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FIRST DATA CORPORATION AND
FIRST FINANCIAL MANAGEMENT CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
June 30, 1995
(millions)
(unaudited)
FIRST FIRST PRO FORMA PRO FORMA
DATA FINANCIAL ADJUSTMENTS COMBINED
-------- --------- ----------- ---------
ASSETS
Cash and cash equivalents $ 111.4 $ 124.2 $ $ 235.6
Short-term investments 58.2 -- 58.2
Equity securities available for sale 209.5 -- 209.5
Proceeds including proceeds due from financial
instruments sold 3,794.9 118.2 3,913.1
Funds and funds due relating to merchant processing 284.8 236.3 521.1
Accounts receivable, less allowance 303.9 182.4 486.3
Land, buildings and equipment at cost, net
of depreciation 367.3 160.4 527.7
Goodwill and other intangibles, net of amortization 2,005.9 2,091.7 4,097.6
Other assets 260.4 191.1 451.5
-------- -------- ------- ---------
$7,396.3 $3,104.3 $ -- $10,500.6
======== ======== ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Drafts outstanding $ 58.1 $ -- $ $ 58.1
Liabilities relating to financial instruments sold 3,753.0 118.3 3,871.3
Liabilities relating to merchant processing 277.4 221.5 498.9
Short-term debt 372.0 18.3 390.3
Long-term debt 468.3 214.3 682.6
Senior convertible debentures 447.1 447.1
Pension obligations assumed 149.6 149.6
Accounts payable, accrued expenses and other liabilities 707.9 381.2 136.0 1,225.1
-------- -------- ------- ---------
Total liabilities 5,636.7 1,550.3 136.0 7,323.0
-------- -------- ------- ---------
Stockholders' equity:
Common stock 1.2 6.4 (5.4) 2.2
Capital surplus 939.7 965.5 4.7 1,909.9
Retained earnings 843.2 642.2 (195.4) 1,290.0
Treasury stock, at cost (36.9) (0.7) 0.7 (36.9)
Other 12.4 (59.4) 59.4 12.4
-------- -------- ------- ---------
Total stockholders' equity 1,759.6 1,554.0 (136.0) 3,177.6
-------- -------- ------- ---------
$7,396.3 $3,104.3 $ $10,500.6
======== ======== ======= =========
See "Notes to Unaudited Pro Forma Condensed Combined Financial Statements."
-14-
15
FIRST DATA CORPORATION AND
FIRST FINANCIAL MANAGEMENT CORPORATION
PRO FORMA CONDENSED COMBINED
STATEMENTS OF INCOME
(millions, except per share amounts)
(unaudited)
YEAR ENDED DECEMBER 31, 1994 SIX MONTHS ENDED JUNE 30, 1995
------------------------------------- ------------------------------
PRO FORMA
PRO FORMA FIRST PRO FORMA
FIRST DATA FINANCIAL & FIRST DATA
& CESI WESTERN PRO FORMA & CESI FIRST PRO FORMA
HOLDINGS UNION COMBINED HOLDINGS FINANCIAL COMBINED
-------- -------- -------- -------- --------- --------
REVENUES, NET $1,862.3 $1,514.2 $3,376.5 $978.5 $806.1 $1,784.6
EXPENSES:
Human resources 697.2 522.4 1,219.6 379.4 266.9 646.3
Equipment, supplies and facilities 284.4 261.4 545.8 159.7 126.7 286.4
Depreciation and amortization 178.4 130.7 309.1 101.4 66.5 167.9
Professional, advertising and other, net 333.9 256.6 590.5 154.5 181.1 335.6
-------- -------- -------- ------ ------ --------
1,493.9 1,171.1 2,665.0 795.0 641.2 1,436.2
-------- -------- -------- ------ ------ --------
Operating income 368.4 343.1 711.5 183.5 164.9 348.4
Interest expense (57.4) (54.4) (111.8) (28.3) (20.7) (49.0)
Western Union pension cost -- (18.3) (18.3) -- (8.7) (8.7)
Other income 50.2 -- 50.2 80.9 -- 80.9
-------- -------- -------- ------ ------ --------
Pretax income from continuing operations 361.2 270.4 631.6 236.1 135.5 371.6
Income taxes 157.4 110.4 267.8 132.6 55.6 188.2
-------- -------- -------- ------ ------ --------
INCOME FROM CONTINUING OPERATIONS $ 203.8 $ 160.0 $ 363.8 $103.5 $ 79.9 $ 183.4
======== ======== ======== ====== ====== ========
Weighted average number of common shares
and common stock equivalents 121.4 69.0 230.8 118.8 69.6 229.2
INCOME FROM CONTINUING OPERATIONS
PER COMMON SHARE $ 1.68 $ 2.49 $ 1.63 $ 0.87 $ 1.25 $ 0.83
See "Notes to Unaudited Pro Forma Condensed Combined Financial Statements."
-15-
16
FIRST DATA AND FIRST FINANCIAL
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined statements of income give effect to
the Merger of First Data and First Financial under the pooling of interests
accounting method and also give effect to First Data's acquisition of CESI
Holdings in March, 1995 and First Financial's acquisition of Western Union in
November, 1994 as if such acquisitions had taken place as of January 1, 1994.
The pro forma condensed combined statements of income exclude: (i) the
positive effects of potential increased revenues or operating synergies and
cost savings which may be achieved upon combining the resources of the
companies; (ii) investment banking, legal and miscellaneous transaction costs
of the Merger, currently estimated to be $52.3 million on an after-tax basis;
(iii) costs associated with termination benefits of certain employees of First
Financial, currently estimated to be $143.1 million on an after-tax basis, and
(iv) costs associated with the integration and consolidation of the companies.
The estimate of costs associated with termination benefits assumes a market
value for First Financial Common Stock of $90 per share, which approximates the
equivalent combined market value per share of First Financial Common Stock on
the date of the Merger Agreement, June 12, 1995, reflecting the Conversion
Number of 1.5859. Plans for integration and consolidation of the companies'
operations are currently being developed, but the associated costs are not
presently estimable. The accounting policies utilized by First Data and First
Financial are currently being studied from a conformity perspective; however,
the impact of any potential adjustment is not presently estimated to be
material.
In addition to the assumptions contained herein relating to the Merger of First
Data and First Financial, the pro forma condensed combined statements of income
also reflect a number of assumptions related to the amortization of goodwill,
the issuance of common stock and convertible debt and other adjustments related
to the preliminary purchase price allocations of CESI Holdings and Western
Union, as further explained elsewhere herein or in First Data's Current Reports
cited above.
The First Financial historical statement of income classifications presented
herein were reclassified to be consistent with the presentation used by First
Data. Historically, First Financial presented its revenues on a gross basis
including interchange fees. Interchange fees represent a standardized fee
charged by the Visa and MasterCard credit card associations to compensate card
issuing banks for the risk of transaction fraud, processing expenses and
funding costs and are settled net with the card issuing banks. First Data
presents revenues on a net basis in its consolidated financial statements as
generally there is no risk to a merchant acquirer associated with the
interchange fees. First Financial's interchange fees were $869.1 million for
the year ended December 31, 1994, and $377.8 million and $487.6 million for the
six months ended June 30, 1994 and 1995, respectively.
-16-
17
FIRST DATA AND FIRST FINANCIAL
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (Continued)
2. PRO FORMA ADJUSTMENTS
Stockholders' Equity
Stockholders' equity as of June 30, 1995 has been adjusted to reflect the
following:
Common stock is adjusted for the assumed issuance of approximately 101
million shares of First Data Common Stock in exchange for approximately
64 million shares of First Financial Common Stock issued and outstanding
as of June 30, 1995, utilizing the Conversion Number of 1.5859. The
number of shares of First Data Common Stock to be issued at consummation
of the Merger will be based upon the actual number of shares of First
Financial Common Stock outstanding at that time.
Capital surplus is adjusted for: (i) the effects of the aforementioned
issuance of shares of First Data Common Stock having a par value of $.01
per share in exchange for First Financial Common Stock having a par value
of $.10 per share and (ii) the assumed cancellation of 20,000 shares of
First Financial Common Stock held in treasury as of June 30, 1995.
Other stockholders' equity is adjusted for the recognition of
approximately $59.4 million of deferred compensation associated with the
accelerated vesting of restricted stock awards.
As of the effective date of the Merger, all rights with respect to shares of
First Financial Common Stock potentially issuable pursuant to First Financial
stock option plans and convertible debentures shall immediately convert to
equivalent rights with respect to First Data Common Stock utilizing the
Conversion Number.
Income per Common Share
Pro forma weighted average shares and common stock equivalents for the year
ended December 31, 1994 and the six months ended June 30, 1995 reflect the
conversion of each share of outstanding First Financial Common Stock and each
common stock equivalent that is dilutive to net income per share computations
to 1.5859 shares of First Data Common Stock. Pro forma weighted average shares
and common stock equivalents for the year ended December 31, 1994 and June 30,
1995 also reflect the assumed issuance as of January 1, 1994 of the shares
issued by First Data in its acquisition of CESI Holdings. Common stock
equivalents consist of shares issuable under each of the companies' stock
option plans, shares issuable in connection with First Financial's outstanding
warrants (which were exercised in the quarter ended June 30, 1995) and an
assumed conversion into common stock of First Financial's senior convertible
debentures issued in December 1994.
-17-
18
FIRST DATA AND FIRST FINANCIAL
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (Continued)
3. PRO FORMA HISTORICAL CONDENSED COMBINED INCOME STATEMENT DATA
The following table sets forth pro forma historical condensed combined income
statement data for the year ended December 31, 1994 and the six-month periods
ended June 30, 1994 and 1995 giving effect only to the Merger under the pooling
of interests method of accounting and reflects the historical income statement
data, restated to give effect to the Merger.
-18-
19
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, 1994 ENDED JUNE 30, 1994 ENDED JUNE 30, 1995
------------------------------- ------------------------------ ------------------------------
FIRST FIRST PRO FORMA FIRST FIRST PRO FORMA FIRST FIRST PRO FORMA
DATA FINANCIAL COMBINED DATA FINANCIAL COMBINED DATA FINANCIAL COMBINED
-------- --------- --------- ------ --------- --------- ------- --------- ---------
REVENUES, NET $1,652.2 $1,231.8 $2,884.0 $785.4 $553.8 $1,339.2 $940.1 $806.1 $1,746.2
EXPENSES 1,305.0 952.4 2,257.4 615.2 443.9 1,059.1 754.5 641.2 1,395.7
-------- -------- -------- ------ ------ -------- ------- ------ --------
Operating income 347.2 279.4 626.6 170.2 109.9 280.1 185.6 164.9 350.5
Interest expense (41.3) (8.8) (50.1) (21.5) (1.4) (22.9) (25.2) (20.7) (45.9)
Western Union
pension cost -- (2.3) (2.3) -- -- -- -- (8.7) (8.7)
Other income 50.2 -- 50.2 3.6 -- 3.6 80.9 -- 80.9
-------- -------- -------- ------ ------ -------- ------- ------ --------
Pretax income 356.1 268.3 624.4 152.3 108.5 260.8 241.3 135.5 376.8
Income taxes 148.0 108.1 256.1 62.1 44.8 106.9 133.1 55.6 188.7
-------- -------- -------- ------ ------ -------- ------- ------ --------
NET INCOME $ 208.1 $ 160.2 $ 368.3 $ 90.2 $ 63.7 $ 153.9 $ 108.2 $ 79.9 $ 188.1
======== ======== ======== ====== ====== ======== ======= ====== ========
Weighted average number
of common shares
and common stock
equivalents 111.2 62.9 211.0 111.5 62.5 210.6 115.6 69.6 226.0
NET INCOME PER
COMMON SHARE $ 1.87 $ 2.56 $ 1.75 $ 0.81 $ 1.02 $ 0.73 $ 0.94 $ 1.25 $ 0.86
-19-
20
FIRST DATA AND CESI HOLDINGS
UNAUDITED PROFORMA CONDENSED COMBINED
STATEMENT OF INCOME
The unaudited pro forma condensed combined statement of income set forth below
is presented to show the estimated effect on First Data of the March 9, 1995
merger (the "CESI Holdings Merger") with CESI Holdings as if it had occurred as
of January 1, 1995. In addition, certain amounts in the historical financial
statements of CESI Holdings have been reclassified to conform to First Data's
presentation. The accretion of dividends on CESI Holdings Series A Preferred
Stock has been excluded from the accompanying pro forma condensed combined
statement of income pursuant to Securities and Exchange Commission rules
governing the preparation thereof. The pro forma condensed combined statement
of income does not give pro forma effect to the June 6, 1995 acquisition of
ENVOY Corporation or the June 17, 1995 disposition of First Data's subsidiary,
First Data Health Systems Corporation, as they would have less than a 5% effect
on pro forma earnings in the aggregate.
The CESI Holdings Merger is being accounted for under the purchase method of
accounting by First Data and the pro forma condensed combined statement of
income has been prepared on such basis of accounting utilizing estimates and
assumptions as set forth below and in the notes thereto. The pro forma
adjustments are based upon available information and certain assumptions which
First Data's management believes are reasonable. The pro forma adjustments do
not, however, include any adjustments for cost savings or benefits from
economies of scale that First Data's management believes would have been
achieved had the transaction occurred as of January 1, 1995. In addition, the
1995 pro forma results reflect certain acquisition-related expenses, as well as
start-up expenses associated with the formation of certain bank alliances. The
pro forma condensed combined statement of income is presented for informational
purposes and is not necessarily indicative of the future results of operations
of the combined companies, or of the results of operations of the combined
companies that would have actually occurred had the transactions been
consummated as of January 1, 1995.
-20-
21
FIRST DATA AND CESI HOLDINGS
PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
(millions, except per share amounts)
(unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 1995
FIRST CESI PRO FORMA PRO FORMA
DATA HOLDINGS(9) ADJUSTMENTS COMBINED
------ -------- ----------- ---------
Revenues, net (8) $940.1 $38.4 $ $978.5
Expenses:
Human resources 369.2 10.2 379.4
Equipment, supplies and
facilities 151.9 7.8 159.7
Professional, advertising
and other 138.8 15.7 154.5
Depreciation and 94.6 6.5 (4.5)(1) 101.4
amortization 4.8 (2)
------ ----- ----- ------
754.5 40.2 0.3 795.0
Operating income (loss) 185.6 (1.8) (0.3) 183.5
Interest expense (25.2) (3.7) 1.3 (3) (28.3)
(0.9)(4)
0.2 (5)
Other income 80.9 -- 80.9
------ ----- ----- ------
Pretax income (loss) 241.3 (5.5) 0.3 236.1
Income taxes 133.1 -- (0.5)(6) 132.6
------ ----- ----- ------
Net income (loss) $108.2 $(5.5) $ 0.8 $103.5
====== ===== ===== ======
Net income per
common share $ 0.94 $ 0.87
====== ======
Weighted average number of
common shares outstanding 115.6 3.2 (7) 118.8
====== ===== ======
-21-
22
FIRST DATA AND CESI HOLDINGS
NOTES TO PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
(UNAUDITED)
1. Adjustment to eliminate CESI Holdings historical intangible asset
amortization expense.
2. Adjustment to record amortization of acquired intangibles and goodwill
over their estimated lives of ten years and thirty years, respectively,
based upon First Data's preliminary allocation of the purchase price for
the CESI Holdings Merger.
3. Adjustment to eliminate CESI Holdings' historical interest expense under
its senior credit facility.
4. Adjustment to reflect interest expense on First Data's assumed borrowings
under its revolving credit facility.
5. Adjustment to reflect amortization of debt premium on the CESI Holdings
subordinated notes resulting from the preliminary purchase price
allocation.
6. Adjustment to reflect income tax effects of pre-tax pro forma adjustments
and to provide tax benefit on CESI Holdings' pre-tax losses.
7. Adjustment to reflect the issuance of 8.1 million shares of First Data
Common Stock as well as the dilutive effect of the assumed options.
8. Historically, CESI Holdings presented its revenues on a gross basis
including interchange fees. Interchange fees represent a standardized
fee charged by the Visa and MasterCard credit card associations to
compensate card issuing banks for the risk of transaction fraud,
processing expenses and funding costs and are settled net with the card
issuing banks. First Data presents revenues on a net basis in its
consolidated financial statements as generally there is no risk to First
Data associated with the interchange fees. CESI Holdings' interchange
fees were $313.7 million for the six months ended June 30, 1995.
9. CESI Holdings' results are for the period January 1, 1995 through March
8, 1995.
-22-
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST FINANCIAL MANAGEMENT CORPORATION
--------------------------------------
(Registrant)
Date: September 11, 1995 By /s/ M. Tarlton Pittard
-------------------------- ---------------------------------------
Vice Chairman, Chief Financial Officer
and Treasurer
Date: September 11, 1995 By /s/ Richard Macchia
-------------------------- ---------------------------------------
Executive Vice President
and Principal Accounting Officer
-23-
24
EXHIBIT INDEX
Exhibit No. Description Page
----------- --------------------------------------------------------------------- ----
15.1 Letter of Ernst & Young, LLP 25
-24-
EX-15.1
2
LETTER OF ERNST & YOUNG
1
September 11, 1995
First Financial Management Corporation
We are aware of the incorporation by reference in the Registration Statements
(Form S-3 No. 33-56327 and Forms S-8 No. 2-84870, 2-96064, 33-10711, 33-17834,
33-18541, 33-21675, 33-32555, 33-31915 (Post Effective Amendment No. 1),
33-37532, 33-40891, 33-46669 and 33-48619) of First Financial Management
Corporation of our report dated August 4, 1995 relating to the unaudited
consolidated interim financial statements of First Data Corporation included in
this Current Report on Form 8-K of First Financial Management Corporation dated
on September 11, 1995.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
ERNST & YOUNG LLP
New York, New York
-25-