<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(a) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
--------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission file number 1-11073
-------
FIRST DATA CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 47-0731996
---------------------- -------------------
(State or other (I.R.S Employer
jurisdiction of Identification No.)
incorporation of
organization
5660 NEW a DRIVE, SUITE 1400, ATLANTA, GA 30328-5800
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 857-0001
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No_____
-----
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Number of Shares
Title of each class Outstanding at August 3, 2000
------------------------ -----------------------------
(Common stock, $.01 par 405,439,042
value
<PAGE>
FIRST DATA CORPORATION
INDEX
-----
<TABLE>
<CAPTION>
PAGE
PART I FINANCIAL INFORMATION NUMBER
------
<S> <C>
Item 1. Financial Statements:
Consolidated Statements of Income for the three
and six months ended June 30, 2000 and 1999.......................... 3
Consolidated Balance Sheets at June 30, 2000 and
December 31, 1999.................................................... 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999.................................. 5
Notes to Consolidated Financial Statements........................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 19
PART II OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 21
Item 4. Submission of Matters to a Vote of Securities Holders................ 21
Item 6. Exhibits and Reports on Form 8-K..................................... 22
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
FIRST DATA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
----------------------------------- ----------------------------------------
2000 1999 2000 1999
-------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
REVENUES
Service revenues $1,349.9 $1,367.0 $2,640.6 $2,618.4
Product sales and other 33.9 30.9 61.0 49.1
--------- --------- ------- --------
1,383.8 1,397.9 2,701.6 2,667.5
--------- --------- -------- --------
EXPENSES
Operating 838.6 899.7 1,687.1 1,746.2
Selling, general & administrative 221.1 208.7 430.9 406.1
Restructuring, business divestitures,
litigation and impairment, net 2.8 34.9 12.3 34.9
Interest 18.9 22.8 39.3 47.0
--------- --------- --------- ---------
1,081.4 1,166.1 2,169.6 2,234.2
--------- --------- --------- ---------
Income before income taxes 302.4 231.8 532.0 433.3
Income taxes 86.0 38.5 150.6 99.0
--------- --------- -------- --------
Net income $ 216.4 $ 193.3 $ 381.4 $ 334.3
========= ========= ========= =========
Earnings per share-basic $ 0.53 $ 0.45 $ 0.92 $ 0.77
Earnings per share-diluted $ 0.52 $ 0.44 $ 0.91 $ 0.76
========= ========= ========== =========
Weighted average shares outstanding:
Basic 412.0 431.8 414.3 433.1
Diluted 419.0 439.7 421.2 440.4
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FIRST DATA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 532.7 $ 1,044.0
Settlement assets 9,186.1 9,585.6
Accounts receivable, net of allowance for doubtful
accounts of $30.6 (2000) and $31.3 (1999) 773.0 908.5
Property and equipment, net 662.2 710.6
Goodwill, less accumulated amortization of $598.0
(2000) and $560.1 (1999) 2,416.3 2,480.2
Other intangibles, less accumulated amortization of
$685.1 (2000) and $664.9 (1999) 939.4 1,002.3
Investment in affiliates 931.7 891.3
Other assets 357.6 382.3
--------- ---------
$15,799.0 $17,004.8
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Settlement obligations $ 9,276.5 $ 9,694.6
Accounts payable and other liabilities 1,509.1 1,824.4
Borrowings 1,197.2 1,578.1
--------- ---------
Total Liabilities 11,982.8 13,097.1
--------- ---------
Commitments and contingencies
Stockholders' Equity:
Common Stock, $.01 par value; authorized 600.0
shares, issued 448.9 shares (2000 and 1999) 4.5 4.5
Additional paid-in capital 2,216.0 2,180.7
--------- ---------
Paid-in capital 2,220.5 2,185.2
Retained earnings 3,249.6 2,964.1
Accumulated other comprehensive income (120.0) (87.7)
Less treasury stock at cost, 39.0 shares (2000) and
31.0 shares (1999) (1,533.9) (1,153.9)
--------- ---------
Total Stockholders' Equity 3,816.2 3,907.7
--------- ---------
$15,799.0 $17,004.8
========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
FIRST DATA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------------
2000 1999
-------- -------
<S> <C> <C>
Cash and cash equivalents at beginning of period $1,044.0 $ 459.5
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 381.4 334.3
Adjustments to reconcile to net cash provided by operating
activities:
Depreciation and amortization 290.1 308.2
Non-operating and non-cash portion of restructuring,
business divestitures, litigation and impairment, net 12.3 33.2
Other noncash items, net (41.8) 15.7
Increase (decrease) in cash, excluding the effects of
acquisitions and dispositions, resulting from changes in:
Accounts receivable 175.9 66.1
Other assets 53.2 10.4
Accounts payable and other liabilities (117.6) 54.8
Income tax accounts (235.5) (106.4)
-------- -------
Net cash provided by operating activities 518.0 716.3
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Current year acquisitions, net of cash acquired (18.2) (23.5)
Payments related to other businesses previously acquired (30.5) (34.3)
Proceeds from dispositions, net of expenses paid 35.7 42.2
Additions to property and equipment, net (74.1) (108.0)
Payments to secure customer service contracts, including
outlays for conversion, and capitalized systems
development costs (58.0) (132.2)
Other investing activities (23.4) (75.4)
-------- -------
Net cash used in investing activities (168.5) (331.2)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net (259.3) (128.9)
Issuance of long-term debt - 100.0
Principal payments on long-term debt (125.0) (57.7)
Proceeds from issuance of common stock 154.0 108.3
Purchase of treasury shares (614.3) (384.3)
Cash dividends (16.2) (17.4)
-------- -------
Net cash used for financing activities (860.8) (380.0)
-------- -------
Change in cash and cash equivalents (511.3) 5.1
-------- -------
Cash and cash equivalents at end of period $ 532.7 $ 464.6
======== =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Basis of Presentation
The accompanying consolidated financial statements of First Data Corporation
("FDC" or the "Company") should be read in conjunction with the Company's
consolidated financial statements for the year ended December 31, 1999.
Significant accounting policies disclosed therein have not changed.
The accompanying 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, 2000 and the consolidated results of its operations for the
three and six months ended June 30, 2000 and 1999 and cash flows for the six
months ended June 30, 2000 and 1999. Results of operations reported for interim
periods are not necessarily indicative of results for the entire year.
FDC recognizes revenues from its information processing services as such
services are performed, recording revenues net of certain costs not controlled
by the Company (primarily interchange fees and assessments charged by credit
card associations of $378.7 million and $477.3 million for the three months
ended June 30, 2000 and 1999, respectively, and $721.9 million and $868.5
million for the six months ended June 30, 2000 and 1999, respectively).
Note 2: Divestitures and Litigation Settlement
In January 2000, the Company completed the sale of its Hogan Information
Services business unit to Dolan Media Company for cash proceeds of $30.5
million. As a result of this transaction and the second quarter sale of another
small business, the Company recognized a pre-tax gain of $5.4 million in the
first six months of 2000.
In February 2000, FDC and its partners signed a definitive agreement to sell
their interests in Transpoint LLC to Checkfree Holdings Corporation
("Checkfree"). FDC will receive consideration of 6.6 million shares of Checkfree
stock and is expected to recognize a gain upon consummation of the transaction,
which is expected to occur in the third quarter. Additionally, First Data agreed
to provide at least $60 million in revenue and/or cost savings to CheckFree.
Immediately prior to closing the transaction, the Company will contribute
approximately $43 million to TransPoint LLC, which will be transferred to
CheckFree at closing.
In July 2000, the Company announced that it will close part of the operations at
its Teleservices unit by the end of the year. An estimated charge of $5.0
million will be recorded in the third quarter.
In April 1999, the company sold Innovis, Inc. (formerly Consumer Credit
Associates, Inc.) to CBC Companies, Inc. for $20.0 million. As a result of
selling Innovis, rather than only shutting down operations, certain tax benefits
not previously available have been realized. Results for second quarter 1999
include recognition of a pre-tax benefit of $24.5 million for Innovis that
relates primarily to the receipt of the net proceeds from the sale.
In May 1999, the Company announced that its Western Union business unit received
preliminary approval for a proposed settlement of all claims in several class
action lawsuits pertaining to the Company's U.S.-to-Mexico money transfer
business. Under the terms of the proposed settlement, FDC will establish a
charitable fund for the advancement of Mexican and Mexican-American causes in
the amount of $4 million. Western Union will also issue discount coupons to its
customers who transferred money to Mexico from January 1, 1987 to August 31,
1999. In addition, the Company will issue coupons for discounts on future
Western Union transactions to customers who transferred money to Mexico from
January 1, 1988 to December 10, 1996 using the MoneyGram Service because the
MoneyGram Service was previously operated by a subsidiary of the Company. FDC
recorded a second quarter pre-tax charge of $34.1 million and a fourth quarter
1999 charge of $2 million to reflect legal fees, the charitable fund and other
6
<PAGE>
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
outside administrative costs in connection with the settlement. Future discounts
related to coupon redemption will be recorded as incurred. At June 30, 2000 the
remaining accrual was $18.3 million. The Company is awaiting the Court's
determination as to the fairness and adequacy of the proposed settlement.
In May 1999, the Company sold its EBP Life business unit for cash proceeds of
$14.5 million. As a result of this transaction FDC recorded a pre-tax gain of
$4.5 million in the second quarter of 1999.
In June 1999, the Company announced the signing of a definitive agreement to
divest its Donnelley Marketing subsidiary to infoUSA for cash proceeds of
approximately $200 million. The transaction closed in July 1999. As a result of
this transaction, a pre-tax loss of $29.8 million was recognized in the second
quarter of 1999.
Note 3: Restructuring and Impairment
During the six months ended June 30, 2000, the Company recorded restructuring
charges of $15.4 million; $2.3 million related to payment instruments, $10.5
million related to card issuer services, $0.3 million related to merchant
processing services and $2.3 million related to all other and corporate. All
charges represent severance accruals for approximately 900 employees resulting
from the downsizing and relocation of various departments. Savings realized
through the remainder of the year from these reorganizations are expected to
substantially offset the restructuring charges.
The following table summarizes the Company's utilization of restructuring
accruals for the six months ended June 30, 2000 (in millions):
Employee Facility
Severance Closure
----------- --------
Remaining Accrual at December 31, 1999 $ 1.0 $3.9
Current Period Expense Provision 15.4 --
Cash Payments and Other (a) (7.0) .2
----- ----
Remaining Accrual at June 30, 2000 $ 9.4 $4.1
===== ====
(a) Other includes net sub-lease income on facilities which will fund a lease
buyout.
In addition to the restructuring charges, during the three months ended June 30,
2000, the Company also recorded a net charge of $2.3 million. The net charge was
comprised of a $2.8 million asset impairment charge related to a customer
contract and a net benefit of $0.5 million related to the true-up of certain
previously recorded divestiture related accruals.
Note 4: Investments In Affiliates
Operating results include the Company's proportionate share of income from
affiliates, which consist of unconsolidated investments and joint ventures
accounted for under the equity method of accounting. The most significant of
these affiliates are related to the Company's merchant alliance program.
7
<PAGE>
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
A merchant bank alliance is a joint venture between FDC and a financial
institution that combines the expertise of the Company with the visibility and
distribution of the bank. The joint ventures sell processing services to
merchants. At June 30, 2000, there were eight such joint ventures accounted for
under the equity method of accounting.
A summary of financial information for the merchant alliances and other
affiliates accounted for under the equity method of accounting is as follows (in
millions):
June 30, 2000 December 31, 1999
------------------ ---------------------
Total Assets $2,813.3 $2,475.3
Total Liabilities 1,813.8 1,599.2
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------------------------- -------------------------------------
2000 1999 2000 1999
------------------- ---------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net Operating Revenues $ 406.7 $ 241.7 $780.7 $444.5
Operating Expenses 294.0 182.7 577.6 346.7
Operating Income 112.7 58.9 203.1 97.8
Net Income 97.7 53.8 175.4 87.3
FDC Share of Net Income 50.7 25.5 89.5 42.2
</TABLE>
Amounts presented herein do not include amortization of $12.4 million and $8.1
million for the three months ended June 30, 2000 and 1999, respectively, related
to the excess of FDC's investment over its proportionate interest in the net
assets of the joint venture. Amortization for the six months ended June 30, 2000
and June 30, 1999 was $27.5 million and $13.7 million respectively. This
difference, which amounted to $676.3 and $635.0 million at June 30, 2000 and
December 31, 1999, respectively, is amortized over the estimated useful lives of
the underlying intangible assets. The 1999 amounts do not include the Wells
Fargo Alliance since it was consolidated in 1999 and not accounted for under the
equity method of accounting.
Note 5: Borrowings
The Company's commercial paper borrowings at June 30, 2000 were $250 million.
The Company's commercial paper program is supported by a $1 billion revolving
credit facility. Pursuant to a 1998 agreement, $175 million of the facility has
been designated to be used solely for the purpose of meeting certain of the
Company's settlement obligations, if necessary. At June 30, 2000, the Company
also had $525 million available under a shelf registration providing for the
issuance of debt and equity securities and $250 million available under its
uncommitted bank lines.
8
<PAGE>
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 6: Earnings Per Share
Earnings per common share amounts are computed by dividing net income amounts by
weighted average common and common equivalent shares (when dilutive) outstanding
during the period.
Amounts utilized in per share computations are as follows (in millions):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------------- --------------------------------
2000 1999 2000 1999
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding:
Basic weighted average shares 412.0 431.8 414.3 433.1
Stock options 6.7 7.7 6.6 7.1
Restricted stock awards 0.3 0.2 0.3 0.2
----------- ---------- ---------- ----------
419.0 439.7 421.2 440.4
=========== ========== ========== ==========
</TABLE>
Diluted earnings per common share was calculated based on weighted-average
shares outstanding including the dilutive impact of common stock equivalents
which consist of outstanding stock options and restricted stock awards.
Note 7: Accumulated Other Comprehensive Income
The components of comprehensive income are as follows (in millions)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------------------- ---------------------------------
2000 1999 2000 1999
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income: $ 216.4 $ 193.3 $ 381.4 $ 334.3
Foreign exchange effect (18.7) (1.1) (28.3) (12.6)
Unrealized loss on securities (2.4) (88.0) (4.9) (97.7)
Minimum pension liability adjustment 0.9 - 0.9 -
---------- --------- --------- ---------
Total comprehensive income $ 196.2 $ 104.2 $ 349.1 $ 224.0
========== ========= ========= =========
</TABLE>
Note 8: Segment Information
First Data Corporation classifies its businesses into three principal segments:
payment instruments, card issuer services and merchant processing services. See
the Company's 1999 Annual Report on Form 10-K for a detailed description of each
segment and the accounting policies of the operating segments.
9
<PAGE>
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table presents the Company's operating segment results for the
three and six months ended June 30, 2000 and 1999 (in millions):
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------ ---------------------------
2000 1999 2000 1999
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
---------
Payment Instruments $ 586.6 $ 503.2 $ 1,136.6 $ 962.2
Card Issuer Services 360.9 338.0 717.0 645.6
Merchant Processing Services 409.5 392.5 780.7 738.1
All Other and Corporate 66.1 81.8 144.0 159.5
------------ ------------ ----------- -----------
Subtotal 1,423.1 1,315.5 2,778.3 2,505.4
------------ ------------ ----------- -----------
Divested or To Be Divested - 122.6 - 238.3
Eliminations (a) (39.3) (40.2) (76.7) (76.2)
------------ ------------ ----------- -----------
Consolidated $ 1,383.8 $ 1,397.9 2,701.6 2,667.5
============ ============ =========== ===========
Operating Profit:
-----------------
Payment Instruments $ 163.9 $ 137.1 $ 303.8 $ 253.7
Card Issuer Services 75.1 62.5 138.0 114.3
Merchant Processing Services 125.8 98.2 213.2 167.7
All Other and Corporate (1.4) 12.5 5.3 23.2
------------ ------------ ----------- -----------
Subtotal 363.4 310.3 660.3 558.9
------------ ------------ ----------- -----------
Divested or To Be Divested - 19.4 - 32.5
Corporate Interest Expense (18.9) (22.8) (39.3) (47.0)
Restructuring, Business
Divestitures, Litigation and
Impariments, net (2.8) (34.9) (12.3) (34.9)
Eliminations (a) (39.3) (40.2) (76.7) (76.2)
------------ ------------ ----------- -----------
Consolidated $ 302.4 $ 231.8 $ 532.0 433.3
============ ============ =========== ===========
Depreciation & Amortization:
----------------------------
Payment Instruments $ 30.2 $ 26.8 $ 61.2 $ 51.8
Card Issuer Services 53.7 70.5 109.5 125.0
Merchant Processing Services 55.1 47.4 111.3 95.6
All Other and Corporate 4.0 5.6 8.1 10.1
------------ ------------ ----------- -----------
Subtotal 143.0 150.3 290.1 282.5
------------ ------------ ----------- -----------
Divested or To Be Divested - 13.0 - 25.7
------------ ------------ ----------- -----------
Consolidated $ 143.0 $ 163.3 $ 290.1 $ 308.2
============ ============ =========== ===========
</TABLE>
(a) Represents elimination of adjustment to record payment instruments revenues
on a pre-tax equivalent basis.
10
<PAGE>
FIRST DATA CORPORATION
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS (Continued)
(Unaudited)
June 30, 2000 December 31, 1999
----------------- --------------------
Segment Assets (in millions):
Payment Instruments $10,774.7 $11,096.1
Card Issuer Services 1,525.5 1,554.1
Merchant Processing Services 3,135.6 3,379.4
All Other and Corporate 363.2 975.1
----------------- --------------------
Subtotal 15,799.0 17,004.7
Divested or To Be Divested - 0.1
----------------- --------------------
Consolidated $15,799.0 $17,004.8
================= ====================
Note 9: Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires companies
to record derivatives on the balance sheet as assets or liabilities at fair
value. SFAS 137 "Accounting for Derivative Instruments and Hedging Activities
Deferral of the Effective Date of FASB Statement No. 133 an Amendment of FASB
Statement No. 133" was issued in June 1999, which delayed the effective date
of SFAS 133 to fiscal years beginning after June 15, 2000. SFAS No. 138
"Accounting for Certain Derivative Instruments and Hedging Activities - an
Amendment of FASB Statement No. 133" was issued in June 2000 and amends
certain accounting and reporting standards of SFAS 133. The Company is
evaluating the impact of SFAS 133, as amended, on the Company's future
earnings and financial position, but does not expect it to be material.
In December 1999, the Securities and Exchange Commission (the "SEC") released
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
commission. In June 2000, the SEC released Staff Accounting Bulletin No. 101B
that delays the implementation date of SAB 101 until no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. The Company
is in the process of reviewing its revenue recognition policies and will adopt
the provisions of SAB 101 in the fourth quarter 2000; however, the Company
does not expect the SAB 101 guidance to have a material impact on its revenue
recognition practices.
Note 10: Commitments and Contingencies
In 1998, a putative class action was filed against, among others, the
Company's Western Union Financial Services, Inc. subsidiary in a California
state court. The plaintiff claims that Western Union charges an undisclosed
"commission" when consumers transmit money to Mexico, in that the exchange
rate used in these transactions is less favorable than the exchange rate that
Western Union receives when it trades dollars in the international money
market. The plaintiff asserts that Western Union violates the law in failing
to disclose this "commission" in its advertising and in the transactions. The
plaintiff also asserts that Western Union has discriminated against persons
who use Western Union to transmit money to Mexico, in that the difference
between the market exchange rate and the exchange rate used by Western Union
in the Mexico transactions is greater than the difference between the market
and Western Union exchange rates when transmitting funds to other countries.
The plaintiff seeks, among other things, injunctive relief, imposition of a
constructive trust, restitution, compensatory and statutory damages, statutory
penalties and punitive damages. In addition, four other class actions based
on similar factual allegations were pending in
11
<PAGE>
FIRST DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
United States District Courts and a Texas state court on December 31, 1999,
against, among others, subsidiaries of the Company.
The parties to some of these actions reached a proposed settlement that the
Company believes would also extinguish the claims made in the other actions.
Under the proposed settlement, the Company will establish a charitable fund
for the advancement of Mexican and Mexican-American causes in the amount of $4
million. Western Union also will issue coupons for discounts on future money
transfer transactions to Mexico to its customers who transferred money from
the U.S. to Mexico between January 1, 1987 and August 31, 1999. In addition,
the Company will issue coupons for discounts on future Western Union
transactions to customers who transferred money to Mexico from January 1, 1988
to December 10, 1996 using the MoneyGram service because the MoneyGram service
was previously operated by a subsidiary of the Company. The proposed
settlement also included reasonable attorneys' fees, expenses and costs.
On May 12, 1999, the United States District Court for the Northern District of
Illinois issued a Preliminary Settlement Order in two of the actions, inter
alia, preliminarily approving the proposed settlement. The Court also barred
and enjoined the continued prosecution of the other actions. Further, the
Court barred the commencement of any new actions in any state or federal court
that assert any claims that would be released and discharged upon final
approval of the settlement. The Court has scheduled a supplemental Fairness
Hearing to determine the fairness, reasonableness, and adequacy of the
proposed settlement as amended.
A subsequent putative class action which makes allegations similar to the
allegations described above was filed in a California state court in January
2000 against the Company and its subsidiaries, Western Union Financial
Services, Inc. and Orlandi Valuta. The putative class consists of those
persons who have used Western Union or Orlandi Valuta's services after August
31, 1999 to transmit money from California to Mexico, or who have used the
Western Union money transfer service to transmit money from California to
Mexico and have opted out of the pending nationwide settlement discussed
above. The Company is vigorously defending this action.
In the normal course of business, the Company is subject to claims and
litigation, including indemnification obligations to purchasers of former
subsidiaries. Management of the Company believes that such matters involving
a reasonably possible chance of loss would not, individually or in the
aggregate, result in a materially adverse effect on the Company's results of
operations, liquidity or financial condition.
12
<PAGE>
FIRST DATA CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Significant Developments
During the first six months of 2000, First Data Corporation ("FDC" or the
"Company") continued to emphasize its three principal business segments: payment
instruments, card issuer services and merchant processing services. The Company
also continues to emphasize profitable growth, cost management and execution of
core strategies. Additionally, FDC is seeking to realize growth from Internet
opportunities by 1) enabling new and existing clients to do business on the
Internet, 2) entering into adjacent business-to-business and person-to-person
Internet marketplaces and 3) increasing investments in emerging Internet payment
companies and related technologies as well as expanding marketing agreements.
FDC continues to make strategic investments and develop partnerships with
emerging Internet companies that the Company believes will drive electronic
payments to FDC. In January 2000, FDC announced it had taken a 16% equity
position and entered into a strategic marketing agreement with Yclip.com, a
developer of advertising technology for the Internet. Also in January 2000, the
Company made an investment in Meetchina.com, a business-to-business e-commerce
portal. In March 2000, FDC announced it had taken an equity position and formed
a marketing agreement with Coolsavings.com, a provider of online coupons and
loyalty programs to registered members. In May 2000, FDC and Entrust
Technologies Inc. announced the formation of a new company, PaymentWave, a
business-to-business Internet payment platform.
In the payment instruments segment, growth continues to be fueled by increases
in international money transfers (a transfer either sent to or received from an
international location [other than Mexico] and Canadian transactions that do not
touch the United States). International money transfer revenue increased 43%
and 46% in the quarter and six months ended June 30, 2000, respectively, as
compared to the same periods in 1999. This growth was driven primarily by
transaction growth of 51% for the quarter and 54% for the six months ended June
30, 2000. Development efforts continued on new services, including the June 2000
launch of the new Western Union.com, an Internet money transfer service, and the
launch of Western Union MoneyZap.com, a Person-to-Person Internet payment
service, in July 2000.
In March 2000, card issuer services announced it had become the first in the
industry to be registered to personalize all VISA financial chip card products.
In May 2000, FDC announced it will form a joint venture to offer card and
merchant processing services in Japan.
With respect to the Company's U.K. card processing business ("FDRL"), the Royal
Bank of Scotland ("RBS") informed FDRL that it did not intend to renew its
contract in July 2001 for processing services. The Company does not expect
this development to have any impact to earnings in 2000. The loss of RBS and
NatWest (NatWest was recently acquired by RBS) business represents approximately
2% of the segment's current annualized revenue, however the Company believes it
can adjust its cost structure to maintain current margins.
The merchant processing segment experienced merchant dollar volume processed
growth of 43% and 46% for the quarter and six months ending June 30, 2000,
respectively, as compared to the same periods in 1999. Including the results
for Paymentech, Inc. (acquired in July 1999) and Norwest (contributed to the
Wells Fargo alliance in January 2000) comparably for the quarter and six months
ended in 2000 and 1999, dollar volume growth in 2000 would have been 15% and
16%, respectively. In June 2000 FDC announced its
13
<PAGE>
FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
intent to purchase the Canada Trust MasterCard merchant acquiring portfolio. In
addition, in July 2000 First Data Loan Company Canada (the "Loan Company")
received approval to commence business from the Office of Superintendent of
Financial Institutions and will serve as the acquiring entity for the Canada
Trust portfolio. Additionally, the MasterCard Board approved the Loan Company's
membership.
Several significant actions were taken in the first six months of 2000 as the
Company continues to streamline its operations and focus on its three primary
lines of business.
In January 2000, the Company completed the sale of its Hogan Information
Services business unit to Dolan Media Company for cash proceeds of $30.5
million. As a result of this transaction, a pre-tax gain of $3.2 million ($1.9
million after tax) was recorded in the first quarter of 2000.
In February 2000, FDC announced the merger of its joint venture, Transpoint,
LLC, with Checkfree Holdings Corporation ("Checkfree") to accelerate moving the
bill payment and presentment market to the Internet. FDC will receive
consideration of 6.6 million shares of Checkfree stock and is expected to
recognize a gain upon consummation of the transaction, which is expected to
occur in the third quarter. Additionally, First Data agreed to provide at least
$60 million in revenue and/or cost savings to CheckFree. Immediately prior to
closing the transaction, the Company will contribute approximately $43 million
to TransPoint LLC, which will be transferred to CheckFree at closing.
During the six months ended June 30, 2000, the Company incurred restructuring
charges of $15.4 million ($9.5 million after tax). All charges represent
severance accruals for approximately 900 employees resulting from the downsizing
and relocation of various departments. Savings realized through the remainder
of the year from these reorganizations are expected to substantially offset the
restructuring charges.
FDC remains the market leader in its three major segments: payment instruments,
card issuer services and merchant processing services. The Company will continue
to focus on these core business areas throughout 2000 and will continue to
assess how best to serve its customer base. Among the actions the Company
believes are necessary to continue its leadership position is a focused effort
to develop new products and services and to enhance its processing platforms in
response to Company growth, client requirements and changing technology and
expanding e-commerce initiatives. In this regard, the Company is in the process
of upgrading and redeveloping its business continuity plans to reflect new
systems and platforms developed to support these actions. Also, the Company may
take future actions to further streamline operations and reduce costs.
Results of Operations
The Company derives revenues in each of its reportable segments based
principally on the number of transactions processed, a percentage of dollar
volume processed or on a combination thereof. For the three months ended June
30, 2000, total revenues decreased 1% to $1.38 billion from $1.40 billion in the
prior year quarter, and for the six months ended June 30, 2000, total revenues
increased 1% to $2.70 billion from $2.67 billion in the prior year six months.
Excluding the impact of business divestitures, the Company's revenue growth rate
for the second quarter 2000 was 9% and for the first six months of 2000 was 11%.
Product sales and other revenues increased 10% from $30.9 million in the second
quarter of 1999 to $33.9 million in the same period of 2000. Product sales and
other revenues increased 24% from $49.1 million in the first six months of 1999
to $61.0 million for the first six months of 2000. This increase is due
primarily to an
14
<PAGE>
FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
increase in incentive payments received from a partner in a previously-formed
merchant alliance.
For the second quarter of 2000, operating expenses decreased 7% to $838.6
million from $899.7 million in the same period of 1999. For the six months ended
June 30, 2000, operating expenses decreased 3% to $1,687.1 million from $1,746.2
in the six month period in 1999. Increases in operating expenses were more than
offset by a decline due to business divestitures and reduced Y2K readiness
expense for the six months ended June 30, 2000. This decrease resulted in a
decline in operating expenses as a percent of revenue in the second quarter and
six months ended June 30, 2000 as compared to the same periods in 1999.
Selling, general and administrative expenses increased 6% to $221.1 million in
2000's second quarter compared to $208.7 million for the same period in 1999.
For the six month period, selling, general and administrative expenses increased
6% to $430.9 million in 2000 from $406.1 million in 1999. As a percentage of
revenue from continuing operations, selling, general and administrative expenses
were relatively flat on a quarter and year to date basis. The dollar increase
primarily reflects increased advertising and promotion spending, especially in
the payment instruments segment. The increase was partially offset by the
impact of business divestitures.
Interest expense decreased 17% to $18.9 million in the second quarter of 2000
from $22.8 million in the second quarter 1999, and 16% to $39.3 million for the
six months period of 2000 from $47.0 million for the six month period of 1999.
The decrease is due principally to overall reductions in debt balances funded by
strong cash flow from operations and the proceeds from the sale of Investor
Services Group in the fourth quarter of 1999.
FDC's effective tax rate for the second quarter of 2000 was 28.4%, compared with
1999's second quarter rate of 16.6%. Excluding the impact of restructuring and
business divestitures, the effective tax rate decreased 2.1 percentage points to
28.5% in the second quarter of 2000 compared to 30.6% in 1999's second quarter.
Comparable rates for the six month periods were 28.5% and 30.3% for 2000 and
1999, respectively. This decrease is primarily due to an increase in previously
taxed equity earnings and various other changes to items such as non-deductible
goodwill and the Company's effective state tax rate.
Net income of $216.4 million and $381.4 million for the second quarter and six
months ended June 30, 2000, respectively, was up from $193.3 million and $334.3
million in the comparable periods of 1999. Excluding restructuring, business
divestitures, and other one-time items, net income increased 18% to $218.1
million from $185.2 million for the second quarter and net income increased 19%
to $389.1 million from $326.2 for the six months ended June 30, 2000. These
increases were primarily the result of margin improvements in the combined core
businesses, driven primarily by strong volume trends and the impact of
significant cost management initiatives. Diluted earnings per share ("EPS")
increased 18% to $0.52 for the second quarter and 20% to $0.91 for the six
months ended June 30, 2000. Excluding the impact of restructuring and business
divestitures and other one-time items, diluted EPS increased 24% to $0.52 for
the second quarter and 24% to $0.92 for the six months ended June 30, 2000.
Payment Instruments
Total revenues in the payment instruments segment increased by 17% (on a tax-
equivalent basis) to $586.6 million in the second quarter of 2000, as compared
to $503.2 million in the same period of 1999. Year-to-date revenues increased
by 18% to $1,136.6 million in 2000 from $962.2 million in 1999. The increase in
revenues reflects continued strong underlying transaction increases in
international money transfer transactions which was partially offset by the
impact of a weaker Euro on revenue. Total money transfer revenue increased 17%
to
15
<PAGE>
FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
$461.5 million from $395.5 million in the second quarter of 2000 compared to
the same period in 1999 and increased 18% to $890.7 million from $754.6 million
for the six months ended June 30, 2000 compared to the same period in 1999. At
June 30, 2000, the agent base grew 22% as compared to a year ago, with over
90,000 agents in 184 countries and territories. The dramatic growth in agent
locations is primarily due to a significant number of new location openings
under contracts signed in the second half of 1999.
Operating profits for the second quarter of 2000 grew 20% over the same period
in 1999, from $137.1 million to $163.9 million. Operating profits increased 20%
to $303.8 million for the first six month period of 2000 as compared to $253.7
for the same period last year. Results were fueled by 19% growth in total
worldwide money transfer transactions for both the quarter and six months ended
June 30, 2000. The improvement also was the result of operating leverage
through cost efficiencies and, to a lesser extent, a decline in Y2K readiness
expenses, offset by investments in new services and lower revenue from the
Mexico money transfer business.
Card Issuer Services
Total revenues in the card issuer services segment grew 7% for the second
quarter of 2000 to $360.9 million as compared to $338.0 million for 1999's
second quarter. For the six month period, card issuer services segment revenues
grew 11% to $717.0 million in 2000 from $645.6 million in 1999. Card accounts on
file as of June 30, 2000 were over 260 million (a 16% increase from June 30,
1999) with domestic card accounts at 232 million (an increase of 16%) and
international card accounts at 29 million (an increase of 12%) primarily related
to significant conversions in the third quarter of 1999. Revenue growth in the
near term is not expected to be as robust as prior quarters primarily due to the
annualization of the large number of new accounts converted in third quarter
1999. Revenue growth associated with the conversion of the JC Penney portfolio,
scheduled for the second half of 2000, is expected to substantially offset
deconversions over the same period.
Operating profit for the card issuer services segment increased 20% to $75.1
million in 2000's second quarter from $62.5 million in 1999. Year-to-date profit
increased 21% to $138.0 million in 2000 from $114.3 million in 1999. Improved
performance was driven by cost management initiatives including a workforce
reduction in the first quarter of 2000 and productivity improvements that
resulted in significant operating margin improvements (from 18.5% to 20.8% for
the quarter and from 17.7% to 19.2% year to date).
Merchant Processing Services
Revenues in the merchant processing services segment grew 4% to $409.5 million
for the second quarter of 2000 compared to $392.5 million for second quarter
1999. Total merchant dollar volume grew 43% (15% adjusted for Paymentech and
Norwest) over the second quarter of 1999 to $105.9 billion in 2000. Revenue
growth was driven by growth in the dollar volume processed. Revenues grew 6% to
$780.7 million for the first six months of 2000 compared to $738.1 million for
the same period in 1999. Revenues grew more slowly than dollar volume processed
because the increased dollar volume also includes volume of the Company's
alliances, which are generally accounted for under the equity method of
accounting. If all bank alliances were consolidated and if Paymentech (acquired
in July 1999) and Norwest (contributed to the Wells Fargo alliance in January
2000) were owned during the first six months of 1999, on a proforma basis,
merchant processing service segment revenue would have increased 11% and 12% for
the three and six months ended June 30, 2000, respectively.
Operating profits increased 28% to $125.8 million for the second quarter of 2000
from $98.2 million for the 1999 second quarter. Operating profits increased 27%
to $213.2 million for the first six month period of 2000 as
16
<PAGE>
FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
compared to $167.7 million for the same period last year. This improvement is
reflective of strong volume and increased margins due to the impact of
significant cost reduction initiatives.
Key elements of FDC's strategy in the merchant processing services segment
involve its joint venture alliances with its bank partners and implementation of
Internet commerce initiatives. Each joint venture alliance requires successful
management of the relationship between the Company and the bank partner in that
alliance. Moreover, the alliance strategy could be affected by further
consolidation among financial institutions. Internet commerce presents a growth
opportunity for the merchant processing services segment. While Internet
commerce currently accounts for a small portion of the segment's transactions,
it is growing rapidly. However, Internet commerce is still evolving industry-
wide, and its ultimate impact on merchant processors and acquirers is uncertain.
All Other and Corporate
Revenues from other operations decreased 19% from the second quarter of 1999 to
$66.1 million. Year-to-date revenues decreased 10% to $144.0 million from
$159.5 million in 1999. This decline resulted from lower revenues from several
operating units and the discontinuance of a specialty services joint venture in
the third quarter 1999. Operating profits decreased $13.9 million to a $1.4
million loss for the three months ended June 30, 2000 and decreased $17.9
million to $5.3 million for the six months ended June 30, 2000. In addition to
the disposition of certain businesses, decreased volumes at Call Interactive and
increased expenditures related to e-Commerce contributed to the decline in
operating profits.
Restructuring, Business Divestitures, Impairment and Litigation
During the six months ended June 30, 2000, the Company incurred restructuring
charges of $15.4 million ($9.5 million after tax), $2.3 million related to
payment instruments, $10.5 million related to card issuer services, $0.3 million
related to merchant processing services and $2.3 million related to all other
and corporate. All charges represent severance accruals for approximately 900
employees resulting from the downsizing and relocation of various departments.
Savings realized through the remainder of the year from these reorganizations
are expected to substantially offset the restructuring charges.
In the second quarter of 2000, the Company recorded a pre-tax benefit of $0.5
million ($0.2 million after tax) related to the true-up of certain previously
recorded divestiture related accruals (reported on the "Restructuring, Business
Divestitures, Litigation and Impairment" line on the Consolidated Statements of
Income). Restructuring, merger and divestiture accruals are reviewed each
period. As with the above, balances in excess of anticipated requirements are
reversed through the same Statement of Income caption in which they were
originally recorded. In addition, an impairment to a customer contract of $2.8
million in the card issuer services segment was recorded in the second quarter
of 2000.
In July 2000, the Company announced that it will close part of the operations at
its Teleservices unit by the end of the year. An estimated charge of $5.0
million will be recorded in the third quarter.
In January 2000, the Company completed the sale of its Hogan Information
Services business unit to Dolan Media Company for cash proceeds of $30.5
million. As a result of this transaction and the sale of another small
business, the Company recognized a pre-tax gain totaling $5.4 million ($3.3
million after tax) in the first six months of 2000.
17
<PAGE>
FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Capital Resources and Liquidity
FDC maintained a strong financial position in the second quarter of 2000. Cash
and cash equivalents were $532.7 million at June 30, 2000 compared to $1,044.0
million at December 31, 1999. Cash and cash equivalents at December 31, 1999
included a significant amount of liquidity on hand in preparation for any
potential Y2K related funding needs. These funds were utilized in 2000 to pay
down borrowings and pay taxes related to the sale of Investor Services Group in
the fourth quarter of 1999. FDC utilized cash flows from operating activities
to reinvest in its existing businesses, contribute to the financing of business
expansion, pay down short-term and long term-borrowings and fund treasury stock
purchases.
Operating activities generated cash of $518.0 million for the six months ended
June 30, 2000 compared to $716.3 million for the six months ended June 30, 1999.
This decrease is primarily due to the first quarter 2000 tax payments associated
with the fourth quarter 1999 sale of Investor Services Group which was partially
offset by the net source of cash resulting from changes in working capital.
FDC reinvests cash in its existing businesses principally to expand its
processing capabilities through property and equipment additions, to establish
customer-processing relationships through contract payments and costs for
conversion and to acquire or develop software for use in its operations.
Capitalized amounts of these cash outlays decreased to $132.1 million for the
first half of 2000 as compared to $240.2 million for the first half of 1999.
For the full year 2000, the Company expects such total non-acquisition spending
to be less than 1999's full year total of $430.3 million.
Overall, FDC's operating cash flow for the six months ended June 30, 2000
exceeded its investing activities associated with additions to property and
equipment and capitalized contract and systems development costs by $385.9
million. These cash sources contributed to funds utilized for short-term and
long-term borrowing repayments and treasury stock purchases.
In the first six months of 2000, the Company had net cash outlays of $48.7
million for acquisitions and payments relating to businesses previously acquired
(as compared to $57.8 million in 1999). The Company also received proceeds of
$35.7 million relating to dispositions during the six months ended June 30, 2000
as compared to $42.2 million for the same period in 1999.
The Company's net use of cash for financing activities was due to debt
reduction, share repurchases under the Company's $1 billion and $750 million
share repurchase programs discussed below, share repurchases in connection with
the exercise of stock options and dividend payments partially offset by proceeds
from stock option exercises and other employee stock benefit programs. Net cash
used in financing activities was $860.8 million during the first six months of
2000, as compared to $380.0 million in the same 1999 period.
The Company made cash outlays totaling $614.3 million in the six months ended
June 30, 2000 to repurchase shares of its common stock under common stock
repurchase plans and to cover stock option exercises. Proceeds from stock option
exercises totaling $154.0 million partially offset these outlays. In addition,
the Company continued its practice of paying quarterly cash dividends, resulting
in $16.2 million of cash payments to the Company's common stockholders during
the first six months of 2000.
The Company completed the $750 million stock repurchase authorized by the Board
of Directors in July 1999 by purchasing 6.1 million of its common shares at a
cost of $265 million during the first quarter of 2000. A
18
<PAGE>
FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
total of 16.7 million shares were repurchased under this program. In May 2000,
the Board of Directors authorized a $1 billion stock repurchase. The Company has
repurchased 1.9 million of its common shares at a cost of $99 million during the
second quarter of 2000 under this new authorization.
The Company has two outstanding shelf registration facilities, one providing for
the issuance of debt and equity securities under which $525 million remains
available and the other providing for the issuance of approximately 10 million
shares of the Company's common stock in connection with certain types of
acquisitions.
Included in cash and cash equivalents on the Consolidated Balance Sheet at June
30, 2000 is $70 million related to required investments of cash in connection
with the Company's merchant card settlement operation. FDC has remaining
available short-term borrowing capability of approximately $1.1 billion at June
30, 2000 under the Company's commercial paper program, uncommitted bank credit
lines and its $300 million extendable commercial notes program. The Company
believes that its current level of cash and financing capability along with
future cash flows from operations are sufficient to meet the needs of its
existing businesses. However, the Company may from time to time seek longer-term
financing to support additional cash needs or reduce its short-term borrowings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
There have been no material changes from the 1999 Annual Report on Form 10-K
related to the Company's exposure to market risk from interest rates.
19
<PAGE>
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, 2000 and the related consolidated statements of
income for the three-month and six-month periods ended June 30, 2000 and 1999,
and the consolidated statements of cash flows for the six month periods ended
June 30, 2000 and 1999. 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 auditing standards generally accepted in the United States,
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 an 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 accounting principles generally accepted in
the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of First Data
Corporation as of December 31, 1999, 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 January 27, 2000, 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, 1999, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
Ernst & Young LLP
Atlanta, Georgia
July 12, 2000
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time the Company is involved in various litigation matters arising
in the ordinary course of its business. None of these matters, either
individually or in the aggregate, currently is material to the Company except as
reported in the Company's Annual Report on Form 10-K for the year ended December
31, 1999. There were no material developments in the litigation matters
previously disclosed except for the developments discussed below.
In the actions filed by Luis Pelayo (Pelayo) and Raul Pineda (Pineda) that were
------ ------
previously reported in the Company's Annual Report on Form 10-K for the period
ended December 31, 1999, the Court issued orders granting the parties joint
motions for preliminary approval of an amendment to the proposed settlement.
Pursuant to the orders, the Company gave notice of the settlement, as amended,
to class members who had excluded themselves from the settlement, and to certain
other class members in the Pelayo action to whom direct mail notice
------
inadvertently had not been sent. The Court further required that requests to
rejoin the class in Pelayo or Pineda by members who had excluded themselves be
------ ------
postmarked by July 25, 2000 and any objections or opts-outs from the proposed
settlement by the Pelayo class members to whom direct mail notice had
------
inadvertently not been sent also be postmarked by July 25, 2000. A supplemental
hearing on the fairness of the proposed settlement has been scheduled for August
11, 2000.
In the action filed by Julieta Amorsolo and Apolonio Ezequiel Viruel Torres that
was previously reported in the Company's Annual Report on Form 10-K for the
period ended December 31, 1999, the Company and other defendants filed a
demurrer to many of the plaintiffs' claims and a motion to strike portions of
the plaintiffs' complaint. Both sides have filed briefs and the parties await a
hearing date to be scheduled by the Court.
Item 4. Submission of Matters to a Vote of Securities Holders:
-----------------------------------------------------
The Company held its Annual Meeting of Stockholders on May 10, 2000. Two
matters were voted upon and approved at the meeting.
Proposal 1 Election of Directors
---------------------------------
The terms of office of three current directors, Courtney F. Jones, Robert J.
Levenson and Charles T. Russell, expired at the 2000 Annual Meeting. The re-
election of Messrs. Jones, Levenson and Russell was voted on at the Annual
Meeting. The results of the voting were as follows:
21
<PAGE>
FOR WITHHELD
Courtney F. Jones 362,231,441 4,553,688
Robert J. Levenson 362,217,628 4,567,501
Charles T. Russell 362,168,365 4,616,764
Other directors whose terms continued after the meeting are Henry C. Duques,
James D. Robinson III, Bernard L. Schwartz, Joan E. Spero, and Garen K. Staglin.
Tribute was paid to director Ben Burdetsky, who passed away in April, 2000.
Proposal 2 Ratification of the selection of Ernst & Young LLP as independent
-----------------------------------------------------------------------------
auditors of the Company for 2000
--------------------------------
The results of the voting were as follows:
BROKER
FOR 365,505,693 AGAINST 292,899 ABSTAIN 986,537 NON-VOTE 0
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------------
10.1 Amendment No. 1 to the First Data Corporation 1993 Director's Stock Option
Plan dated May 10, 2000.
10.2 Agreement and Release between Robert Levenson and First Data Corporation
and related exhibits A, B, and C.
10.3 Description of Oral Contract with Garen Staglin
12 Computation of Ratio of Earnings to Fixed Charges
15 Letter from Ernst & Young LLP Regarding Unaudited Interim Financial
Information
27.1 Financial Data Schedule (for SEC use only)
99.1 Private Securities Litigation Reform Act of 1995
Safe Harbor Compliance Statement for Forward-Looking Statements
(b) Reports on Form 8-K
-------------------------
None.
22
<PAGE>
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 DATA CORPORATION
----------------------
(Registrant)
Date: August 8, 2000 By /s/ Kimberly S. Patmore
-------------- ----------------------------
Kimberly S. Patmore
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 8, 2000 By /s/ Brian Mooney
-------------- --------------------------
Brian Mooney
Vice President Finance
(Principal Accounting Officer)
23
<PAGE>
FIRST DATA CORPORATION
INDEX TO EXHIBITS
-----------------
Exhibit
Number Description
-------
10.1 Amendment No. 1 to the First Data Corporation 1993 Director's Stock
Option Plan dated May 10, 2000.
10.2 Agreement and Release between Robert Levenson and First Data
Corporation and related exhibits A, B, and C.
10.3 Description of Oral Contract with Garin Staglin
12 Computation of Ratio of Earnings to Fixed Charges
15 Letter from Ernst & Young LLP Regarding Unaudited Interim Financial
Information
27.1 Financial Data Schedule (for SEC use only)
99.1 Private Securities Litigation Reform Act of 1995
Safe Harbor Compliance Statement for Forward-Looking Statements
24
