FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

First Data Corp <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FDC)") else Response.Write("(Nasdaq: FDC)") end if %>
401 Hackensack Avenue
Hackensack, NJ  07601
(201) 525-4700
website: http://www.firstdata.com

UNION CITY, CA (March 5, 1997)/FOOLWIRE/ --- First Data Corporation reported their fourth quarter and fiscal year results recently. Operating revenues for the fourth quarter were $1.35 billion, up 21% over the same quarter in 1995. If you strip out the effects of acquisitions and divestitures, they saw internal growth of 19% which is above the normal range they talk about for internal growth. They generally say that they try to grow 20% and that acquisitions will be 3-5% of that. They are seeing some very strong underlying growth in their core business, especially card issuing services and payment instruments. After-tax earnings before non-recurring charges or credits were $206 million, up 37% over the prior year. That not only shows the effect of revenue growth but also the synergies they got from the First Data/First Financial acquisition falling through as substantially widened margins. They did have a non-recurring net credit in the quarter as the gain from the sale of Money Gram was well above some additional integration impairment charges they took. Total earnings per share reported for the fourth quarter were $0.48. If you strip out the non-recurring credit of $0.04 per share, they had regular operating earnings of $0.44 per share, up 38% from the prior year.

FISCAL YEAR 1996 RESULTS. For 1996, they had a little over $4.9 billion in revenues, up 21%, with an internal growth rate of 18% -- again, very strong revenue growth in their core businesses this year. After-tax earnings before the effects of non-recurring charges and credits was $628 million, up 38%. The pre-tax margins for the year as a whole were 20.6%, up 2.5% from last year as the effects of a little over $100 million of acquisition synergies fall through to the bottom line. Net earnings per share in total were $1.37. Stripping out the non-recurring credits and charges, net earnings were $1.35, up 32% from the prior year and returning to their earnings per share trend line.

NON-RECURRING ITEMS. Fortunately, with the merger integration impairment line on the P&L it is very easy to back out what the non-recurring items are. They reported a net credit of $0.04 per share in the fourth quarter and $0.02 per share for the year. There are three components of that. The first quarter charge, the Money Gram gain pre-tax at $46 million (probably a little smaller than expected due to a substantial payment to Money Gram's principal receive agent in Mexico for their consent to assign their contract to Money Gram payment systems), and they chose to take certain additional integration and cost-reduction steps in the fourth quarter in the merchant processing and Western Union businesses as well as in their health sector. So, they had a net pre-tax in the fourth quarter of about a $30 million credit and an $18 million net gain for the year.

CHANGES TO REVENUE REPORTING LINES. The company reclassified revenues by service area in their financial reporting. First Data Solutions, their information businesses which they have now brought under one management structure, they had previously been reporting in three different places and are now reporting it in one place which is part of the domestic card issuers service business. That is consistent with its organizational reporting line and also consistent with where they think the greatest synergies between the information businesses and their customer base will be. They are going to aggressively move to sell information-based products into the card-issuer base. Nationwide, which had been in the card issuer segment, is moving out into specialty services. They have broken Nationwide into two pieces. There is now a piece they call credit performance services (CPS) that provides pre-charge-off collections to the credit card issuers. That is part of their three piece business and remains in the card issuer services area. But, the remainder of Nationwide which serves a very wide and diverse customer base, is now going to be reported in specialty services. Mexico card processing was previously considered to be domestic. They serve the Mexican market out of Omaha and out of First Data Resources. It is becoming a sufficiently important focus for them to build their international business that they now have broken a distinct marketing unit for it. It will still be processed out of Omaha, but they now have a distinct organizational unit for Mexico and that will be reported as part of the international card line. They have restated each of the quarters for the last two years so people have clean comparisons.

Clearly the First Data/First Financial integration, which is now pretty much behind them but was a substantial effort for the year was a big highlight for 1996. As evidenced by the margin improvement, they certainly have delivered the cost synergies. They think they have also now combined organizations in a way that are delivering the kind of revenue momentum they expected. They divested MoneyGram which took longer than any of them expected, but they are happy to have completed that divestiture. They formed First Data Solutions, giving evidence to their focus on information oriented businesses and bulked that up with the acquisitions of Donnelly Marketing and Hogan Information Systems, both of which bring information bases and certain capabilities that will be important to First Data. They implemented the merchant alliance strategy and made an enormous amount of progress on it. They had a lot of people signed up for that strategy a year ago. Today they have most of them converted. They have sales forces on the ground, selling on behalf of their alliance banks. They have a number of new clients, partnerships, and joint ventures of some significance. Chase Manhattan this year became a very substantial both issuing and merchant client. Wal-Mart, with whom they forged a 10-year partnership based around merchant processing but they now also have a relationship with them in Telecheck and they are a sizeable client of IDT and they look forward to further extending the relationship. SunTrust Bank is both a new issuing and merchant client with about 1 million accounts on the issuing side and about $3 billion of volume on the merchant side. The importance of that new client is that it was a competitive take-away from Total Systems. Hupo Bank, while small with a little over 100,000 accounts, is a German bank and is their first processing client on the continent and evidence of their interest in aggressive action to build a much broader international base. Netscape, Cybercash, and First Virtual are just a couple of the electronic commerce and Internet-oriented companies with whom First Data has developed relationships as they move to take a leading role in Internet transactions. And, in the payment instruments business, they have restructured their relationships with both Electra and Telcomm in Mexico, which not only gives them the potential for increased revenue and profit, but also the flexibility to pursue still more growth in Mexico. All of these, they think, position them very well for the future.

DOMESTIC CARD ISSUER SERVICES. They are up 50% in the fourth quarter and 37% for the year. They highlighted the changes in their reporting of different business lines because the fact that they are including solutions definitely contributes to that. They acquired Donnelly Marketing in September, so there is a full quarter of acquired revenue in that 50% comparison. Even stripping that out, the card issuer services area grew 36% in the fourth quarter and 31% for the year, very strong growth. That is coming from a variety of sources. There is a tremendous richness to the source of revenue they have in this area right now. Accounts on file in total grew 26%, credit card accounts grew 19% reflecting internal growth and new clients, debit card accounts on file grew 67% as there has been tremendous growth in that market, and retail accounts on file were up 50%. Cardholder transactions were up 20% both for the quarter and for the year.

SOURCES OF REVENUE IN DOMESTIC CARD ISSUER SERVICES. People tend to focus on how much the market is growing for cards and who are First Data's new clients, but they have a lot of ways to grow in addition to growing their accounts on file. Credit card internal growth this year is a little lower than it has been as there has been some slowdown in credit card accounts for the market this year. They have had some people as they try to manage their credit risk as well as their profitability even purging some accounts off the file which people have not done previously. They have had some strong growth in credit card new clients paced by Chase Manhattan. They have also had strong growth in credit card new products, as they add additional plastic services, additional risk products, and distributed systems products that help their clients. Debit is a very high growth but, off a small percentage base, is still a relatively small contributor to revenue growth but an important part of what they are doing. Credit application processing, customer servicing, and collections or the servicing of the accounts -- taking over the customer's back office in those cases where they don't want to do that for themselves -- is a business that is really starting to emerge. It has doubled in 1996 and they think it has the potential to do that again in 1997. The growth in solutions was 40% just internal growth and then 60% with the effect of acquisitions and it is starting to be an important contributor to their revenue growth. They are seeing some slowing growth in credit card accounts in the marketplace baked into their plans. But they have been taking steps over the last several years to position themselves to have additional growth through enhanced services in adjacent markets and you can really see the effect of that in 1996.

KEY ACCOMPLISHMENTS DURING THE QUARTER AND THE YEAR. They converted Chase Manhattan in October and got that revenue online. They signed new bankcard business in the quarter that will bring 3 million new accounts onto their system in 1997. Strong growth in First Data Solutions, 60% of it was acquisition base and the internal part of their business was growing at a rate above 35%, between 35% and 50%, for very dramatic growth in this area. U-Save which was successfully tested in 1996 is entering national rollout so they are moving ahead with that program which they have high hopes for. They signed a processing contract with BP Oil on the oil side and that will be a very substantial client for them.

MERCHANT PROCESSING. In the merchant processing arena, revenues for the quarter were up 20% and 27% for the year. The year was very positively impacted by the fact that they had a full year of CES revenue where they only had a part year last year. Importantly, the merchant alliance program where they are in alliances with key banks and account for those alliances on the equity method of accounting, as they have converted business from being 100% owned to being a 50/50 alliance that has had a negative effect on their reported revenue. If they strip out the effective equity accounting, growth in this line of business would have been 26% in the fourth quarter. If they exclude the old FBR merchant business which was just the computer processing for banks and look at the forward going part of their business which is the business in the alliances and the business for which they manage the sales force and are the acquiring entity, that revenue growth was 33% in the fourth quarter. Merchant card volume was $70 billion in the quarter, up 46%, and $214 billion for the full year, up 49%. Some of that had the effect of converting alliances onto their systems and bringing that volume and some of it was the effect of adding Wal-Mart in the quarter. But, stripping away the effect of Wal-Mart, growth was 37%. Again, they are seeing very strong growth in this business. Transactions were up 29% in the quarter.

KEY ACCOMPLISHMENTS IN MERCHANT PROCESSING BUSINESS. They integrated CES, NaBanco, and the FBR merchant organization and reduced costs and expanded margins in the new organization. Looking at 20% revenue growth in the quarter and 27% in the year, their earnings in this business are growing faster than revenues. They have completed 8 bank alliance conversions and they have a couple more that are in process. They signed a national merchant alliance joint venture agreement with Chase Manhattan Bank that they think is going to significantly expand the market presence of their own national business as well as market presence in the New York area. They signed a new partnership agreement with Wal-Mart that goes well beyond just merchant processing. And they have built relationships and transaction volume in Internet commerce and have made 3 venture capital investments. They made investments in Connect, First Virtual, and Verisign as a way of having a good window into the technology and cementing relationships that they think will bring them processing business. The other part of merchant processing is Telecheck where check verification and guarantee revenues were up 17% for the quarter. They are continuing to refine risk models, yielding improved margins and better customer value from lower warranty expense. They think they are clearly the leader in the sophistication and predictive power of their models. Telecheck now has a relationship with Wal-Mart which is probably much more important in terms of the information it brings them than purely the revenue. Wal-Mart is a check verification customer so they just pay for individual hits in the database. That's a lower revenue source than traditional guarantee, but Wal-Mart has a huge volume of checks coming through its system and First Data now gets access to that check information. They think that's going to allow them to continue to refine and advance their risk model. They acquired the Telecheck Louisiana franchise in the fourth quarter and that leaves them with two outstanding franchises in North America.

INTERNATIONAL CARD SERVICES. Revenues were up 13% in the quarter and 7% for the year. They have tended to see high single digits, so they think they are seeing some acceleration here, a little better market growth environment in the UK. They are introducing co-branding programs, are pursuing new smaller clients that are bringing them some additional volume and growth, and they are offering new services. They are starting to see a little stronger growth rate coming out of the UK that will supplement their efforts to enter other markets. They signed a processing agreement with Grupo Bank in Mexico. They mentioned Hupo Bank previously and they have continued to improve margins in this business.

PAYMENTS BUSINESS. Revenues in the quarter at $322 million were up 41% and at $1.150 billion were up 35% for the year. They benefitted from some acquisitions in the year in the fleet services business. The underlying growth by increasing transactions is 25% in the quarter and 20% for the year. They are continuing to see very strong trends, particularly in the money transfer business. That also explains transaction growth. They typically report total transaction growth in the mid teens and people wonder how they keep growing in the 20% range. The transaction growth includes money order which is not growing very fast but is a huge number of transactions. If you look at money transfer transaction growth at 39% in the quarter and 31% for the year, it gives you a sense of what is driving the revenue growth. There was continued growth in agent locations in the US, but particularly internationally, yielding 18% growth overall in agent locations up to 35,000. And that is just the agent locations for the money transfer business.

OTHER ACCOMPLISHMENTS. They divested MoneyGram. They restructured their Electra and Telecom agreements which give them a greater share of profits as well as more flexibility to grow the Mexican business. They started rebuilding the Mexican marketshare in the fourth quarter. They achieved 9% domestic money transfer growth. There were key agent signings with people like Kroger, General Motors Acceptance Corp in the commercial business, Home Savings of America, Household Finance, and KeyCorp. They had continued strong growth in international commercial. They built the fleet services business from scratch this year through the acquisitions of NTS and EDS' fleet services business.

SMALLER REVENUE CONTRIBUTORS. Investment services group revenues were up 11% for the quarter and 13% for the year. Mutual fund asset service was up 19% and shareholder accounts was up 13%. There are not a lot of individual keynote accomplishments in this business, so much as progress across a broad front. They have increased their retirement services business which is a growing area. They picked up additional print mail business and expanded their base both in services and clients with a number of small clients added this year who they are going to aggressively sell additional services to.

HEALTHCARE. Revenues were down 13% in the quarter to $111 million and up 10% for the year. The up 10% reflects the effect of the EDP acquisition which First Financial made in October a year ago. The trend through the year if you adjust for the acquisition has been down as they have been refocusing the business. They are pleased to say that the new claims administration software went live in the fourth quarter with two clients, one of which is First Data Corp. There have been a few kinks but they are working those out. They are migrating two additional clients now and have a fairly strong migration schedule through 1997. They consolidated the EDP administration business into Personnel Strategies to get the benefit of consolidation they refocused EDP license on services to Personnel clients. They divested Genex. Genex is a worker's comp case management business. It's labor intensive, it's not core computer-based transaction processing. It was not a strategic fit. That will take about $80-90 million of revenue out of this sector in 1997. They believe they will close that transaction in the first quarter and have a gain in the quarter as their basis in Genex is very low since that was acquired through a pooling. And they are winding down certain personnel services -- government related business. Again, this is $487 million of revenue in 1996. With Genex going away and EDP Life, the insurance component of which was about $100 million in 1996, it will be probably about $40 million in 1997. So this sector is going to go from $487 million which is 10% of revenues to about $330 million in 1997, more focused on the things that they do at First Data and only 60% of their revenue. So, they are reducing their exposure and focusing on the areas they think they can do well.

SPECIALTY SERVICES. IBT was up 56% for the quarter and 40% for the year. Teleservices was up 14% for the quarter and 12% for the year. That was a good, solid year for teleservices. It's not a high growth business as it is configured today, but it has been a nice contributor this year. Imaging revenues are down 1% for the quarter and 3% for the year as it is continuing to migrate away from some of the more mature business and more towards integrated document services. Nationwide Credit is down 23% for the quarter and 8% for the year as it also focuses on certain customers and as some of the Department of Education business has moved away from it. There is a limitation in the government regulations that allow only one contract to a given company. Through acquisitions, First Data ended up having three contracts. So, when it hit contract rollover, they lost some of that business.

COMPANY MISSION/VISION. First Data's objective is to be the clear leader in the payment and information processing business worldwide. They define number one and number two as number one in profits, number one in revenue, and number one in service quality by whatever measures in the specific industry. The vision statement really speaks to quality which is that they want to be a company that every client that uses their service recommends them. That has been their vision statement for the last 5 years and it serves them well.

INDUSTRY CHARACTERISTICS. They try to select large markets and there have been cases where they get out of businesses that are not large and do not allow them to be a significant player there with a large revenue base. They also try to be in industries where there is growth above the normal trend of growth in general business. In the particular area of non-cash payments, this is where they find themselves. The trend in the businesses and the industries they are involved in through outsourcing, in good times people outsource to help them grow the business, in bad times they outsource to help them control expenses, and in normal times they do a little bit of both. First Data participates in that in these industries. All of their businesses have recurring revenue which gives them a very stable earnings base from which to grow. There are multiple sources of revenue and these businesses usually require economies of scale. They are doing billions and billions of transactions creating hundreds of millions of statements. These industries lend themselves to large players that can do that well. In many of these businesses they have been operating anywhere from 125 years in the case of Western Union to 25 or 30 years in the case of the card business. Over that period of time, you develop functionality if you are listening to clients, that make you very tough to beat. That's why they have a very good opportunity when it comes to outsourcing because they are competing with an in-house situation which is kind of isolated most of the time where they have the benefit of a lot of client input over a long period of time and are building tremendous functionality in these systems that make them very tough to beat.

PROJECTIONS FOR 1997. In 1997 they think they have an opportunity to forge a foundation with particular emphasis in three areas -- electronic commerce, international, and information. The company's long term objective is to grow revenue and net income and earnings per share at a compounded annual rate of 20%. In 1997, First Data expects earnings per share to be approximately $1.60. Earnings of $1.60 would result in a 5-year compounded annual growth rate of approximately 20% since their IPO in 1992. The company expects earnings in the first half of 1997 to be slightly lower and in the second half to be slightly higher than the year as a whole due to timing of revenue and expenses related to new clients and product initiatives. $1.60 per share gives 18.5% growth over the $1.35 on an operating earnings basis for 1996.

PERSPECTIVE & PHILOSOPHY. They have fielded lots of questions over the past six months with two common themes -- why isn't their growth above 20%? and will they achieve precisely 20% per year? which is their objective. Nothing has changed in the way they run the company. Their internal objectives and all of their incentive plans are geared to drive a 20% growth over time. They have a 20% growth objective in revenues, net income, ROE, and earnings per share because they think they are in marketplaces and have positions in those markets that will allow them to do that over time. They are extremely bullish over the 3-5 year prospects for their core businesses. But, as a $5 billion company in a variety of businesses they don't foresee, nor do they think anyone should expect, any substantial period of growth where they are meaningfully above 20%. That might change, but for now they are shooting for the 20% growth level. They are managing the company for the long-term shareholder value. In doing so, they are not going to deliver exactly 20% earnings every quarter and every year, but they think they can on an annual basis and they think they will be very much in that neighborhood.

SPECIFICS ON PROJECTIONS. For 1997 specifically, they expect very strong growth in the core payment services business. The performance in 1996 comes from both the marketplace growth and First Data's positioning in those marketplaces on top of that growth. They will have a positive impact from the full-year effect of the synergies. That will be a compensation for the MoneyGram earnings loss. They do see competitive pricing and they are addressing that through continuing cost management and an introduction of enhanced services. In this environment it is very important to be big and to be low cost and First Data is both in these businesses. They are increasing their investment in electronic commerce and international which will probably be a drag in terms of expense, and information processing which will probably be self-funding. But, there's a lot of money going into those three areas. Given all of that, they would probably still be targeting for around 20% because there are plusses or minuses that kind of balance out.

OTHER FACTORS. There are two other factors going on here that are significant. First, tremendous ramp up for the year 2000 in systems charges. They had a dribble in 1996. They will have somewhere around $30 million in 1997 in expense for the year 2000 and it will probably be another $30 million in 1998 and then it will drop off precipitously after that. Most of that investment is in the core services group that is a big part of their business. And, all of that is being spent. The second thing affecting these projections is the decline in earnings in their health sector. The version costs and redundant costs connected with their software development are hitting them in 1997 continued in conscious shrinkage in government contracts business and the insurance part of this revenue, and then finally the divestiture of Genex. All of those things in the health area are, they think, appropriate strategic decisions that are shrinking down and focusing that health business. They are going to determine in 1997 where the long-term future of that business for them is. So, taking all of that as a whole, they are comfortable with the projects of $1.60 in 1997.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.