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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1994
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 1-10442
FIRST FINANCIAL MANAGEMENT CORPORATION
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(Exact name of registrant as specified in its charter)
GEORGIA 58-1107864
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 CORPORATE SQUARE, SUITE 700, ATLANTA, GEORGIA 30329
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 321-0120
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report.)
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
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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 Outstanding
Title of each class as of May 2, 1994
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Common Stock, $.10 par value 61,266,515
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FIRST FINANCIAL MANAGEMENT CORPORATION
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
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Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1994
and December 31, 1993 3
Consolidated Statements of Income for the
three months ended March 31, 1994 and 1993 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 6 Exhibits and Reports on Form 8-K 10
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PART I. FINANCIAL INFORMATION
FIRST FINANCIAL MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, 1994 DECEMBER 31, 1993
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ASSETS (Dollars in thousands)
Current Assets:
Cash and cash equivalents $ 181,976 $ 186,263
Accounts receivable, net of allowance for doubtful
accounts of $4,368 (1994) and $4,043 (1993) 348,314 323,130
Prepaid expenses and other current assets 89,139 87,797
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Total Current Assets 619,429 597,190
Property and equipment, net 133,269 134,804
Excess of cost over fair value of assets acquired,
less accumulated amortization of $56,580 (1994)
and $52,001 (1993) 677,882 647,746
Customer contracts, less accumulated amortization
of $34,773 (1994) and $31,806 (1993) 137,364 140,124
Other assets 116,367 106,279
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$1,684,311 $1,626,143
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 293,711 $ 278,637
Income taxes payable 23,779 10,563
Current portion of long-term debt 4,425 6,218
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Total Current Liabilities 321,915 295,418
Long-term debt, less current portion 11,651 8,495
Deferred income taxes payable 63,882 63,347
Other liabilities 10,064 10,919
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Total Liabilities 407,512 378,179
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Commitments
Shareholders' Equity:
Common stock, $.10 par value; authorized
150,000,000 shares, issued 60,935,314
shares (1994) and 59,881,709 shares (1993) 6,094 5,988
Paid-in capital 829,907 828,699
Retained earnings 441,449 413,928
Treasury stock at cost, 20,000 shares (651) (651)
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Total Shareholders' Equity 1,276,799 1,247,964
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$1,684,311 $1,626,143
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See notes to consolidated financial statements.
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FIRST FINANCIAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
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1994 1993
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(In thousands, except per share amounts)
REVENUES:
Service revenues $413,678 $322,929
Product sales 18,818 24,019
Other 359 1,521
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432,855 348,469
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EXPENSES:
Operating 348,405 271,940
General and administrative 4,803 4,718
Cost of products sold 11,447 15,330
Depreciation and amortization 21,937 18,586
Interest, net (1,186) 1,335
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385,406 311,909
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Income before income taxes 47,449 36,560
Income taxes 19,928 15,096
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Net Income $ 27,521 $ 21,464
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Earnings per common share $ 0.45 $ 0.35
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See notes to consolidated financial statements.
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FIRST FINANCIAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
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1994 1993
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(In thousands)
Cash and cash equivalents at January 1 $186,263 $ 16,823
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Cash flows from operating activities:
Net income 27,521 21,464
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation and amortization 21,937 18,586
Interest expense allocated to discontinued operations (413)
Other non-cash items 309 664
Increase (decrease) in cash, net of effects from
acquisitions and dispositions, resulting from changes in:
Accounts receivable (21,375) 32,204
Prepaid expenses and other assets (2,351) (4,402)
Accounts payable and accrued expenses 28,582 (14,402)
Income tax accounts 17,935 12,114
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Net cash provided by operating activities 72,558 65,815
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Cash flows from financing activities:
Principal payments on long-term debt (831) (58,948)
Payments of other liabilities (2,998) (3,425)
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Net cash used in financing activities (3,829) (62,373)
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Cash flows from investing activities:
Acquisitions, net of cash received (24,731) (1,492)
Payments related to businesses previously acquired (26,381) (5,974)
Proceeds, net of expenses, from sale of business 41,249
Proceeds and dividends received from discontinued
operations, net of expenses and taxes paid (2,496) (31,858)
Additions to property and equipment, net (7,417) (6,993)
Software development and customer conversions (11,991) (8,076)
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Net cash used in investing activities (73,016) (13,144)
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Change in cash and cash equivalents (4,287) (9,702)
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Cash and cash equivalents at March 31 $181,976 $ 7,121
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See notes to consolidated financial statements.
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FIRST FINANCIAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The consolidated financial statements include the accounts of First
Financial Management Corporation and its wholly-owned subsidiaries
(the "Company" or "FFMC"). All material intercompany profits,
transactions, and balances have been eliminated. The Company operates
in a single business segment, providing a vertically integrated set of
data processing, storage and management products for the capture,
manipulation and distribution of information. Services include
merchant credit card authorization, processing and settlement; check
guarantee and verification; debt collection and accounts receivable
management; data imaging, micrographics and electronic data base
management; health care claims processing and integrated management
services; and the development and marketing of data communication and
information processing systems, including in-store marketing programs
and systems for supermarkets.
The financial information presented should be read in conjunction with
the Company's annual consolidated financial statements and notes
included in its Annual Report on Form 10-K for the year ended December
31, 1993. The foregoing unaudited consolidated financial statements
reflect all adjustments (all of which are of a normal recurring
nature) which are, in the opinion of management, necessary for a fair
presentation of the results of the interim periods. The results for
the interim period are not necessarily indicative of results to be
expected for the year.
2. Cash and cash equivalents at March 31, 1994 include approximately
$88.5 million in First Financial Bank ("FFB"), of which $70 million
relates to FFB's current capital requirements.
3. On March 22, 1994, the Company entered into an employment agreement
with Patrick H. Thomas, FFMC's Chairman of the Board, President and
Chief Executive Officer, which begins coterminous with the termination
of his current employment agreement on December 31, 1994. Two awards
totalling 972,500 restricted shares of FFMC common stock were granted
to Mr. Thomas in connection with the new employment agreement. The
first of these awards, for up to 472,500 shares, is in lieu of any
cash bonus. For each calendar year during the term of the agreement,
up to 94,500 shares will be earned, contingent upon Mr. Thomas'
continued employment through 1999, subject to acceleration in the
event of death, disability, a "change in control" of FFMC and certain
other circumstances. The number of shares earned for any year will be
equal to 2 1/2% of the pretax income of FFMC, divided by the then
current market price of FFMC Common Stock. If the full 94,500 shares
is not earned in any year or years, the difference between the number
of shares earned and 94,500 will be forfeited. The vesting of the
second of these awards, for 500,000 shares, is contingent upon FFMC's
attainment of a performance goal and continued employment through
1999.
The value of these awards is adjusted using closing prices of the
Company's common stock on balance sheet dates through the date of
measurement for the FFMC performance goal. The Company has assumed
that the performance goal will be attained and that the maximum number
of shares will be earned in each calendar year during the term of the
contract. The value of these awards is being amortized to expense on a
straight-line basis from the grant date over the restriction period.
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FIRST FINANCIAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(UNAUDITED)
4. Earnings per share amounts are computed by dividing income amounts by
the weighted average number of common and common equivalent shares
(when dilutive) outstanding during the period. Common stock
equivalents consist of shares issuable under the Company's stock
option plans and in connection with outstanding warrants. Weighted
average shares used in earnings per share computations were 61,622,000
shares and 60,588,000 shares, respectively, for the quarters ended
March 31, 1994 and 1993.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
FFMC reported net income of $27.5 million for the first quarter of 1994, an
increase of 28% from the $21.5 million in the first three months of 1993.
Revenues were $432.9 million, or 24% higher than the $348.5 in revenues from
the first quarter of 1993. Earnings per share increased 29% to $.45 per share
in 1994's first quarter from the $.35 per share reported in the year earlier
period.
Record new business signed in the latter half of 1993, assimilation of
acquisitions completed in 1993, and a strong consumer driven economy
contributed to the Company's revenue growth. Internal revenue growth
approximating 16% was the principal component of the 24% increase in 1994 first
quarter revenues over the same quarter in 1993. This strong internal growth
continues as 15,000 new customers were added during the first quarter of 1994,
the majority of which occurred in FFMC's merchant services area.
Expenses grew at a percentage increase slightly less than the revenue
increase. Despite continued emphasis on expense control, operating expenses
increased 28% as revenue increases occurred at a faster rate in business areas
which enjoy improving margins, but which have margins lower than the overall
company enjoys. Continued emphasis on expense control is evident in the
general and administrative category which increased only 2% in the first
quarter of 1994 compared with the same period in 1993. As a result of proceeds
from sales of businesses in 1993 and strong cash flow, the Company moved from a
net interest expense position in the first quarter of 1993 of $1.3 million to
net interest income of $1.2 million in 1994.
The combination of these revenue and expense changes produced a pretax margin
of 11.0% in the first quarter of 1994, up from the 10.5% reported for the first
quarter of 1993.
The Company's effective tax rate for the quarter ended March 31, 1994 was 42%,
up slightly from the 41.3% effective tax rate during 1993's first quarter. The
increase in the effective tax rate is due primarily to the pooling-of-interests
accounting treatment of a 1993 merger with a Subchapter S Corporation, which
had previously recorded taxes at the shareholder level.
FFMC's business is not seasonal, except that its revenues, earnings and margins
are favorably affected in the fourth quarter, primarily by increased merchant
credit card and check volume during the holiday season.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
Cash generated from operating activities for the first three months of 1994
totalled $72.6 million, compared with $65.8 million generated in 1993's first
quarter. This increase was due primarily to increased earnings in 1994's first
quarter over the first three months of 1993.
Amounts reinvested in existing businesses, principally for property and
equipment additions, software development and customer conversions, totalled
$19.4 million in 1994 compared with $15.1 million during 1993's first quarter.
The increase is due primarily to higher first quarter 1994 spending on software
development activities in FFMC's health claims processing business. The
Company anticipates that the level of these capital expenditures in its
existing businesses for the full year 1994 will be similar to the total for the
year ended December 31, 1993.
Cash from operating activities exceeded reinvestments in existing businesses by
$53.2 million in 1994's first quarter, slightly above the $50.7 million excess
for the first three months of 1993. Remaining excess cash generated in 1994's
first quarter was utilized to fund $51.1 million in payments related to current
and prior year acquisitions.
FFMC currently has available lines of credit of $460 million; no borrowings
were outstanding under these arrangements at March 31, 1994.
On January 3, 1994, FFMC paid a cash dividend of $.05 per share to shareholders
of record as of December 1, 1993 that was declared by the Company's Board of
Directors on October 27, 1993. On April 27, 1994, the Company's Board of
Directors declared a cash dividend of $.05 per share, payable on July 1, 1994
to FFMC's shareholders of record as of June 1, 1994.
FFMC's cash and cash equivalents of $182.0 million at March 31, 1994, except
for cash and cash equivalents in its credit card bank (currently $88.5
million), are available for acquisitions and general corporate purposes. If
suitable opportunities arise for additional acquisitions, the Company may use
cash, draw on its available credit facilities, or use common stock or other
securities as payment of all or part of the consideration for such acquisitions
or FFMC may seek additional funds in the equity or debt markets. The Company
believes that its current level of cash and future cash flows from operations
are sufficient to meet the needs of its existing businesses.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 27, 1994, at the annual shareholders' meeting for which
proxies were solicited pursuant to Regulation 14A, the Company's
shareholders voted to elect all eight of the Company's nominees to the
Company's Board of Directors. The following table shows the number of
votes cast for each nominee and the number of votes withheld as to
each nominee. There were no abstentions or broker non-votes as to any
nominee, and there were no nominees other than those named in the
Company's proxy statement.
NAME OF NOMINEE AFFIRMATIVE VOTES VOTES WITHHELD
Patrick H. Thomas 47,156,411 230,258
George L. Cohen 47,158,197 229,472
Robert E. Coleman 47,215,840 170,829
Jack R. Kelly, Jr. 47,216,912 169,757
Henry A. Leslie 47,151,294 235,375
M. Tarlton Pittard 47,157,297 229,372
Charles B. Presley 47,210,794 175,875
Virgil R. Williams 47,156,736 229,933
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Restated Articles of Incorporation of First Financial Management
Corporation.
(b) Reports on Form 8-K
The Company did not file any current report on Form 8-K during the
quarter ended March 31, 1994.
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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
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(Registrant)
Date: May 13, 1994 By /s/ M. Tarlton Pittard
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M. Tarlton Pittard
Senior Executive Vice President
and Chief Financial Officer
Date: May 13, 1994 By /s/ Richard Macchia
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Richard Macchia
Executive Vice President
and Principal Accounting Officer
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INDEX OF EXHIBITS
Sequentially
Exhibits Numbered Page
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3.1 Restated Articles of Incorporation of
First Financial Management Corporation. 13
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