Behind the Scenes of Life.

Our Vision Every Client Recommends First Data Our Values All our activities and decisions must be based on, and guided by, these values: Embodying the highest ethical standards, satisfying clients by always exceeding their expectations, treating people with respect and dignity, and creating value for shareholders. The Service-Profit Chain is the spirit in which we do business. It starts with employees. If they're satisfied and loyal, we can create greater service value and quality, which leads to improved client retention, which fuels profit and growth. Without satisfied and loyal employees, we cannot achieve our business goals.

First Data delivers the products and services, the technology and relevant functionality and necessary information for better decision-making to more than 1,400 financial institutions across the country.

Few industries are changing as rapidly as the financial services industry. Consolidation, differentiation and the need to access richer information represent some of the pressures experienced by today's financial institutions.

In First Data's Domestic Card Issuer Services, the focus is on providing specialized processing solutions that help financial institutions meet the challenges of their markets and achieve their growth potential. This commitment was rewarded in 1996 with significant new client agreements, including Chase Manhattan, Bank of Hawaii and Signet Bank.

One method to promote growth at First Data is through enhanced services. In conjunction with Polaroid Corporation, First Data enables financial institutions to include a cardmember's color photograph and signature on the card, increasing fraud protection, customer loyalty and profitability. Creating such tools is an important part in assisting clients to make better decisions.

The key to better decision-making: better information. This is the primary reason why in 1996, First Data Solutions was established. Every year, the bankcard industry loses an estimated $16 billion in non-recoverable charges. In response, First Data Solutions has two primary missions: to enable the credit granting marketplace to dramatically improve the accuracy of their decision-making; and to create greater opportunities for First Data clients with target marketing.

To accomplish these objectives, First Data acquired Hogan Information Services, a leading provider of national public record data, in May, and Donnelley Marketing, a leader in consumer information and direct marketing services, in September. Adding the information- based risk management initiatives within First Data Resources and First Data InfoSource enables First Data Solutions to deliver information-based solutions to clients companywide. ProfitSight^SM demonstrates how First Data works behind the scenes to help develop a tool for clients to analyze the profitability of individual cardholder accounts. Simultaneously, the successful testing of U$A Value Exchange was completed in 1996 with a full national rollout currently under way. This product delivers a precisely targeted ³value exchange² between merchants and consumers, translating database and management tools into profitable business applications.

Customization continues in Oil Services, with PetroCash,^SM a proprietary prepaid oil card. With PetroCash as the platform, First Data supports a pre-paid card for Shell Oil Products and performs other proprietary oil card processing services. Oil Services has also signed a letter of intent with Petroleos Mexicanos (PEMEX), Banpais and Verifone de Mexico to issue the first proprietary private label oil card in Latin America.

Strong international growth is being seen across First Data. In Europe, First Data Resources Limited (FDRL) was selected by one of the leading banks in Germany, Bayerische Hypotheken-und Wechsel-Bank AG (Hypo Bank) to provide card processing services from the U.K. and local services to both the bank and their cardholders in Germany. Hypo Bank is the fifth largest private bank in Germany and has issued more than 130,000 credit card accounts, providing Eurocard transactions and private cardholder services for customers. This marks the initial entry into the German card processing market by First Data. This initiative has gained momentum with the announcement of a second German client, Santander Direkt Bank AG.

Early in 1997, FDRL also announced a global agreement with HSBC Group to service banks in Hong Kong, the United Kingdom and the United States. Under the agreement, First Data will handle issuing and acquiring processing for the HongkongBank and Hang Seng Bank combined Visa, MasterCard and private label accounts. FDRL will extend its contract to provide issuing and acquiring processing services for the HSBC Group's London-based Midland Bank. Also, in the United States, First Data will provide card processing services for Marine Midland Bank.

First Data's international expansion continued with the success of First Data Resources Australia, which signed several new client contracts and contract extensions in 1996, as well as successfully developed innovative merchant and cardholder solutions.

In the United States, First Data Merchant Services (FDMS), brought together two of the industry's leading merchant processing organizations: NaBANCO and Card Establishment Services. By outsourcing operations, processing and systems functions, FDMS clients can focus on their core strengths, increasing their competitiveness. This is the commitment and the strategy of the Merchant Bank Alliance Program. Through this program, merchants receive processing and related services for credit, debit and stored-value transaction cards. Alliance partners provide clearing and settlement, while First Data provides merchant processing services and back-office operations. In 1996, as part of the the alliance program, FDMS successfully partnered with the following major financial institutions: Banc One Bank of Hawaii Barnett Banks Boatman's Bancshares The Huntington Bank NationsBank PNC Bank Corp. U.S. Bancorp Wachovia Bank Wells Fargo Bank The most recent addition is Chase Manhattan Bank, which is working with First Data to form the nation's largest merchant processing business, Chase Merchant Services.

First Data is also accelerating its Internet strategy, a critical future growth area. The Internet allows a merchant to sell goods and services on-line 24 hours a day to anyone - almost anywhere. In 1996, Internet transactions totaled nearly $3 billion in sales.

First Data helps merchants accept credit cards or other forms of electronic payments on-line. A consumer shopping on a Web site enters credit card information in an on-line order form. A Web server encrypts and transmits the information to First Data, who delivers real-time authorization and settlement.

Establishing partnerships with industry leaders in Internet technology is key to First Data's Internet strategy. Today, payment processing software designed to interface with First Data is a key component of leading Internet commercial applications. This fact ensures that First Data is uniquely positioned to provide payment services for merchants together with our bank clients - all from behind the scenes.

For example, in a significant new venture with Wal-Mart, First Data will provide comprehensive payment and electronic commerce services to Wal-Mart stores and its customers. The venture begins with a 10-year agreement to process Wal-Mart's Visa, MasterCard, debit card and Internet transactions in the United States and its MasterCard transactions in Canada. Wal-Mart currently handles about 4 percent of United States credit card transactions. Several First Data business units serve Wal-Mart: FDMS, TeleCheck and International Banking Technologies, the leading developer of in-store branch banks.

TeleCheck provides check authorization and guarantee services to Wal-Mart and other merchant services clients, adding The GAP, County Seat and Sterling Jewelers in 1996. Focusing on expanding into new adjacent markets, TeleCheck has completed two strategic alliances. In gaming, TeleCheck signed an exclusive contract with Central Credit, the primary provider of gaming patron credit information for casinos worldwide. And, with Smoky Mountain Technologies, Inc., TeleCheck is partnering to launch an advanced in-store processor for the grocery industry.

First Data is also building a presence in stored-value, off-line debit and on-line debit card processing. In conjunction with Blockbuster, First Data developed the capability to offer and process stored-value card programs. During the holiday season, Blockbuster sold a record number of automated gift certificates in the form of stored-value cards. In conjunction with U.S. Processing, First Data today can provide support to MasterCard's MasterMoney and Visa's Check Card Services. In a rapidly changing marketplace, First Data enables merchants and financial institutions to offer innovative payment options to their customers.

In First Data's Payment Instruments area, Western Union reached a historic milestone in 1996: the 125th anniversary of rapid consumer money transfer service. Adding 9 countries to its international agent network in 1996, Western Union today serves more than 130 countries around the globe. The strength of its agent network is key to the long-term success of Western Union. During the year, Western Union upgraded the hardware and software in its North American money transfer network by installing new PC-based money transfer systems at more than 12,000 locations in Canada and the United States, more than half of its domestic agent locations. Also, the agent base began converting to Western Union Money Orders from the American Express Money Order brand, which will result in Western Union being the leading worldwide brand in money transfer and money order services.

In addition, in 1996, Western Union took steps to ensure greater flexibility and enhance its growth potential in the Mexican market. First, Western Union purchased the interest of Elektra, a well-known Mexico-based retailer, in two joint ventures owned by Elektra and a Mexico-based subsidiary of Western Union. Elektra signed a 10-year agreement to provide Western Union money transfer service in Mexico. Also, Western Union's Dinero En Minutos service is now available in all 1,600 telegraph locations of Telecomunicaciones de Mexico (Telecomm). This represents a significant expansion in a recognized distribution channel, and it is an extension of a relationship tracing back to the 1800s.

Western Union's Quick Collect service grew dramatically in 1996 with an increase of more than 50 percent in principal payments. As a tool for collection managers and consumers to control delinquencies, Quick Collect delivers guaranteed good funds in minutes to more than 2,500 clients in the United States. Collectors for Mellon Bank and AutoFinance, for example, instruct late payers to take payment in cash to their nearest Western Union agent location. Western Union transfers the funds directly to the collector and, within minutes, the consumer funds are transferred to the collector's office.

Similarly, First Data Payment Services helps consumers pay recurring bills in an easy and effective manner. By providing in-person payment services at more than 7,000 retail locations - like supermarkets, check cashers or Western Union agents - consumers can pay utility, gas, electric, cable TV and other related bills nationwide.

First Data's payment instruments business has expanded into the transportation industry, initially with the acquisition of NTS and subsequently by acquiring and integrating EDS Fleet Services. These businesses provide fuel procurement, parts and maintenance programs, ATM funds disbursement and money-transfer services to approximately 210,000 truck drivers through more than 3,400 truck stops. The NTS TRANSCA$H+^SM product allows drivers to combine fuel purchases, long-distance phone calls, ATM use and direct deposit in one card.

This industry represents a new distribution channel for First Data, particularly as it relates to Western Union. In October, NTS rolled out the Western Union GreenBack^SM service which is used to issue cash advances, owner-operator settlement funds and even payroll.

CashTax, a rapidly growing component of First Data's payment business, is the leading provider of Automated Clearing House (ACH) processing services for electronic state and federal tax payments by businesses. CashTax is the sole subcontractor to NationsBank, implementing a portion of the Electronic Federal Tax Payment System, a network that processes and transmits business tax payments to the federal government. With the acquisition of Dabco Computer Services, CashTax now provides electronic tax payment services to 20 of the 35 largest banks in the U.S., and serves more than 300,000 business taxpayers and processes more than $500 billion in tax payments annually.

Integrated Payment Systems (IPS) Financial Services is the leader in providing official check and money order services to more than 3,000 financial institutions as an alternative to their in-house distribution application. IPS Financial Services provides all back-office operation functions including reconcilement, escheatment, high-security check stock, exception processing and much more. Experiencing continued success in 1996, IPS Financial Services now serves 44 of the nation's top 100 bank holding companies with its official checks and financial institution money orders.

First Data also delivers information and transaction processing services through investor services, health care services, teleservices, in-store banking and imaging. First Data Investor Services Group (ISG) focuses on delivering high quality automation and distribution services for mutual fund management companies, investment advisors and banks. This commitment was instrumental in the decision to move Investor Services Group's corporate headquarters to a state-of-the-art facility in Westborough, Massachusetts, which is designed to meet the needs of clients, employees and future growth.

Throughout 1996 ISG continued to show strong signs of success. With the addition of several new mutual fund clients as well as the significant expansion of a number of existing client relationships, the organization has evolved from a transaction processor into a strategic mutual fund distribution partner. Clients such as NationsBank, Strong Funds and Chicago Trust rely on ISG for the technology and expertise to support the selling and servicing of their mutual fund shareholder accounts.

In First Health, First Data's health care processing business, there is a significant shift in business strategy taking place. Re-emphasizing transaction and information processing, First Health is migrating its business and client base to these services, targeting larger organizations and managed care businesses. This led to the divestiture of GENEX Services in 1997, a workers' compensation cost control business not central to the strategic focus of First Health.

In First Health, First Data's health care processing business, there is a significant shift in business strategy taking place. Re-emphasizing transaction and information processing, First Health is migrating its business and its client base to these services, targeting larger organizations and managed care businesses. This led to the divestiture of GENEX Services in 1997, a workers' compensation cost control business not central to the strategic focus of First Health.

The primary focus at Nationwide Credit, First Data's financial recovery and receivables management provider, is delivering integrated client services. After merging with ACB, a collections agency owned by First Data prior to the FFMC merger, Nationwide formed High Performance Recovery Services, which now offers pre-chargeoff third-party collections to credit grantors across a myriad of industries.

Call Interactive, a leading provider of customized interactive telephone services, was awarded a three-year contract with AT&T to provide service for the AT&T True Rewards® program. Handling 10,000 calls every 90 seconds, Call Interactive is setting the performance standard in its industry. Clients such as AT&T, General Mills, American Express and PepsiCo expect feature-rich automated calling systems, superior service, innovation and the expertise to create and deliver customized calling programs. Call Interactive meets these expectations.

In the grocery industry, IBT reached a milestone in 1996 when it installed its 1,000th in-store branch bank - a Wells Fargo location inside a Ralphs Grocery store in California. Additionally, in 1996, IBT built and provided consulting services for nearly 300 in-store branches.

First Data's business services focus on three interrelated objectives: maintaining a high level of employee satisfaction, delivering superior quality service and retaining clients for a lifetime. Delivering on these initiatives is the basis for success and continued growth - behind the scenes.