SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

		For the quarterly period ended September 30, 2001March 31, 2002

OR

		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

		For the transition period fromto

Commission file number 000-13848

CONCORD EFS, INC.

2525 Horizon Lake Drive, Suite 120, Memphis, Tennessee 38133
(Address of Principal Executive Offices)

(901) 371-8000
(Registrant’s Telephone Number, Including Area Code)

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 o

The number of shares of the registrant’s Common Stock, $0.33 1/3 par value, outstanding as of October 31, 2001April 30, 2002 was 503,743,150.510,523,433.

CONCORD EFS, INC. AND SUBSIDIARIES

Index

CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

See Notes to Condensed Consolidated Financial Statements.

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CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

See Notes to Condensed Consolidated Financial Statements.

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CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

See Notes to Condensed Consolidated Financial Statements.

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CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note A –— Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the ninethree months ended September 30, 2001March 31, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001.2002. For further information, refer to the consolidated financial statements and footnotes thereto included in Amendment No. 1 to the Concord EFS, Inc. and Subsidiaries (Concord) currentannual report on Form 8-K10-K filed April 16, 2001February 26, 2002 for the year ended December 31, 2000.2001.

Nature of Operations: Concord is a vertically integrated electronic transaction processor. Concord acquires, routes, authorizes, captures and settles virtually all types of electronic payment and deposit access transactions for financial institutions and merchants nationwide. Concord’s primary activities consist of Network Services, which provides automated teller machine (ATM) processing, debit card processing, deposit risk management and coast-to-coast debit network access principally for financial institutions, and Payment Services, which provides payment processing for supermarkets, major retailers, petroleum dealers, convenience stores, restaurants, trucking companies and independent retailers.

Principles of Consolidation: The condensed consolidated financial statements include the accounts of Concord and its subsidiaries after elimination of all material intercompany balances and transactions.

Business Combinations: The condensed consolidated financial statements have been restated for all transactions accounted for as poolings-of-interestspoolings of interests to combine the financial position, results of operations and cash flows of the respective companies for all periods presented. Transactions accounted for under the purchase method of accounting reflect the net assets of the acquired company at fair value on the date of acquisition, and the excess of the purchase price over fair value of the net assets is recorded as goodwill. The results of operations of the purchased company are included in Concord’s results of operations since the date of acquisition.

Reclassification: Certain 20002001 amounts have been reclassified to conform to the 20012002 presentation.

Recent Pronouncements: Note B — Business Combinations

In June 2001 the Financial Accounting Standards Board issued StatementsStatement of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective“Business Combinations.” SFAS 141 requires that the purchase method of accounting be used for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. Furthermore, pooling-of-interests accounting will be prohibited forall business combinations initiated subsequent toafter June 30, 2001. SFAS 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations completed after June 30, 2001.

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CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note A – BasisB — Business Combinations, continued

On March 1, 2002 Concord acquired The Logix Companies, LLC, an electronic transaction processor. The acquisition, for which Concord issued approximately 0.9 million shares of Presentation, continued

Concord will apply the new rules on accountingits common stock and $6.3 million in cash, was accounted for goodwillas a purchase transaction and other intangible assets beginning in the first quarter of 2002.is immaterial to Concord’s financial statements. The effectallocation of the application of the non-amortization provisions of the Statement will be reviewed during the remainder of the year. During 2002, Concord will perform the first of the required impairment tests of goodwill as of January 1, 2002. Concordpurchase price is preliminary because a valuation study has not yet determined whatbeen completed.

On January 1, 2002 Concord acquired H & F Services, Inc., an independent sales organization, for $8.9 million in cash. Prior to the effectacquisition, Concord had purchased merchant contracts through H & F Services. The acquisition was accounted for as a purchase transaction and is immaterial to Concord’s financial statements.

Concord owns a majority interest in Primary Payment Systems, Inc., a deposit risk management company. In April 2001 Concord increased its ownership position in Primary Payment Systems to 85.5% through the purchase of these tests will be on its earningsnewly issued shares, which largely funded Primary Payment Systems’ acquisition of Wally Industries, Inc. d/b/a WJM Technologies. The acquisition of WJM, for which Primary Payment Systems paid approximately $20.0 million, was accounted for as a purchase transaction and is immaterial to Concord’s financial position.

Note B – Business Combinationsstatements.

On February 1, 2001 Concord acquired Star Systems, Inc. (STAR_SM), a debit network. The acquisition was accounted for as a pooling-of-interestspooling of interests transaction in which Concord issued approximately 48.0 million shares of its common stock.

On August 21, 2000 Concord acquired Cash Station, Inc. (Cash Station^®), a debit network. The acquisition was accounted for as a pooling-of-interests transaction in which Concord issued approximately 5.0 million shares of its common stock.

On January 31, 2000 Concord acquired National Payment Systems Inc. d/b/a Card Payment Systems, a reseller of payment processing services. The acquisition was accounted for as a pooling-of-interests transaction in which Concord issued approximately 12.5 million shares of its common stock.

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CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note B –— Business Combinations, continued

The following table presents selected financial information split amongbetween Concord Card Payment Systems, Cash Station and STAR:STAR (in thousands, except per share data):

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CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note B – Business Combinations, continued

(4)
(2)		All material activity between Concord and STAR has been eliminated.
(5)
The results of operations include pro forma income taxes that would have been required if Card Payment Systems had been a taxable corporation. The former owners of Card Payment Systems were responsible for income taxes for the periods prior to the merger.

Concord owns-6-

CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note B — Business Combinations, continued

Acquisition, restructuring and write-off charges were $47.5 million ($30.6 million, net of taxes) for the three months ended March 31, 2002. During the first quarter, management approved a majority interestcorporate consolidation plan initiated to continue improvements in Primary Payment Systems, Inc., a deposit risk management company.overall operating efficiency and integrate recent acquisitions. The charge consisted of $6.7 million for closing and consolidating certain facilities, $5.9 million for compensation and severance, and $4.5 million for exiting non-strategic businesses. In April 2001 Concord increased its ownership positionaddition, asset impairment charges of $22.5 million were incurred for the write-off of non-performing purchased merchant contracts identified in Primary Payment Systems to 85% through the purchase of newly issued shares, which largely funded Primary Payment Systems’ acquisition of Wally Industries, Inc. d/b/a WJM Technologies. Primary Payment Systems is immaterial to Concord’s financial statements.

On February 7, 2000 Concord acquired Virtual Cyber Systems, Inc., an Internet software development company. The acquisition of Virtual Cyber Systems, for which Concord paid approximately $2.0first quarter and $7.9 million was accountedincurred for the write-off of capitalized software and computer and communications equipment no longer in use. In connection with the consolidation plan, Concord expects to eliminate approximately 165 positions, 76 of which were eliminated as of March 31, 2002. Compensation and severance costs paid and charged against the restructuring charge accrual were $0.7 million through March 31, 2002. As of March 31, 2002, $15.4 million of the charges were accrued but unpaid. Concord expects to complete the consolidation plan by March 31, 2003.

The following table presents a purchase transaction and was immaterial to Concord’s financial statements.summary of activity in the 2002 restructuring charge accrual (in thousands):

The following table presents a summary of the remaining components of the 2002 restructuring charge accrual (in thousands):

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CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note B — Business Combinations, continued

Acquisition, restructuring and restructuringwrite-off charges were $125.4 million ($86.4 million, net of taxes) for the three months ended March 31, 2001. The expenses and charges were a result of a company-wide consolidation plan to address areas of operating redundancies created by recent acquisitions. The plan includesincluded consolidation of data centers and other facilities to eliminate redundancies, the reassignment or termination of certain employees timed to coincide with the integration of redundant processing platforms and the functional integration of the STAR organization into Concord. The charges includedconsisted of $63.9 million for combining various processing platforms, $16.0 million for the consolidation of duplicate products and internal systems, $15.6 million for accounting, legal and advisory fees, $19.1 million for the termination of certain data center services contracts, $9.8 million for compensation and severance costs and $1.0 million for other expenses. In connection with the consolidation plan, Concord expectsexpected to eliminate approximately 250 positions, 200all of which were eliminated as of September 30, 2001.March 31, 2002. Compensation and severance costs paid and charged against the restructuring charge accrual were $5.7$9.8 million through September 30, 2001.March 31, 2002. As of September 30, 2001, $38.4 million ofMarch 31, 2002, the acquisitionconsolidation activities have been completed and restructuring expenses were accrued but unpaid.

As of September 30, 2001, there was no remaining balance related to the 2000 Cash Station2001 restructuring charge accrual.

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CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note B – Business Combinations, continued

The following table presents a summary of activity in the 2001 restructuring charge accrual in thousands:(in thousands):

The following table presents a summary of the components of the 2001 restructuring charge accrual, in thousands:

Note C – Stock Split

The Board of Directors approved a two-for-one stock split on August 30, 2001. Shareholders of record as of September 14, 2001 were distributed additional shares on September 28, 2001. All share data, earnings per share— Goodwill and per share data have been restated to reflect the stock split.

Note D – Offering of Common StockOther Intangible Assets

In June 2001 the Financial Accounting Standards Board issued Statements of Financial Accounting Standards 142, “Goodwill and Other Intangible Assets.” SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. SFAS 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives.

Concord issued and sold 17,758,000 shares of its common stock pursuant to a registration statement filed with the Securities and Exchange Commission. Pursuant to the same registration statement, the selling stockholders named in the registration statement sold 34,063,698 shares of Concord common stock. Mostadopted SFAS 142 effective January 1, 2002. Application of the selling stockholders werenonamortization provisions of SFAS 142 is immaterial to Concord’s financial statements. Concord has tested goodwill for impairment using the previous owners of STAR who received unregistered common stock of Concordtwo-step process prescribed in connection withSFAS 142. The first step is a screen for potential impairment, while the February 1, 2001 acquisition. Netsecond step measures the amount of the underwriting discountimpairment, if any. Concord has performed the first of the offering, Concord received $421.9 millionrequired impairment tests for goodwill as of January 1, 2002 and has determined that the common stock it issued and sold. Concord didcarrying amount of goodwill is not receive any proceeds from the sale of shares by the selling stockholders.impaired.

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CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note C — Goodwill and Other Intangible Assets, continued

The following table presents a reconciliation of net income adjusted to exclude amortization expense of goodwill with indefinite useful lives (in thousands, except per share data):

The following table presents the allocation of unamortized goodwill to Concord’s reporting units (in thousands):

         The following table presents Concord’s amortization expense for the periods listed for other intangible assets, net of the write-off of non-performing purchased merchant contracts of $22,496 (in thousands):

Note E –D — Comprehensive Income

Total comprehensive income (loss) was $84.4$49.4 million and $53.4$(18.9) million for the three months ended September 30,March 31, 2002 and 2001, and 2000, respectively. Total comprehensive income was $135.9 million and $148.8 million for the nine months ended September 30, 2001 and 2000, respectively. Comprehensive income includes net income and the change in the unrealized gain or loss on securities available for sale arising during the period.

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CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note F –E — Earnings Per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share:share (in thousands, except per share data):

Excluding acquisition, costsrestructuring and restructuringwrite-off charges and related taxes, diluted earnings per share for the ninethree months ended September 30,March 31, 2002 and 2001 were $0.16 and 2000 were $0.42 and $0.31,$0.12, respectively. Earnings (loss) per share and related per share data have been restated to reflect all stock splits.

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CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note G –F — Operations by Business Segment

Concord has two reportable segments: Network Services and Payment Services.

Concord’s revenue from Network Services revenue consists of processing fees for driving and monitoring ATMs, processing fees for managing debit card records, and access and switching fees for network accessaccess.

Revenue from Payment Services primarily includes discount fees charged to merchants, which are a percentage of the dollar amount of each credit card transaction Concord processes, as well as a flat fee per transaction. The discount fee, primarily charged to smaller merchants, is negotiated with each merchant and typically constitutes a bundled rate for the transaction authorization, processing, settlement, and funds transfer services Concord provides, plus the interchange fees charged by the credit card associations and other surcharges charged for proprietary ATMs.

collected by Concord. The balance of Payment Services revenue resultsis derived from transaction fees for processing paymentdebit card and electronic benefits transfer card transactions, made by credit cards (such as VISA, MasterCard, Discover, American Expresscheck verification and Diners Club)authorization services, and debit cards (such as STAR, Pulse and NYCE). Payment Services also includes providing payment cards that enable driverssales of trucking companies to purchase fuel and obtain cash advances at truck stops.

Industry segment information for the three months and nine months ended September 30, 2001 and 2000 is presented below, in thousands.

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CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note G –F — Operations by Business Segment, continued

Business segment information for the three months ended March 31, 2002 and 2001 is presented below (in thousands):

Note G — Contingencies

In September 2000 EFS National Bank was named as a defendant in a purported class action lawsuit filed in the Circuit Court of Tennessee for the Thirtieth Judicial District at Memphis alleging that certain of EFS National Bank’s rate and fee changes were improper under Tennessee law due to allegedly deficient notice. The plaintiffs filed an amended complaint alleging that the class consists of at least 60,000 merchants who were subjected to the allegedly improper rate and fee changes over a several-year period. The amended complaint seeks damages in excess of $15.0 million as well as injunctive relief and unspecified punitive damages, treble damages, attorney fees, and costs.

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CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note G — Contingencies, continued

The parties are currently engaged in settlement discussions and have advised the Tennessee Court that they have made significant progress towards and are close to resolving this matter. The parties have reached an agreement in principle to settle the case, subject to the completion of mutually satisfactory documentation by the parties and approval by the Court. The maximum amount of credits and payments by EFS National Bank under the proposed settlement would be $37.6 million, payable over a five-year period. A portion of such amount would be used to pay plaintiffs’ counsel and certain claims administration expenses. Concord believes the actual amount of credits and payments if the proposed settlement becomes final will be less than the $37.6 million because credits and payments are contingent upon merchant retention and submission of claims.

A number of procedural steps must now be undertaken before the proposed settlement becomes final. Those steps include, without limitation, finalizing and executing the proposed settlement agreement and related documentation, presenting the proposed settlement agreement and related documentation to the Court and seeking preliminary approval from the Court, sending notices to all potential class members, and allowing time for potential class members (a) to opt out of the class or to remain in the class and (b) to object to the proposed settlement and to attempt to persuade the court not to approve the proposed settlement.

There can be no assurance that the foregoing steps will be completed or that the proposed settlement will become final, on the terms described above or otherwise.

A purported class action complaint with similar allegations and requests for relief has been filed in St. Charles County, Missouri, but there has not been a substantial amount of activity in the Missouri case. The proposed settlement would also resolve the issues in the Missouri case.

Although these matters are in the preliminary stages, EFS National Bank believes it has various defenses to the claims against it, and if these matters cannot be resolved by settlement, EFS National Bank intends to vigorously defend against all claims. Due to the current status of the claims, EFS National Bank cannot predict the outcome of the proposed settlement, and accordingly, no amounts have been accrued in the financial statements relating to these contingencies.

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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with our condensed consolidated financial statements and the notes to those financial statements, which are included in this report. This report containsmay contain forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors, including those set forth in this paragraph. Important factors that could cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by those statements include, but are not limited to: (i) the failure to successfully execute our corporate consolidation plan, (ii) the loss of key personnel or inability to attract additional qualified personnel, (iii) the loss of key customers, (iv) increasing competition, (v) changes in card association rules and practices, (vi) the inability to remain current with rapid technological change, (vii) risks related to acquisitions, (viii) the imposition of additional state taxes, (ix) continued consolidation in the banking and retail industries, (x) business cycles and the credit risk of our merchant customers, (xi) the outcome of litigation involving VISA and MasterCard, (xii) utility and system interruptions or processing errors, (xiii) susceptibility to fraud at the merchant level, (xiv) changes in card association fees, products, or practices, (xv) restrictions on surcharging, (xvi) changes in rules and regulations governing financial institutions and changes in such rules and regulations, and (xvii) volatility of the price of our common stock. We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time. See the cautionary statements included as Exhibit 99.199.2 to our currentannual report on Form 8-K10-K filed on July 18, 2001February 26, 2002 for a more detailed discussion of the foregoing and other factors.

Overview

Concord EFS, Inc. (Concord) is a leading vertically integrated electronic transaction processor. We acquire, route, authorize, capture, and settle virtually all types of electronic payment and deposit access transactions for financial institutions and merchants nationwide. Our primary activities consist of Network Services, which provides automaticautomated teller machine (ATM) processing, debit card processing, deposit risk management, and coast-to-coast debit network access principally for financial institutions, and Payment Services, which provides payment processing for supermarkets, major retailers, petroleum dealers, convenience stores, restaurants, trucking companies, and independent retailers.

Network Services includes terminal driving and monitoring for ATMs, transaction routing and authorization via the combined STAR_SMsm, MAC_®, and Cash Station^® debit network as well as other debit networks, deposit risk management, and real-time card management and authorization for personal identification number (PIN)-secured debit and signature debit cards. In addition, we operate the network switch that connects a coast-to-coast network of ATMs and point-of-salepoint of sale (POS) locations that accept debit cards issued by our member financial institutions. Our network access services include transaction switching and settlement.

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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In March 2002 we announced that we had reached an agreement to acquire Core Data Resources, a privately held electronic transaction processor based in Amarillo, Texas. Core Data provides ATM processing and related services to financial institutions, retailers, and independent sales organizations nationwide. We recentlyexpect to close the Core Data transaction in the second quarter of 2002, subject to various conditions, including regulatory approval.

On March 1, 2002 we completed our acquisition of The Logix Companies, LLC, an electronic transaction processor based in Longmont, Colorado. A private limited liability company, Logix provides financial institutions, retailers, and independent sales organizations with ATM processing, electronic check conversion, identification and authentication services, database development and reporting, and merchant processing services. This acquisition was accounted for as a purchase transaction in which we exchanged approximately 0.9 million shares of our common stock and $6.3 million in cash for all of the outstanding membership units of Logix.

In 2001 we expanded our debit network in our Network Services area through two acquisitions.area. On February 1, 2001 we completed our acquisition of Star Systems, Inc. (STAR), the nation’s largest PIN-secured debit network, based in Maitland, Florida. The merger was accounted for as a pooling-of-interests transaction in which we exchanged approximately 48.0 million shares of our common stock for

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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS