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 |
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.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 04-2462252 | |||||
(State or Other Jurisdiction of | Incorporation or Organization) | ( | Identification Number) |
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
PART I — Financial Information | ||||||||
Item 1. Financial Statements (Unaudited) | ||||||||
Condensed Consolidated Balance Sheets as of | 1 | |||||||
Condensed Consolidated Statements of Income for Three Months Ended March 31, 2002 and | 2 | |||||||
Condensed Consolidated Statements of Cash Flows for | 3 | |||||||
Notes to Condensed Consolidated Financial Statements | 4 | |||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | ||||||||
PART II — Other Information | ||||||||
Item 1. Legal Proceedings | ||||||||
Item 6. Exhibits and Reports on Form 8-K | ||||||||
Signatures |
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, | December 31, | March 31, | December 31, | ||||||||||||||
2001 | 2000 | 2002 | 2001 | ||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||
ASSETS | ASSETS | ||||||||||||||||
CURRENT ASSETS | CURRENT ASSETS | ||||||||||||||||
Cash and cash equivalents | $ | 442,265 | $ | 231,762 | |||||||||||||
Securities available for sale | 1,114,124 | 649,425 | |||||||||||||||
Accounts receivable, net | 346,424 | 307,756 | |||||||||||||||
Inventories | 19,779 | 15,087 | |||||||||||||||
Prepaid expenses and other current assets | 34,036 | 22,125 | |||||||||||||||
Deferred income taxes | 2,876 | 6,732 | |||||||||||||||
Cash and cash equivalents | $ | 496,273 | $ | 682,906 | |||||||||||||
Securities available for sale | 1,200,563 | 1,228,805 | |||||||||||||||
Accounts receivable, net | 391,541 | 134,496 | |||||||||||||||
Inventories | 21,643 | 20,971 | |||||||||||||||
Prepaid expenses and other current assets | 43,583 | 34,346 | |||||||||||||||
Deferred income taxes | 14,821 | 13,054 | |||||||||||||||
TOTAL CURRENT ASSETS | TOTAL CURRENT ASSETS | 1,959,504 | 1,232,887 | 2,168,424 | 2,114,578 | ||||||||||||
Loans, net | Loans, net | 95,117 | 78,654 | 86,473 | 89,038 | ||||||||||||
Property and equipment, net | Property and equipment, net | 229,972 | 214,662 | 282,205 | 267,451 | ||||||||||||
Goodwill, net | Goodwill, net | 161,433 | 150,049 | 213,736 | 158,632 | ||||||||||||
Other intangible assets, net | Other intangible assets, net | 83,540 | 75,644 | 61,608 | 85,712 | ||||||||||||
Other assets | Other assets | 13,869 | 9,769 | 20,179 | 14,034 | ||||||||||||
TOTAL ASSETS | TOTAL ASSETS | $ | 2,543,435 | $ | 1,761,665 | $ | 2,832,625 | $ | 2,729,445 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
CURRENT LIABILITIES | CURRENT LIABILITIES | ||||||||||||||||
Accounts payable and other liabilities | $ | 364,539 | $ | 296,980 | |||||||||||||
Deposits | 164,864 | 125,834 | |||||||||||||||
Accrued liabilities | 39,924 | 48,307 | |||||||||||||||
Accrued restructuring charges | 38,417 | 3,410 | |||||||||||||||
Income taxes payable | 64,153 | — | |||||||||||||||
Current maturities of long-term debt | — | 3,357 | |||||||||||||||
Accounts payable and other liabilities | $ | 435,935 | $ | 488,789 | |||||||||||||
Deposits | 177,223 | 162,972 | |||||||||||||||
Accrued liabilities | 42,403 | 29,837 | |||||||||||||||
Accrued restructuring charges | 15,441 | 5,315 | |||||||||||||||
Income taxes payable | 9,213 | 1,438 | |||||||||||||||
Current maturities of long-term debt | 10,000 | — | |||||||||||||||
TOTAL CURRENT LIABILITIES | TOTAL CURRENT LIABILITIES | 671,897 | 477,888 | 690,215 | 688,351 | ||||||||||||
Long-term debt | Long-term debt | 119,483 | 109,911 | 109,297 | 119,458 | ||||||||||||
Deferred income taxes | Deferred income taxes | 17,020 | 31,871 | 59,335 | 55,437 | ||||||||||||
Other liabilities | Other liabilities | 4,616 | 6,412 | 7,188 | 4,202 | ||||||||||||
TOTAL LIABILITIES | TOTAL LIABILITIES | 813,016 | 626,082 | 866,035 | 867,448 | ||||||||||||
Commitments and contingent liabilities | Commitments and contingent liabilities | — | — | — | — | ||||||||||||
Minority interest in subsidiary | Minority interest in subsidiary | 3,195 | 3,052 | 4,429 | 3,410 | ||||||||||||
STOCKHOLDERS’ EQUITY | STOCKHOLDERS’ EQUITY | ||||||||||||||||
Common stock | 167,913 | 80,485 | |||||||||||||||
Other stockholders’ equity | 1,559,311 | 1,052,046 | |||||||||||||||
Common stock | 170,174 | 169,352 | |||||||||||||||
Other stockholders’ equity | 1,791,987 | 1,689,235 | |||||||||||||||
TOTAL STOCKHOLDERS’ EQUITY | TOTAL STOCKHOLDERS’ EQUITY | 1,727,224 | 1,132,531 | 1,962,161 | 1,858,587 | ||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,543,435 | $ | 1,761,665 | $ | 2,832,625 | $ | 2,729,445 | ||||||||
See Notes to Condensed Consolidated Financial Statements.
-1-
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended | Nine months ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2001 | 2000 | 2001 | 2000 | ||||||||||||||
(in thousands, except per share data) | |||||||||||||||||
Revenue | $ | 437,074 | $ | 363,908 | $ | 1,233,398 | $ | 1,005,673 | |||||||||
Cost of operations | 304,414 | 259,315 | 874,301 | 722,601 | |||||||||||||
Selling, general and administrative expenses | 22,348 | 23,633 | 68,874 | 69,515 | |||||||||||||
Acquisition and restructuring charges | — | 10,915 | 125,362 | 11,691 | |||||||||||||
OPERATING INCOME | 110,312 | 70,045 | 164,861 | 201,866 | |||||||||||||
Other income (expense) | |||||||||||||||||
Interest income | 19,702 | 12,866 | 50,424 | 33,866 | |||||||||||||
Interest expense | (3,510 | ) | (2,918 | ) | (9,890 | ) | (7,931 | ) | |||||||||
INCOME BEFORE TAXES AND MINORITY INTEREST | 126,504 | 79,993 | 205,395 | 227,801 | |||||||||||||
Income taxes | 44,910 | 29,586 | 78,438 | 83,296 | |||||||||||||
INCOME BEFORE MINORITY INTEREST | 81,594 | 50,407 | 126,957 | 144,505 | |||||||||||||
Minority interest in net income of subsidiary | 138 | 161 | 311 | 465 | |||||||||||||
NET INCOME | $ | 81,456 | $ | 50,246 | $ | 126,646 | $ | 144,040 | |||||||||
Pro forma provision for income taxes | — | — | — | 260 | |||||||||||||
PRO FORMA NET INCOME | $ | 81,456 | $ | 50,246 | $ | 126,646 | $ | 143,780 | |||||||||
PER SHARE DATA: | |||||||||||||||||
Basic and pro forma basic earnings per share | $ | 0.16 | $ | 0.11 | $ | 0.26 | $ | 0.30 | |||||||||
Diluted and pro forma diluted earnings per share | $ | 0.16 | $ | 0.10 | $ | 0.25 | $ | 0.29 | |||||||||
AVERAGE SHARES OUTSTANDING: | |||||||||||||||||
Basic shares | 503,193 | 478,218 | 491,102 | 477,685 | |||||||||||||
Diluted shares | 524,510 | 497,956 | 512,319 | 493,364 | |||||||||||||
Three months ended | |||||||||
March 31, | |||||||||
2002 | 2001 | ||||||||
(in thousands, except per share data) | |||||||||
Revenue | $ | 462,143 | $ | 375,638 | |||||
Cost of operations | 321,855 | 270,268 | |||||||
Selling, general and administrative expenses | 24,782 | 23,812 | |||||||
Acquisition, restructuring and write-off charges | 47,500 | 125,362 | |||||||
OPERATING INCOME (LOSS) | 68,006 | (43,804 | ) | ||||||
Other income (expense): | |||||||||
Interest income | 19,572 | 15,482 | |||||||
Interest expense | (3,106 | ) | (3,123 | ) | |||||
INCOME (LOSS) BEFORE TAXES AND MINORITY INTEREST | 84,472 | (31,445 | ) | ||||||
Income taxes (benefit) | 29,988 | (5,626 | ) | ||||||
INCOME (LOSS) BEFORE MINORITY INTEREST | 54,484 | (25,819 | ) | ||||||
Minority interest in net income of subsidiary | 275 | 173 | |||||||
NET INCOME (LOSS) | $ | 54,209 | $ | (25,992 | ) | ||||
PER SHARE DATA: | |||||||||
Basic earnings (loss) per share | $ | 0.11 | $ | (0.05 | ) | ||||
Diluted earnings (loss) per share | $ | 0.10 | $ | (0.05 | ) | ||||
AVERAGE SHARES OUTSTANDING: | |||||||||
Basic shares | 508,699 | 483,329 | |||||||
Diluted shares | 530,272 | 483,329 | |||||||
See Notes to Condensed Consolidated Financial Statements.
-2-
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended | Three months ended | |||||||||||||||||
September 30, | March 31, | |||||||||||||||||
2001 | 2000 | 2002 | 2001 | |||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||
OPERATING ACTIVITIES | OPERATING ACTIVITIES | OPERATING ACTIVITIES | ||||||||||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | $ | 317,020 | $ | 229,058 | ||||||||||||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | $ | (181,189 | ) | $ | 69,213 | ||||||||||||
INVESTING ACTIVITIES | INVESTING ACTIVITIES | INVESTING ACTIVITIES | ||||||||||||||||
Acquisition of securities available for sale | (232,020 | ) | (172,411 | ) | ||||||||||||||
Acquisition of securities available for sale | (948,255 | ) | (182,531 | ) | Proceeds from sales of securities available for sale | 205,155 | 110,784 | |||||||||||
Proceeds from sales of securities available for sale | 374,553 | 39,209 | Proceeds from maturity of securities available for sale | 47,499 | 15,532 | |||||||||||||
Proceeds from maturity of securities available for sale | 127,391 | 20,528 | Purchases of loans | (15,828 | ) | (9,417 | ) | |||||||||||
Purchases of loans | (30,915 | ) | (53,657 | ) | Net change in loans | 18,952 | 3,522 | |||||||||||
Acquisition of property and equipment | (82,881 | ) | (59,830 | ) | Acquisition of property and equipment | (36,981 | ) | (23,843 | ) | |||||||||
Purchased merchant contracts | (22,581 | ) | (25,471 | ) | Purchased merchant contracts | — | (7,490 | ) | ||||||||||
Business acquisition | (19,700 | ) | — | Business acquisitions, net | (15,509 | ) | — | |||||||||||
Other investing activity | 7,952 | 10,003 | Other investing activity | (6,681 | ) | (1,893 | ) | |||||||||||
NET CASH USED IN INVESTING ACTIVITIES | NET CASH USED IN INVESTING ACTIVITIES | (594,436 | ) | (251,749 | ) | NET CASH USED IN INVESTING ACTIVITIES | (35,413 | ) | (85,216 | ) | ||||||||
FINANCING ACTIVITIES | FINANCING ACTIVITIES | FINANCING ACTIVITIES | ||||||||||||||||
Net increase in deposits | 39,030 | 18,940 | Net increase (decrease) in deposits | 14,251 | (1,109 | ) | ||||||||||||
Proceeds from notes payable | 21,000 | 24,000 | Proceeds from borrowings | — | 13,000 | |||||||||||||
Payments on notes payable | (14,444 | ) | (21,487 | ) | Payments on borrowings | (161 | ) | (14,268 | ) | |||||||||
Proceeds from offering of common stock | 421,930 | — | Proceeds from exercise of stock options | 15,938 | 11,085 | |||||||||||||
Proceeds from exercise of stock options | 21,620 | 7,326 | Payments on leases payable | (59 | ) | (438 | ) | |||||||||||
Payments on leases payable | (1,217 | ) | (2,392 | ) | ||||||||||||||
Activity by pooled subsidiaries | — | (2,901 | ) | |||||||||||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | NET CASH PROVIDED BY FINANCING ACTIVITIES | 487,919 | 23,486 | NET CASH PROVIDED BY FINANCING ACTIVITIES | 29,969 | 8,270 | ||||||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 210,503 | 795 | ||||||||||||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | NET DECREASE IN CASH AND CASH EQUIVALENTS | (186,633 | ) | (7,733 | ) | |||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 231,762 | 173,099 | CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 682,906 | 298,383 | ||||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 442,265 | $ | 173,894 | CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 496,273 | $ | 290,650 | ||||||||
See Notes to Condensed Consolidated Financial Statements.
-3-
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.
-4-
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. (STARSM), 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.
-5-
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):
Three months ended | Nine months ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2001 | 2000 | 2001 | 2000 | ||||||||||||||
(in thousands, except per share data) | |||||||||||||||||
Revenue: | |||||||||||||||||
Concord | $ | 437,074 | $ | 318,700 | $ | 1,218,526 | $ | 862,543 | |||||||||
Card Payment Systems (1) | — | — | — | 4,047 | |||||||||||||
Cash Station (2) | — | — | — | 9,495 | |||||||||||||
STAR (3) | — | 47,066 | 15,396 | 134,856 | |||||||||||||
Intercompany eliminations (4) | — | (1,858 | ) | (524 | ) | (5,268 | ) | ||||||||||
Combined revenue | $ | 437,074 | $ | 363,908 | $ | 1,233,398 | $ | 1,005,673 | |||||||||
Pro forma net income: | |||||||||||||||||
Concord | $ | 81,456 | $ | 44,053 | $ | 123,718 | $ | 126,979 | |||||||||
Card Payment Systems (1) | — | — | — | 650 | |||||||||||||
Cash Station (2) | — | — | — | 816 | |||||||||||||
STAR (3) | — | 6,193 | 2,928 | 15,595 | |||||||||||||
Pro forma provision for Card Payment Systems income taxes (5) | — | — | — | (260 | ) | ||||||||||||
Combined pro forma net income | $ | 81,456 | $ | 50,246 | $ | 126,646 | $ | 143,780 | |||||||||
Pro forma basic earnings per share combined | $ | 0.16 | $ | 0.11 | $ | 0.26 | $ | 0.30 | |||||||||
Pro forma diluted earnings per share combined | $ | 0.16 | $ | 0.10 | $ | 0.25 | $ | 0.29 | |||||||||
Three months ended | |||||||||
March 31, | |||||||||
2002 | 2001 | ||||||||
Revenue: | |||||||||
Concord | $ | 462,143 | $ | 360,766 | |||||
STAR (1) | — | 15,396 | |||||||
Intercompany eliminations (2) | — | (524 | ) | ||||||
Combined revenue | $ | 462,143 | $ | 375,638 | |||||
Net income (loss): | |||||||||
Concord | $ | 54,209 | $ | (28,920 | ) | ||||
STAR (1) | — | 2,928 | |||||||
Combined net income (loss) | $ | 54,209 | $ | (25,992 | ) | ||||
Basic earnings (loss) per share combined | $ | 0.11 | $ | (0.05 | ) | ||||
Diluted earnings (loss) per share combined | $ | 0.10 | $ | (0.05 | ) | ||||
(1) | ||
-6-
CONCORD EFS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
Note B – Business Combinations, continued
(2) | All material activity between Concord and STAR has been eliminated. | |
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):
Acquisition, restructuring and write-off charges | $ | 47,500 | ||
Cash outlays | 1,623 | |||
Non-cash writedowns and charges – asset impairment | 30,436 | |||
Balance, March 31, 2002 | $ | 15,441 | ||
The following table presents a summary of the remaining components of the 2002 restructuring charge accrual (in thousands):
Facility closings and consolidations | $ | 6,260 | ||
Compensation and severance | 5,255 | |||
Non-strategic business closures | 3,926 | |||
Balance, March 31, 2002 | $ | 15,441 | ||
-7-
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.
-7-
CONCORD EFS, INC. AND SUBSIDIARIESNOTES 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):
Balance, December 31, 2000 | $ | — | ||
Acquisition and restructuring charges | 125,362 | |||
Cash outlays | 67,029 | |||
Non-cash writedowns and charges | 19,916 | |||
Balance, September 30, 2001 | $ | 38,417 | ||
Balance, December 31, 2001 | $ | 5,315 | ||
Cash outlays | 5,286 | |||
Non-cash writedowns and charges — asset impairment | 29 | |||
Balance, March 31, 2002 | $ | — | ||
The following table presents a summary of the components of the 2001 restructuring charge accrual, in thousands:
Office closings and operational de-conversions | $ | 25,305 | ||
Contract terminations | 7,905 | |||
Compensation and severance | 4,050 | |||
Other | 1,157 | |||
Balance, September 30, 2001 | $ | 38,417 | ||
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):
Three months ended | ||||||||
March 31, | ||||||||
2002 | 2001 | |||||||
Reported net income (loss) | $ | 54,209 | $ | (25,992 | ) | |||
Goodwill amortization, net of tax | — | 2,275 | ||||||
Adjusted net income (loss) | $ | 54,209 | $ | (23,717 | ) | |||
Adjusted basic earnings (loss) per share | $ | 0.11 | $ | (0.05 | ) | |||
Adjusted diluted earnings (loss) per share | $ | 0.10 | $ | (0.05 | ) | |||
The following table presents the allocation of unamortized goodwill to Concord’s reporting units (in thousands):
Network Services | $ | 124,982 | ||
Payment Services | 33,650 | |||
Balance, December 31, 2001 | $ | 158,632 | ||
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):
2002 | $ | 10,098 | ||
2003 | 8,790 | |||
2004 | 8,738 | |||
2005 | 8,738 | |||
2006 | 8,465 | |||
Thereafter | 18,387 | |||
Total | $ | 63,216 | ||
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):
Three months ended | Nine months ended | |||||||||||||||||||||||||
September 30, | September 30, | Three months ended | ||||||||||||||||||||||||
March 31, | ||||||||||||||||||||||||||
2001 | 2000 | 2001 | 2000 | |||||||||||||||||||||||
2002 | 2001 | |||||||||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||||||
Numerator: | Numerator: | Numerator: | ||||||||||||||||||||||||
Net income | $ | 81,456 | $ | 50,246 | $ | 126,646 | $ | 144,040 | Net income (loss) | $ | 54,209 | $ | (25,992 | ) | ||||||||||||
Denominator: | Denominator: | Denominator: | ||||||||||||||||||||||||
Denominator for basic earnings per share, weighted-average shares | 503,193 | 478,218 | 491,102 | 477,685 | Denominator for basic earnings per share, weighted-average shares | 508,699 | 483,329 | |||||||||||||||||||
Effect of dilutive stock options | Effect of dilutive stock options | 21,573 | — | |||||||||||||||||||||||
Effect of dilutive employee stock options | 21,317 | 19,738 | 21,217 | 15,679 | ||||||||||||||||||||||
Denominator for diluted earnings per share, adjusted weighted-average shares and assumed conversions | Denominator for diluted earnings per share, adjusted weighted-average shares and assumed conversions | 530,272 | 483,329 | |||||||||||||||||||||||
Basic earnings (loss) per share | Basic earnings (loss) per share | $ | 0.11 | $ | (0.05 | ) | ||||||||||||||||||||
Denominator for diluted earnings per share, adjusted weighted-average shares and assumed conversions | 524,510 | 497,956 | 512,319 | 493,364 | ||||||||||||||||||||||
Diluted earnings (loss) per share | Diluted earnings (loss) per share | $ | 0.10 | $ | (0.05 | ) | ||||||||||||||||||||
Basic earnings per share | $ | 0.16 | $ | 0.11 | $ | 0.26 | $ | 0.30 | ||||||||||||||||||
Diluted earnings per share | $ | 0.16 | $ | 0.10 | $ | 0.25 | $ | 0.29 | ||||||||||||||||||
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 SUBSIDIARIESNOTES 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.
Three months ended September 30, 2001 | ||||||||||||||||
Network | Payment | |||||||||||||||
Services | Services | Other | Total | |||||||||||||
Revenue | $ | 165,188 | $ | 271,886 | $ | — | $ | 437,074 | ||||||||
Cost of operations | 84,239 | 220,175 | — | 304,414 | ||||||||||||
Selling, general and administrative expenses | — | — | 22,348 | 22,348 | ||||||||||||
Acquisition and restructuring charges | — | — | — | — | ||||||||||||
Taxes and interest, net | — | — | 28,718 | 28,718 | ||||||||||||
Minority interest in subsidiary | — | — | 138 | 138 | ||||||||||||
Net income (loss) | $ | 80,949 | $ | 51,711 | $ | (51,204 | ) | $ | 81,456 | |||||||
Three months ended September 30, 2000 | ||||||||||||||||
Network | Payment | |||||||||||||||
Services | Services | Other | Total | |||||||||||||
Revenue | $ | 130,717 | $ | 233,191 | $ | — | $ | 363,908 | ||||||||
Cost of operations | 72,594 | 186,721 | — | 259,315 | ||||||||||||
Selling, general and administrative expenses | — | — | 23,633 | 23,633 | ||||||||||||
Acquisition and restructuring charges | 10,915 | — | — | 10,915 | ||||||||||||
Taxes and interest, net | — | — | 19,638 | 19,638 | ||||||||||||
Minority interest in subsidiary | — | — | 161 | 161 | ||||||||||||
Net income (loss) | $ | 47,208 | $ | 46,470 | $ | (43,432 | ) | $ | 50,246 | |||||||
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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):
Nine months ended September 30, 2001 | ||||||||||||||||
Network | Payment | |||||||||||||||
Services | Services | Other | Total | |||||||||||||
Revenue | $ | 469,795 | $ | 763,603 | $ | — | $ | 1,233,398 | ||||||||
Cost of operations | 254,288 | 620,013 | — | 874,301 | ||||||||||||
Selling, general and administrative expenses | — | — | 68,874 | 68,874 | ||||||||||||
Acquisition and restructuring charges | 103,575 | 21,787 | — | 125,362 | ||||||||||||
Taxes and interest, net | — | — | 37,904 | 37,904 | ||||||||||||
Minority interest in subsidiary | — | — | 311 | 311 | ||||||||||||
Net income (loss) | $ | 111,932 | $ | 121,803 | $ | (107,089 | ) | $ | 126,646 | |||||||
Network | Payment | ||||||||||||||||
Services | Services | Other | Total | ||||||||||||||
2002 | |||||||||||||||||
Revenue | $ | 185,657 | $ | 276,486 | $ | — | $ | 462,143 | |||||||||
Cost of operations | 94,607 | 227,248 | — | 321,855 | |||||||||||||
Selling, general and administrative expenses | — | — | 24,782 | 24,782 | |||||||||||||
Acquisition, restructuring and write-off charges | — | — | 47,500 | 47,500 | |||||||||||||
Taxes and interest, net | — | — | 13,522 | 13,522 | |||||||||||||
Minority interest in subsidiary | — | — | 275 | 275 | |||||||||||||
Net income (loss) | $ | 91,050 | $ | 49,238 | $ | (86,079 | ) | $ | 54,209 | ||||||||
Nine months ended September 30, 2000 | ||||||||||||||||
Network | Payment | |||||||||||||||
Services | Services | Other | Total | |||||||||||||
Revenue | $ | 366,700 | $ | 638,973 | $ | — | $ | 1,005,673 | ||||||||
Cost of operations | 213,794 | 508,807 | — | 722,601 | ||||||||||||
Selling, general and administrative expenses | — | — | 69,515 | 69,515 | ||||||||||||
Acquisition and restructuring charges | 10,915 | 776 | — | 11,691 | ||||||||||||
Taxes and interest, net | — | — | 57,361 | 57,361 | ||||||||||||
Minority interest in subsidiary | — | — | 465 | 465 | ||||||||||||
Net income (loss) | $ | 141,991 | $ | 129,390 | $ | (127,341 | ) | $ | 144,040 | |||||||
Network | Payment | ||||||||||||||||
Services | Services | Other | Total | ||||||||||||||
2001 | |||||||||||||||||
Revenue | $ | 147,778 | $ | 227,860 | $ | — | $ | 375,638 | |||||||||
Cost of operations | 84,429 | 185,839 | — | 270,268 | |||||||||||||
Selling, general and administrative expenses | — | — | 23,812 | 23,812 | |||||||||||||
Acquisition, restructuring and write-off charges | — | — | 125,362 | 125,362 | |||||||||||||
Taxes and interest, net (benefit) | — | — | (17,985 | ) | (17,985 | ) | |||||||||||
Minority interest in subsidiary | — | — | 173 | 173 | |||||||||||||
Net income (loss) | $ | 63,349 | $ | 42,021 | $ | (131,362 | ) | $ | (25,992 | ) | |||||||
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 STARSMsm, 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 SUBSIDIARIESMANAGEMENT’S DISCUSSION & ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview, continued
all of STAR’s outstanding common stock. On August 21, 2000 we completed
As a result of our acquisition of Cash Station,STAR and subsequent purchase of shares, we acquired a majority interest in Primary Payment Systems, Inc. (Cash Station), a leading Midwest PIN-secured debit network basedcompany providing deposit risk management services to merchants and financial institutions. We own an 85.5% interest in Chicago, Illinois. ThisPrimary Payment Systems, with the remainder owned by certain financial institutions and a credit union service provider. Primary Payment Systems’ deposit risk management services provide advance notification of potential losses associated with fraudulent checks or high risk accounts utilizing a national database.
In 2001 Primary Payment Systems expanded its operations in the deposit risk management area through its acquisition was accounted forof Wally Industries, Inc. d/b/a WJM Technologies. WJM’s front-end tools, which screen new deposit accounts before they are opened, increase the breadth of Primary Payment Systems’ deposit risk management services. Primary Payment Systems believes that the addition of WJM will enable it to develop more powerful fraud filters that can be extended to other markets, as a pooling-of-interests transaction in which we exchanged approximately 5.0 million shares of our stock for all of the outstanding common stock of Cash Station.well as provide additional cross-selling opportunities and augment customer retention.
Payment Services provides the systems and processing that allow retail clients to accept virtually any type of electronic payment, including all card types — types—credit, debit, electronic benefits transfer (EBT), prepaid, and proprietary cards – cards—as well as a variety of check-based options. We focus on providing payment processing services to selected segments, with specialized systems designed for supermarkets, gas stations, convenience stores, and restaurants. Payment Services also includes providing payment cards that enable drivers of trucking companies to purchase fuel and obtain cash advances at truck stops. Our services are completely turn-key, providing merchants with POS terminal equipment, transaction routing and authorization, settlement, funds movement, and sponsorship into all credit card associations (such as VISA and MasterCard) and debit networks (such as STAR, Pulse and NYCE).
Early-14-
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On January 1, 2002 we acquired H & F Services, Inc., an independent sales organization. Prior to the acquisition, we had purchased merchant contracts through H & F Services. We believe that this acquisition will increase our control over the sales channel, including pricing and compensation. We expect the acquisition to reduce the average cost of acquiring merchant contracts, reduce the cost of operations, and increase selling, general and administrative expenses.
In the first quarter of 2002 we initiated a consolidation plan to continue improvements in 2000overall operating efficiency and integrate recent acquisitions. The plan includes closing and consolidating certain facilities, exiting several non-strategic businesses, eliminating approximately 165 positions, and writing off impaired assets. We incurred a charge of $30.6 million, net of taxes, related to the consolidation plan. During the next 12 months, we completed two acquisitionswill implement the plan and focus on consolidation activities for operational improvements in theour Payment Services area. On February 7, 2000segment.
In the first quarter of 2001 we completedinitiated a company-wide consolidation plan to address areas of operating redundancies created by our recent acquisitions. The plan included 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. We incurred a charge of $86.4 million, net of taxes, related to our consolidation plan, including costs incurred in combining operating platforms and facilities, communications conversion costs, asset write-offs, and severance and compensation costs, as well as investment banking fees and advisory, legal, and accounting fees incurred in connection with the acquisition of Virtual Cyber Systems, Inc., an Internet software development company. This acquisition,STAR. Our consolidation activities to capture synergies within our network operations and align our resources across the enterprise for which we paid approximately $2.0 million, was accounted forgreater efficiency and improved service delivery were completed as a purchase transaction and was immaterial to our financial statements. On Januaryof March 31, 2000 we completed our acquisition of National Payment Systems Inc. d/b/a/ Card Payment Systems, a New York-based reseller of payment processing services. Card Payment Systems provides card-based payment processing services to independent sales organizations, which in turn sell those services to merchants. The acquisition was accounted for as a pooling-of-interests transaction in which we exchanged approximately 12.5 million shares of our stock for all the outstanding shares of Card Payment Systems’ common stock.2002.
Restatement of Historical Financial Information
The financial information for prior periods presented below and elsewhere in this report has been restated for the results of STAR Cash Station and Card Payment Systems in accordance with the pooling-of-interests method of accounting for business combinations. The financial information includes the financial position, operating results, and cash flows for all periods presented.
Components of Revenue and Expenses
Network Services and Payment Services are our two reportable business segments. These business units are managed separately because they offer distinct products for different end users. All of our revenue is generated in the United States, and no single customer of Concord accounts for a material portion of our revenue. Over 75% percentThe majority of our total revenue is tied to contracts with terms of between three and five years.
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CONCORD EFS, INC. AND SUBSIDIARIESMANAGEMENT’S DISCUSSION & ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
Components of Revenue and Expenses, continued
A principal component of our revenue is derived from Network Services (37.8%(40.2% and 35.9%39.3% for the three months ended September 30, 2001March 31, 2002 and 2000 and 38.1% and 36.5% for the nine months ended September 30, 2001 and 2000)2001). 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 access. We recognize this revenue at the time of the transaction.
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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Components of Revenue and Expenses, continued
The majority of our revenue (62.2%(59.8% and 64.1%60.7% for the three months ended September 30, 2001March 31, 2002 and 2000 and 61.9% and 63.5% for the nine months ended September 30, 2001 and 2000)2001) is generated from fee income related to Payment Services. Revenue from Payment Services primarily includes discount fees charged to merchants, which are a percentage of the dollar amount of each credit card transaction we process, 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 we provide.provide, plus the interchange fees charged by the credit card associations and collected by us. The balance of Payment Services revenue is derived from transaction fees for processing credit card transactions for larger merchants, debit card and EBT card transactions, check verification and authorization services, and sales of POS terminals. We recognize this revenue at the time of the transaction. One result of basing revenue on the total dollar volume processed is that lower ticket size or other reduction in total purchases causes a reduction in our revenue. However, net income is not correspondingly affected because the majority of our transactions are priced on a fixed fee per transaction basis.
The following table is a listing oflists revenue by segment for the periods indicated:indicated (in millions):
Three months | Nine months | |||||||||||||||||||||||
ended September 30, | ended September 30, | |||||||||||||||||||||||
Three months ended | ||||||||||||||||||||||||
2001 | 2000 | 2001 | 2000 | March 31, | ||||||||||||||||||||
(in millions) | (in millions) | 2002 | 2001 | |||||||||||||||||||||
Network Services | $ | 165.2 | $ | 130.7 | $ | 469.8 | $ | 366.7 | $ | 185.6 | $ | 147.8 | ||||||||||||
Payment Services | 271.9 | 233.2 | 763.6 | 639.0 | 276.5 | 227.8 | ||||||||||||||||||
Total | $ | 437.1 | $ | 363.9 | $ | 1,233.4 | $ | 1,005.7 | $ | 462.1 | $ | 375.6 | ||||||||||||
Cost of operations includes all costs directly attributable to our providing services to our customers. The most significant component of cost of operations is interchange and assessmentnetwork fees, which arerepresent amounts charged by the credit and debit networks. Interchange and assessmentnetwork fees are billed primarily as a percentage of dollar volume processed and, to a lesser extent, as a transaction fee. This amount is a direct expense of the revenue component described above, so that when total dollar volume processed declines, due to lower ticket size or other reduction in total purchases, there is a corresponding decline in cost of operations. Cost of operations also includes telecommunications costs, personnel costs, occupancy costs, depreciation, the cost of equipment leased and sold, the cost of operating our debit network and other miscellaneous merchant supplies and services expenses. We strive to maintain a highly efficient operational structure, which includes volume purchasing arrangements with equipment and communications vendors and direct membership by our subsidiary, EFS National Bank, in bank card associations and major debit networks.
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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Components of Revenue and Expenses, continued
The following table lists cost of operations by segment for the periods indicated:indicated (in millions):
Three months | Nine months | |||||||||||||||||||||||
ended September 30, | ended September 30, | |||||||||||||||||||||||
Three months ended | ||||||||||||||||||||||||
2001 | 2000 | 2001 | 2000 | March 31, | ||||||||||||||||||||
(in millions) | (in millions) | 2002 | 2001 | |||||||||||||||||||||
Network Services | $ | 84.2 | $ | 72.6 | $ | 254.3 | $ | 213.8 | $ | 94.6 | $ | 84.4 | ||||||||||||
Payment Services | 220.2 | 186.7 | 620.0 | 508.8 | 227.2 | 185.9 | ||||||||||||||||||
Total | $ | 304.4 | $ | 259.3 | $ | 874.3 | $ | 722.6 | $ | 321.8 | $ | 270.3 | ||||||||||||
Our selling, general and administrative expenses include certain salaries and wages and other general administrative expenses. These costs are not allocated to the reportable segments.
Results of Operations
The following table shows, for the periods indicated, the percentage of revenue represented by certain items on our consolidated statements of income:
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2001 | 2000 | 2001 | 2000 | |||||||||||||
Revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of operations | 69.7 | 71.3 | 70.9 | 71.9 | ||||||||||||
Selling, general and administrative expenses | 5.1 | 6.5 | 5.6 | 6.9 | ||||||||||||
Acquisition and restructuring charges | — | 3.0 | 10.1 | 1.2 | ||||||||||||
Operating income | 25.2 | 19.2 | 13.4 | 20.0 | ||||||||||||
Interest income, net | 3.7 | 2.7 | 3.3 | 2.6 | ||||||||||||
Income before taxes | 28.9 | 21.9 | 16.7 | 22.6 | ||||||||||||
Income taxes | 10.3 | 8.1 | 6.4 | 8.3 | ||||||||||||
Net income | 18.6 | % | 13.8 | % | 10.3 | % | 14.3 | % | ||||||||
Three months ended | ||||||||
March 31, | ||||||||
2002 | 2001 | |||||||
Revenue | 100.0 | % | 100.0 | % | ||||
Cost of operations | 69.6 | 71.9 | ||||||
Selling, general and administrative expenses | 5.4 | 6.3 | ||||||
Acquisition, restructuring and write-off charges | 10.3 | 33.5 | ||||||
Operating income (loss) | 14.7 | (11.7 | ) | |||||
Interest income, net | 3.5 | 3.3 | ||||||
Income (loss) before taxes | 18.2 | (8.4 | ) | |||||
Income taxes (benefit) | 6.5 | (1.5 | ) | |||||
Net income (loss) | 11.7 | % | (6.9 | )% | ||||
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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ThirdFirst Quarter 20012002 Compared to 20002001
Revenue in the thirdfirst quarter 20012002 increased 20.1%23.0% to $437.1$462.1 million from $363.9$375.6 million in 2000.2001. In the thirdfirst quarter 20012002 Network Services accounted for 37.8%40.2% of revenue, and Payment Services accounted for 62.2%59.8%. Network Services revenue in the thirdfirst quarter 20012002 increased 26.4%25.6% compared to 20002001 as a result of the addition of new network and processing customers and increases in transaction volumes. The increased transaction volumes resulted primarily from increased use of our network debit cards for payment at the point of sale. Revenue from Payment Services in the thirdfirst quarter 20012002 increased 16.6%21.3% compared to 2000,2001, due primarily to increased transaction volumes. The increased volumes resulted from the addition of new merchants and the widening acceptanceincreased use of debit and EBT card transactions at new and existing merchants.
Cost of operations decreased in the thirdfirst quarter 20012002 to 69.7%69.6% of revenue compared to 71.3%71.9% in 2000.2001. This percentage decrease was due primarily to a decrease as a percentage of revenue, in certain operating costs such as telecommunications, payroll expenses and depreciation and amortization expenses.expenses, improvements in operating efficiencies and economies of scale.
In the thirdfirst quarter 20012002 selling, general and administrative expenses decreased as a percentage of revenue to 5.1%5.4% from 6.5%6.3% in 2000.2001. Overall, selling, general and administrative expenses decreasedincreased to $22.3$24.8 million in the thirdfirst quarter 20012002 from $23.6$23.8 million in 2000.2001. This decreaseincrease is primarily attributable to less direct marketing expense and reduced headcount.
There were no acquisition and restructuring charges in the third quarter 2001 compared to $10.9 million in 2000expenses related to the acquisition of Cash Station.H & F Services, Inc. sales force.
Acquisition, restructuring and write-off charges decreased to $47.5 million in 2002 from $125.4 million in 2001. In the first quarter of 2002 we initiated a consolidation plan to continue improvements in overall operating efficiency and integrate recent acquisitions. The plan includes closing and consolidating certain facilities, exiting several non-strategic businesses, eliminating approximately 165 positions, and writing off impaired assets. The charge of $47.5 million ($30.6 million, net of tax) 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 addition, asset impairment charges of $22.5 million were incurred for the write-off of non-performing purchased merchant contracts identified in the first quarter and $7.9 million was incurred for the write-off of capitalized software and computer and communications equipment no longer in use.
Excluding acquisition, restructuring and restructuringwrite-off charges, operating income as a percentage of revenue increased to 25.2%25.0% in the thirdfirst quarter 20012002 from 22.3%21.7% in 2000.2001. This increase in operating income resulted from our company-wide consolidation activitiesimproved operating efficiencies and continuing focus on cost control.economies of scale.
Net interest income improved as a percentage of revenue to 3.7%3.5% in the thirdfirst quarter 20012002 compared to 2.7%3.3% in 2000. The2001. This improvement was the resultresulted primarily from our increased investment in various securities of returns we received from investing available cash flow from operations plus approximately $420.6 million in proceeds from our June 2001 stock offering, which increased the third quarter interest income by 53.1% over 2000.26.4% compared to 2001.
Our overall tax rate decreasedincreased to 35.5% in the thirdfirst quarter 20012002 compared to 37.0%(17.9%) in 2000.2001. Excluding acquisition, restructuring and restructuringwrite-off charges, the tax rate was 36.3%35.5% in 2000.2002 and 2001.
Net income, as a percentage of revenue, increased to 18.6% in the third quarter 2001 from 13.8% in 2000. Excluding acquisition and restructuring charges, net income as a percentage of revenue was 15.9% in 2000. This increase is the result of improved margins, reduced selling, general and administrative expenses and increased interest income.
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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 2001First Quarter 2002 Compared to 2000
Revenue in the nine months ended September 30, 2001, increased 22.6% to $1,233.4 million from $1,005.7 million in 2000. In the nine months ended September 30, 2001 Network Services accounted for 38.1% of revenue, and Payment Services accounted for 61.9%. Network Services revenue in the nine months ended September 30, 2001 increased 28.1% compared to 2000 as a result of the addition of new network and processing customers and increases in transaction volumes. The increased transaction volumes resulted primarily from increased use of our network debit cards for payment at the point of sale. Revenue from Payment Services in the nine months ended September 30, 2001 increased 19.5% compared to 2000, due primarily to increased transaction volumes. The increased volumes resulted from the addition of new merchants and the widening acceptance of debit and EBT card transactions at new and existing merchants.
Cost of operations in the nine months ended September 30, 2001 decreased to 70.9% of revenue compared to 71.9% in 2000. This decrease was due primarily to a decrease, as a percentage of revenue, in certain operating costs such as telecommunications, payroll expenses and depreciation and amortization expenses.
In the nine months ended September 30, 2001 selling, general and administrative expenses decreased, as a percentage of revenue, to 5.6% from 6.9% in 2000. Overall, selling, general and administrative expenses decreased to $68.9 million in the nine months ended September 30, 2001 from $69.5 million in 2000. This decrease is primarily attributable to less direct marketing expense and reduced headcount.
Acquisition and restructuring charges in the nine months ended September 30, 2001 were $125.4 million compared to $11.7 million in 2000. In the first quarter of 2001, we initiated a company-wide consolidation plan to address areas of operating redundancies created by our recent acquisitions. The plan includes 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. During the next six months we intend to take steps to capture synergies within our network operations and align our resources across the enterprise for greater efficiency and improved service delivery. During the first quarter of 2001, we incurred a charge of $125.4 million ($86.4 million, net of taxes) related to our consolidation plan, including costs incurred in combining operating platforms and facilities, communications conversion costs, asset write-offs, severance and compensation costs, as well as investment banking fees and advisory, legal and accounting fees incurred in the acquisition of STAR.
We accrued charges of $63.9 million for combining various STAR processing platforms and facilities that will be closed and consolidated. We also accrued $16.0 million for duplicate products and systems such as abandoned products and internal systems that do not support our new network strategy. Various data center services contracts were terminated as part of the overall restructuring, for which we accrued $19.1 million. The consolidation of products, services, processing platforms and facilities created personnel duplications. As a result, we accrued compensation and severance costs of $9.8 million to diminish redundancies and consolidate operational groups. In addition to these charges, we also incurred other expenses of $1.0 million and legal, accounting and advisory fees totaling $15.6 million in connection with the STAR merger.
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CONCORD EFS, INC. AND SUBSIDIARIESMANAGEMENT’S DISCUSSION & ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 2001 Compared to 2000, continued
In the nine months ended September 30, 2001, $86.9 million of expenses were charged against the restructuring accrual. These expenses were primarily related to combining processing platforms and facilities, duplicate products and systems, legal, accounting and advisory fees and data center services contract terminations.
Excluding acquisition and restructuring charges, operating income as a percentage of revenue increased in the nine months ended September 30, 2001 to 23.5% from 21.2% in 2000. This increase in operating income resulted from our company-wide consolidation activities and continuing focus on cost control.
Net interest income improved as a percentage of revenue to 3.3% in the nine months ended September 30, 2001 compared to 2.6% in 2000. The improvement was the result of returns we received from investing available cash, which increased interest income in the nine months ended September 30, 2001 by 48.9% compared to 2000.
Our overall tax rate increased to 38.2% in the nine months ended September 30, 2001 compared to 36.6% in 2000. Excluding acquisition and restructuring charges, the tax rate was 35.5% in the nine months ended September 30, 2001 compared to 36.2% in 2000.
Net income as a percentage of revenue decreasedincreased to 10.3%11.7% in the nine months ended September 30, 2001first quarter 2002 from 14.3%(6.9%) in 2000, due primarily to the2001. Excluding acquisition, restructuring and restructuring charges. Excluding thesewrite-off charges, and related tax items, net income as a percentage of revenue increased to 17.3% for the nine months ended September 30, 2001was 18.4% in 2002 compared to 15.1%16.1% in 2000.2001. This increase is the result of improved margins, reduced selling, general and administrative expenses as a percentage of revenue and increased interest income.
Liquidity and Capital Resources
In the nine months ended September 30, 2001,first quarter 2002 we generated $317.0 million from operating activities. We also received $421.9 million from our stock offering, $21.0used $181.2 million in proceeds from Federal Home Loan Bank advances, and $21.6operating activities due primarily to the timing of settlement operations. We received $15.9 million from stock issued for exercises of options under our stock option plan. From cash provided by operatingplan and financing activities, we invested $446.3deposits increased $14.3 million. We liquidated $20.6 million in securities, net of salespurchases and maturities. We also spent $82.9$37.0 million on capital additions $19.7and $15.5 million for a business acquisition and $22.6 million to purchase merchant contracts. Additionally, we reduced debt by $14.4 million.acquisitions. Our capital additions were primarily for communications equipment, POS terminals, newcapitalized and purchased software and computer equipmentfacilities and capitalized software.equipment.
Our assets are primarily monetary, consisting of cash, assets convertible into cash, securities owned and receivables. Because of their liquidity, these assets are not significantly affected by inflation. We believe that anticipated replacement costs of equipment, furnituresoftware, facilities and leasehold improvementsequipment will not materially affect operations. However, the rate of inflation affects our expenses, such as those for employee compensation and telecommunications, which may not be readily recoverable in the price of services offered by us.
We believe that our cash and cash equivalents, securities, available credit and cash generated from operations are adequate to meet our capital and operating needs. EFS National Bank and EFS Federal Savings Bank, our wholly owned financial institution subsidiaries, exceed required regulatory capital ratios.
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CONCORD EFS, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures About Market Risk
Since December 31, 2000,2001, there have been no changes with regard to market risk that would require further quantitative or qualitative disclosure. For our quantitative and qualitative disclosures about market risk for the fiscal year ending December 31, 2000,2001, refer to Exhibit 99.3 to Amendment No. 113 to our currentannual report on Form 8-K,10-K, filed April 16, 2001.on February 26, 2002.
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CONCORD EFS, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Pending proceedings and developments that may be considered material were reportedFrom time to time Concord is involved in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001 and June 30, 2001, filed with the Securities and Exchange Commission on May 15, 2001 and August 7, 2001, respectively. We are also a party to various routine lawsuitslitigation matters arising out of the conduct of our business, noneits business. Pending matters that are currently material to Concord were reported in Concord’s Annual Report on Form 10-K for the year ended December 31, 2001. There were no material developments in the litigation matter previously disclosed except for the developments discussed below.
As previously disclosed, in September 2000, EFS National Bank was named as a defendant in a purported class action lawsuit filed in the Circuit Court of which is expectedTennessee 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.
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 material adverse effectfive-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 our financial conditionmerchant 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 resultsto 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 operations.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.
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CONCORD EFS, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) | Exhibits |
Exhibit | ||
Number | Description of Exhibit | |
3.1 | Restated Certificate of Incorporation of Concord EFS, Inc. is incorporated herein by reference to Exhibit 4.4 to Amendment No. 1 to Concord’s registration statement on Form S-3 (File No. 333-61084), filed on June 4, 2001. | |
3.2 | Amended and Restated Bylaws of Concord EFS, Inc. are incorporated herein by reference to Exhibit 4.2 to Concord’s registration statement on Form S-8 (File No. 333-74215), filed on March 10, 1999. | |
10.1 | Amendment, dated November 16, 2000, to Concord EFS, Inc. 1993 Incentive Stock Option Plan (Second 1999 Restatement) |
(b) | Reports on Form 8-K |
NoneOn January 22, 2002, we filed a current report on Form 8-K to report, under Item 5 of that form, developments with regard to pending legal proceedings.
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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.
CONCORD EFS, INC. | ||||||
Date: | By: | /s/ Dan M. Palmer Dan M. Palmer Chairman of the Board and Chief Executive Officer | ||||
Date: | By: | /s/ Edward T. Haslam Edward T. Haslam Senior Vice President, Chief Financial Officer and Treasurer |
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CONCORD EFS, INC. AND SUBSIDIARIES
FORM 10-Q LISTING OF EXHIBITS
Exhibit | ||
Number | Description of Exhibit | |
3.1 | Restated Certificate of Incorporation of Concord EFS, Inc. is incorporated herein by reference to Exhibit 4.4 to Amendment No. 1 to Concord’s registration statement on Form S-3 (File No. 333-61084), filed on June 4, 2001. | |
3.2 | Amended and Restated Bylaws of Concord EFS, Inc. are incorporated herein by reference to Exhibit 4.2 to Concord’s registration statement on Form S-8 (File No. 333-74215), filed on March 10, 1999. | |
10.1 | Amendment, dated November 16, 2000, to Concord EFS, Inc. 1993 Incentive Stock Option Plan (Second 1999 Restatement) |