SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
		For the transition period from __________ to

Commission file number 000-13848

CONCORD EFS, INC.

(Exact Name of Registrant as Specified in its Charter)

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. YesxNoo

The number of shares of the registrant’s Common Stock, $0.33 1/3 par value, outstanding as of April 30,October 31, 2002 was 510,523,433.

508,733,706.

CONCORD EFS, INC. AND SUBSIDIARIES

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

	September 30,			December 31,
	2002			2001
ASSETS	(in thousands)
CURRENT ASSETS
Cash and cash equivalents	$	807,425		$	682,906
Securities available for sale		1,231,823			1,228,805
Alternative investments		197,378			—
Accounts receivable, net		165,318			134,496
Inventories		20,688			20,971
Prepaid expenses and other current assets		36,083			34,346
Deferred income taxes		960			13,054
TOTAL CURRENT ASSETS		2,459,675			2,114,578
Loans, net		12,953			89,038
Property and equipment, net		311,404			267,451
Goodwill, net		282,644			158,632
Other intangible assets, net		54,609			85,712
Other assets		31,988			14,034
TOTAL ASSETS	$	3 ,153,273		$	2,729,445
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other liabilities	$	468,318		$	488,789
Deposits		133,674			162,972
Accrued liabilities		43,565			29,837
Accrued restructuring charges		31,590			5,315
Accrued litigation settlement		2,487			—
Income taxes payable		21,954			1,438
Current maturities of long-term debt		75,489			—
TOTAL CURRENT LIABILITIES		777,077			688,351
Long-term debt		141,751			119,458
Deferred income taxes		67,385			55,437
Other liabilities		8,039			4,202
TOTAL LIABILITIES		994,252			867,448
Commitments and contingent liabilities		—			—
Minority interest in subsidiary		4,825			3,410
STOCKHOLDERS' EQUITY
Common stock		169,578			169,352
Other stockholders' equity		1,984,618			1,689,235
TOTAL STOCKHOLDERS' EQUITY		2,154,196			1,858,587
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	3,153,273		$	2,729,445

See Notes to Condensed Consolidated Financial Statements.

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

	Three months ended September 30,							Nine months ended September 30,
	2002				2001			2002			2001
	(in thousands, except per share data)
Revenue	$	568,296			$	436,198		$	1,568,616		$	1,230,906
Cost of operations		421,086				304,414			1,125,361			874,301
Selling, general and administrative expenses		31,233				22,348			88,372			69,450
Acquisition, restructuring and write-off charges		—				—			76,506			125,362
Litigation settlement charges (credits)		(11,000	)			—			9,761			—
OPERATING INCOME		126,977				109,436			268,616			161,793
Other income and expense:
Other income		1,023				876			7,937			3,068
Investment income		20,653				19,702			59,723			50,424
Interest expense		3,054				3,510			8,816			9,890
INCOME BEFORE TAXES AND MINORITY INTEREST		145,599				126,504			327,460			205,395
Income taxes		50,959				44,910			115,033			78,438
INCOME BEFORE MINORITY INTEREST		94,640				81,594			212,427			126,957
Minority interest in net income of subsidiary		311				138			671			311
NET INCOME	$	94,329			$	81,456		$	211,756		$	126,646
PER SHARE DATA:
Basic earnings per share	$	0.18			$	0.16		$	0.41		$	0.26
Diluted earnings per share	$	0.18			$	0.16		$	0.40		$	0.25
AVERAGE SHARES OUTSTANDING:
Basic shares		512,546				503,193			510,973			491,102
Diluted shares		527,856				524,510			530,255			512,319

See Notes to Condensed Consolidated Financial Statements.

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

	Nine months ended September 30,
	2002			2001
	(in thousands)
OPERATING ACTIVITIES
Net income	$	211,756		$	126,646
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in subsidiary		671			311
Provision for (recovery of) losses on accounts receivable and loans		(81	)		1,587
Depreciation and amortization		64,537			69,831
Deferred income taxes		14,671			(15,873	)
Net realized gain on sales of securities available for sale		(2,035	)		(2,492	)
Restructuring charges		38,339			19,916
Changes in operating assets and liabilities:
Settlement receivables and payables, net		(32,381	)		(19,672	)
Accounts receivable		(21,794	)		(15,099	)
Inventories		517			(4,692	)
Prepaid expenses and other current assets		(1,268	)		(11,893	)
Accounts payable and other liabilities		58,960			101,165
Other, net		2,224			(528	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		334,116			249,207
INVESTING ACTIVITIES
Acquisition of securities available for sale		(665,725	)		(948,255	)
Proceeds from sales of securities available for sale		558,543			377,045
Proceeds from maturity of securities available for sale		131,483			127,391
Acquisition of alternative investments		(195,546	)		—
Purchases of loans		(17,716	)		(30,915	)
Proceeds from sales of loans		53,534			—
Other net change in loans		41,827			13,957
Acquisition of property and equipment		(100,409	)		(82,881	)
Purchased merchant contracts		—			(22,581	)
Business acquisitions, net		(17,240	)		(19,700	)
Other investing activity		(21,043	)		(6,005	)
NET CASH USED IN INVESTING ACTIVITIES		(232,292	)		(591,944	)
FINANCING ACTIVITIES
Net increase (decrease) in deposits		(29,298	)		39,030
Proceeds from borrowings		149,900			21,000
Payments on borrowings		(52,118	)		(14,444	)
Purchase and retirement of common stock		(68,365	)		—
Proceeds from offering of common stock		—			420,630
Proceeds from exercise of stock options		22,819			21,620
Payments on leases payable		(243	)		(1,217	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		22,695			486,619
NET INCREASE IN CASH AND CASH EQUIVALENTS		124,519			143,882
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		682,906			298,383
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	807,425		$	442,265

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 three and nine months ended March 31,September 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Concord EFS, Inc. and Subsidiaries (Concord) annual report on Form 10-K filed on February 26, 2002 for the year ended December 31, 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 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.

Alternative Investments: Concord’s alternative investments, including hedge fund-of-funds, are accounted for under the equity method of accounting with realized and unrealized gains and losses reflected in investment income for each reporting period.

Reclassification: Certain 2001 amounts have been reclassified to conform to the 2002 presentation.

Recent Pronouncement: In July 2002 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue 94-3. The principal difference between SFAS 146 and Issue 94-3 relates to SFAS 146’s requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that a

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

Note A - Basis of Presentation, continued

liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity’s commitment to an exit plan. The FASB concluded in SFAS 146 that an entity’s commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Therefore, SFAS 146 eliminates the definition and requirements for recognition of exit costs in Issue 94-3. SFAS 146 also establishes that fair value is the objective for initial measurement of the liability. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002.

In October 2002 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 147, “Acquisitions of Certain Financial Institutions.” SFAS 147 addresses the financial accounting and reporting for the acquisition of all or part of a financial institution and is effective for any such activities initiated after October 1, 2002. The adoption of this statement is not anticipated to have a material effect on Concord’s financial position or results of operations.

Note B —- Business Combinations and Acquisition, Restructuring and Write-Off Charges

In June 2001 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 141, “Business Combinations.” SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after 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 B — Business Combinations, continuedOn May 17, 2002 Concord acquired Core Data Resources, Inc., an electronic transaction processor. The acquisition, for which Concord issued approximately 2.0 million shares of its common stock, was accounted for as a purchase transaction and is immaterial to Concord’s financial statements. The allocation of the purchase price is preliminary because a valuation study has not yet been completed. Concord expects to complete this study in the fourth quarter.

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 its common stock and paid approximately $6.3 million in cash, was accounted for as a purchase transaction and is immaterial to Concord’s financial statements. The allocation of the purchase price is preliminary because a valuation study has not yet been completed. Concord expects to complete this study in the fourth quarter.

On January 1, 2002 Concord acquired H & F Services, Inc., an independent sales organization, for $8.9 million in cash. Prior to the acquisition, 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.

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

Note B - Business Combinations and Acquisition, Restructuring and Write-Off Charges, continued

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 newly 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 statements.

On February 1, 2001 Concord acquired Star Systems, Inc. (STAR_SMsm), a debit network. The acquisition was accounted for as a pooling of interests transaction in which Concord issued approximately 48.0 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 between Concord and STAR (in thousands, except per share data):

(1)		The 2001 amounts reflect the results of STAR operations from January 1, 2001 through January 31, 2001. Results of operations from February 1, 2001 are included in Concord amounts.
(2)		All material activity between Concord and STAR has been eliminated.

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

Note B —- Business Combinations and Acquisition, Restructuring and Write-Off Charges, continued

Acquisition, restructuring and write-off charges were $29.0 million ($18.9 million, net of taxes) for the three months ended June 30, 2002. During the second quarter, management approved a plan in conjunction with the Core Data acquisition and continued consolidation initiatives to improve overall operating efficiencies. The charge consisted of $16.8 million for contract terminations, $4.1 million for exiting a non-strategic business, $1.0 million for closing and consolidating certain facilities and $0.7 million for compensation and severance. In addition, the charge included stock compensation charges of $4.8 million related to the modification of stock options of terminated employees and asset impairment charges of $1.6 million recorded as an adjustment to the write-off of non-performing purchased merchant contracts. In connection with the plan, Concord expects to eliminate 24 positions, none of which were eliminated as of September 30, 2002. As of September 30, 2002, $21.3 million of the charges were accrued but unpaid. Concord expects to complete the plan by June 30, 2003.

The following table presents a summary of activity through September 30, 2002 related to the second quarter 2002 restructuring charge accrual (in thousands):

Acquisition, restructuring and write-off charges	$	29,006
Cash outlays		1,182
Non-cash writedowns and charges - asset impairment		1,691
Non-cash writedowns and charges - other		4,845
Balance, September 30, 2002	$	21,288

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

Contract terminations	$	16,649
Non-strategic business closures		3,093
Facility closings and consolidations		863
Compensation and severance		683
Balance, September 30, 2002	$	21,288

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

Note B - Business Combinations and Acquisition, Restructuring and Write-Off Charges, 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 corporate consolidation plan initiated to continue improvements in 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 addition, asset impairment charges of $22.5 million ($0.03 basic and diluted earnings per share) 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. In connection with the consolidation plan, Concord expects to eliminate approximately 165 positions, 76142 of which were eliminated as of March 31,September 30, 2002. Compensation and severance costs paid and charged against the restructuring charge accrual were $0.7$2.9 million through March 31,September 30, 2002. As of March 31,September 30, 2002, $15.4$10.3 million of the charges were accrued but unpaid. Concord expects to complete the consolidation plan by March 31, 2003.

The following table presents a summary of activity inthrough September 30, 2002 related to the first quarter 2002 restructuring charge accrual (in thousands):

Acquisition, restructuring and write-off charges	$	47,500
Cash outlays		5,424
Non-cash writedowns and charges - asset impairment		31,774
Balance, September 30, 2002	$	10,302

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

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Facility closings and consolidations	$	5,333
Compensation and severance		2,981
Non-strategic business closures		1,988
Balance, September 30, 2002	$	10,302

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

Note B —- Business Combinations and Acquisition, Restructuring and Write-Off Charges, continued

Acquisition, restructuring and write-off charges were $125.4 million ($86.4 million, net of taxes) for the three months ended March 31, 2001. The charges were a result of a company-wide consolidation plan to address areas of operating redundancies created by 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. The charges consisted 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,advisory, legal, and advisoryaccounting 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 expected to eliminate approximately 250 positions, all of which were eliminated as of March 31, 2002. Compensation and severance costs paid and charged against the restructuring charge accrual were $9.8 million through March 31, 2002. As of March 31, 2002, the consolidation activities have beenwere substantially completed, and there was no remaining balance related to the 2001 restructuring charge accrual.

The following table presents a summary of current year activity inthrough March 31, 2002 related to the 2001 restructuring charge accrual (in thousands):

Balance, December 31, 2001	$	5,315
Cash outlays		5,286
Non-cash writedowns and charges - asset impairment		29
Balance, March 31, 2002	$	—

Note C —- Goodwill and Other Intangible Assets

In June 2001 the Financial Accounting Standards Board issued StatementsStatement 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 adopted SFAS 142 effective January 1, 2002. Application of the nonamortization provisions of SFAS 142 is immaterial to Concord’s financial statements. Concord has tested goodwill for impairment using the two-step process prescribed in SFAS 142. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. Concord has performed the first of the required impairment tests for goodwill as of January 1, 2002 and has determined that the carrying amount of goodwill is not 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 September 30,						Nine months ended September 30,
	2002			2001			2002			2001
Reported net income	$	94,329		$	81,456		$	211,756		$	126,646
Goodwill amortization, net of tax		—			2,485			—			7,176
Adjusted net income	$	94,329		$	83,941		$	211,756		$	133,822
Adjusted basic earnings per share	$	0.18		$	0.17		$	0.41		$	0.27
Adjusted diluted earnings per share	$	0.18		$	0.16		$	0.40		$	0.26

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 relating to other intangible assets as of December 31, 2001 for the periods listed for other intangible assets,indicated, net of the write-off of non-performing purchased merchant contracts of $22,496 in the three months ended March 31, 2002 and $1,611 in the three months ended June 30, 2002 included in acquisition, restructuring and write-off charges as described in Note B (in thousands):

2002	$	12,486
2003		7,925
2004		7,873
2005		7,873
2006		7,698
Thereafter		17,750
Total	$	61,605

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

Note D —- Comprehensive Income

Total comprehensive income (loss) was $49.4$100.4 million and $(18.9)$84.4 million for the three months ended March 31,September 30, 2002 and 2001, respectively. Total comprehensive income was $229.2 million and $135.9 million for the nine months ended September 30, 2002 and 2001, respectively. Comprehensive income includes net income and the change in the unrealized gain or loss on securities available for sale arising during the period.

Note E - Earnings Per Share

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

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		Three months ended September 30,						Nine months ended September 30,
		2002			2001			2002			2001
Numerator:
Net income		$	94,329		$	81,456		$	211,756		$	126,646
Denominator:
Denominator for basic earnings per share, weighted-average shares			512,546			503,193			510,973			491,102
Effect of dilutive stock options			15,310			21,317			19,282			21,217
Denominator for diluted earnings per share, adjusted weighted-average shares, and assumed conversions			527,856			524,510			530,255			512,319
Basic earnings per share		$	0.18		$	0.16		$	0.41		$	0.26
Diluted earnings per share		$	0.18		$	0.16		$	0.40		$	0.25

Excluding acquisition, restructuring, write-off, and litigation settlement charges and related taxes, diluted earnings per share for the three months ended September 30, 2002 and 2001 were $0.17 and $0.16, respectively, and for the nine months ended September 30, 2002 and 2001 were $0.50 and $0.42, respectively. Earnings per share and related per share data have been restated to reflect all stock splits.

Note F - Common Stock Repurchase Plan

On August 5, 2002 Concord announced that its Board of Directors approved the repurchase of up to $250.0 million of Concord’s common stock. Under the repurchase plan, Concord may buy back shares of its outstanding stock from time to time either on the open market or through privately negotiated transactions. A total of 4.5 million shares at an aggregate cost of $68.4 million have been purchased and retired for the three months ended September 30, 2002. On November 7, 2002 Concord announced that its Board of Directors approved the repurchase of an additional $150.0 million of Concord’s common stock. The Board’s approval brings the total potential repurchase to $400.0 million.

Concord immediately retires its common stock when purchased. Upon retirement, Concord reduces retained earnings for the excess of purchase price over par value.

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

Note E — Earnings Per Share

G - Stock Split

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

Excluding acquisition, restructuring and write-off charges and related taxes, diluteddata, earnings per share, for the three months ended March 31, 2002 and 2001 were $0.16 and $0.12, respectively. Earnings (loss) per share and related per share data have been restated to reflect allthe stock splits.

split.

Note F —H - Offering of Common Stock

In June 2001 Concord issued and sold approximately 17.8 million 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 approximately 34.1 million shares of Concord common stock. Most of the selling stockholders were the previous owners of STAR who received unregistered common stock of Concord in connection with the February 1, 2001 acquisition. Net of the underwriting discount and other expenses of the offering, Concord received $420.6 million for the common stock it issued and sold. Concord did not receive any proceeds from the sale of shares by the selling stockholders.

Note I - Operations by Business Segment

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

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.

access, plus the network fees charged by the debit networks and collected by Concord.

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 collected by Concord. The balance of Payment Services revenue is derived from transaction fees for processing debit card and electronic benefits transfer card transactions, check verification and authorization services, and sales of POS terminals.terminals from inventory.

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

Note F —I - Operations by Business Segment, continued

Business segment information for the three months and nine months ended March 31,September 30, 2002 and 2001 is presented below (in thousands):

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

Note G —I - Operations by Business Segment, continued

		Nine months ended September 30, 2002
		Network Services			Payment Services			Other				Total
Revenue		$	600,213		$	968,403		$	—			$	1,568,616
Cost of operations			319,018			806,343			—				1,125,361
Selling, general and administrative expenses			—			—			88,372				88,372
Acquisition, restructuring and write-off charges			—			—			76,506				76,506
Litigation settlement charges (credits)			—			—			9,761				9,761
Other income			—			—			7,937				7,937
Investment income			—			—			59,723				59,723
Interest expense			—			—			8,816				8,816
Income taxes			—			—			115,033				115,033
Minority interest in subsidiary			—			—			671				671
Net income (loss)		$	281,195		$	162,060		$	(231,499	)		$	211,756
		Nine months ended September 30, 2001
		Network Services			Payment Services			Other				Total
Revenue		$	468,995		$	761,911		$	—			$	1,230,906
Cost of operations			254,288			620,013			—				874,301
Selling, general and administrative expenses			—			—			69,450				69,450
Acquisition, restructuring and write-off charges			—			—			125,362				125,362
Litigation settlement charges (credits)			—			—			—				—
Other income			—			—			3,068				3,068
Investment income			—			—			50,424				50,424
Interest expense			—			—			9,890				9,890
Income taxes			—			—			78,438				78,438
Minority interest in subsidiary			—			—			311				311
Net income (loss)		$	214,707		$	141,898		$	(229,959	)		$	126,646

-14-

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

Note J - 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. TheOn May 14, 2002 the plaintiffs filed ana second amended complaint alleging that the class consists of at least 60,000over 100,000 merchants who were subjected to the allegedly improper rate and fee changes over a several-year period. The second amended complaint seekssought damages in excess of $15.0$70.0 million as well as injunctive relief and unspecified punitive damages, treble damages, attorney fees, and costs.

-11-On May 16, 2002 the parties entered into a settlement agreement relating to this litigation and received preliminary approval from the trial court therefor. On August 6, 2002 the trial court rejected the only objection filed against the settlement agreement and gave the settlement agreement its final approval. The objector and his counsel subsequently reached an agreement with EFS National Bank, plaintiffs and counsel for the plaintiffs, pursuant to which EFS National Bank contributed an immaterial amount. As a result, no appeal was taken, and thus the settlement is now final and unappealable. The maximum amount of the credits and payments by EFS National Bank under the settlement is $37.6 million, payable over a five-year period. In connection with the settlement, Concord initially recorded a charge of $20.8 million ($13.5 million, net of taxes) for the three months ended June 30, 2002. The charge was less than $37.6 million, because the credits and payments are contingent upon merchant retention and submission of claims.

On September 17, 2002 EFS National Bank paid plaintiffs’ counsel and the named plaintiffs a total of $5.0 million, as required by the settlement agreement. The deadline for the submission of claims by class members was September 16, 2002. Approximately 150,000 class members were eligible to make claims, but less than 3,000 valid claims were actually submitted. In the fourth quarter the court-appointed claims administrator is expected to submit a report on the total amount of the valid claims submitted. Based on the low number of valid claims submitted, Concord has reduced the charge by $11.0 million ($7.2 million, net of taxes) for the three months ended September 30, 2002. EFS National Bank is also responsible for the costs of claims administration and for its own costs and expenses, including attorneys’ fees.

A purported class action complaint with similar allegations and requests for relief was filed in St. Charles County, Missouri. That action was dismissed with prejudice in connection with the settlement of the Tennessee case.

Concord and its directors and certain of its officers have been named as defendants in a number of securities fraud class action lawsuits and shareholder derivative actions. The lawsuits all raise allegations relating to Concord’s financial performance between October 2001 and September 2002, changes in the price of Concord’s common stock during that time, alleged failures to disclose material facts, and alleged insider trading by certain officers and directors. The lawsuits seek unspecified compensatory and punitive damages, attorneys’ fees, and injunctive and other relief. Certain of these lawsuits have been consolidated. Although these matters are in the preliminary stages, Concord believes that the claims against it and its directors and officers are without merit and intends to vigorously defend against all claims.

-15-

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

Note G — Contingencies, continuedK - Other Income

The parties are currently engaged in settlement discussions and have advisedOther income for 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 settlenine months ended September 30, 2002 includes $5.9 million representing the case, subject to the completionsale 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 agreementterminal hardware and related documentation, presentingfuture rental payments. The remaining other income represents net realized gain on sales of securities available for sale.

Note L - Investment Income

Investment income for the proposed settlement agreementthree and related documentation to the Courtnine months ended September 30, 2002 includes $1.8 million representing unrealized gains and seeking preliminary approvallosses from the Court, sending notices to all potential class members,alternative investments. The remaining investment income represents interest income on securities available for sale and allowing time for potential class members (a) to opt outother investments 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.available cash.

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.