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
[x]
 | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. | |
| For the quarterly period ended March 31, 2002 |
OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ____________ to _______________
 | 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 0-13848
___________________________
000-13848
CONCORD EFS, INC.
(Exact name
(Exact Name of registrantRegistrant as specifiedSpecified in its charter)
Delaware 04-2462252
_______________________________ _____________________
(State or other jurisdiction of (IRS Employer
Incorporation of Organization) Identification Number)
Charter)
| Delaware | 04-2462252 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
2525 Horizon Lake Drive, Suite 120, Memphis, Tennessee 38133
(Address
(Address of Principal Executive Offices)
(901) 371-8000
(Registrant's telephone number, including area code)
_________________
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrantregistrant: (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[ ]
Yes x No o
The number of shares of the registrant'sregistrant’s Common Stock, $0.33 1/3 par value, outstanding as of April 30, 20002002 was 242,319,486.
CONCORD EFS, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I - Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000 1
Condensed Consolidated Statements of Income for Three Months
ended March 31, 2001 and March 31, 2000 2
Condensed Consolidated Statements of Cash Flows for
Three Months ended March 31, 2001 and March 31, 2000 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II - Other Information
Item 1: Legal Proceedings 18
Item 2: Changes in Securities and Use of Proceeds 18
Item 6: Exhibits and Reports on Form 8-K 19
Signatures 20
| PART I — Financial Information | |||||
| Item 1. Financial Statements (Unaudited) | |||||
| Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001 | 1 | ||||
| Condensed Consolidated Statements of Income for Three Months Ended March 31, 2002 and March 31, 2001 | 2 | ||||
| Condensed Consolidated Statements of Cash Flows for Three Months Ended March 31, 2002 and March 31, 2001 | 3 | ||||
| Notes to Condensed Consolidated Financial Statements | 4 | ||||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | ||||
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 20 | ||||
| PART II — Other Information | |||||
| Item 1. Legal Proceedings | 21 | ||||
| Item 6. Exhibits and Reports on Form 8-K | 22 | ||||
| Signatures | 23 | ||||
CONCORD EFS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31 December 31
2001 2000
------------------------
(in thousands)
Assets
Current assets
Cash and cash equivalents $ 224,379 $ 231,762
Securities available for sale 706,733 649,425
Accounts receivable, net 238,248 307,756
Inventories 17,218 15,087
Prepaid expenses and other current assets 24,171 22,125
Deferred income taxes 4,013 6,732
---------- ----------
Total current assets 1,214,762 1,232,887
Loans, net 84,329 78,654
Property and equipment, net 219,625 214,662
Goodwill, net 147,525 150,049
Other intangible assets, net 78,449 75,644
Other assets 8,623 9,769
---------- ----------
Total assets $1,753,313 $1,761,665
========== ==========
Liabilities and stockholders' equity
Current liabilities
Accounts payable and other liabilities $ 217,421 $ 296,980
Deposits 124,725 125,834
Accrued liabilities 40,314 48,307
Accrued restructuring charges 91,531 3,410
Income taxes payable 11,388 -
Current maturities of long-term debt - 3,357
---------- ----------
Total current liabilities 485,379 477,888
Long-term debt 111,562 109,911
Deferred income taxes 12,785 31,871
Other liabilities 6,604 6,412
---------- ----------
Total liabilities 616,330 626,082
---------- ----------
Commitments and contingent liabilities - -
Minority interest in subsidiary 3,225 3,052
---------- ----------
Stockholders' equity
Common stock 80,758 80,485
Other stockholders' equity 1,053,000 1,052,046
---------- ----------
Total stockholders' equity 1,133,758 1,132,531
---------- ----------
Total liabilities and stockholders' equity $1,753,313 $1,761,665
========== ==========
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, | December 31, | |||||||
| 2002 | 2001 | |||||||
| (in thousands) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| 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 | 2,168,424 | 2,114,578 | ||||||
| Loans, net | 86,473 | 89,038 | ||||||
| Property and equipment, net | 282,205 | 267,451 | ||||||
| Goodwill, net | 213,736 | 158,632 | ||||||
| Other intangible assets, net | 61,608 | 85,712 | ||||||
| Other assets | 20,179 | 14,034 | ||||||
| TOTAL ASSETS | $ | 2,832,625 | $ | 2,729,445 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| 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 | 690,215 | 688,351 | ||||||
| Long-term debt | 109,297 | 119,458 | ||||||
| Deferred income taxes | 59,335 | 55,437 | ||||||
| Other liabilities | 7,188 | 4,202 | ||||||
| TOTAL LIABILITIES | 866,035 | 867,448 | ||||||
| Commitments and contingent liabilities | — | — | ||||||
| Minority interest in subsidiary | 4,429 | 3,410 | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock | 170,174 | 169,352 | ||||||
| Other stockholders’ equity | 1,791,987 | 1,689,235 | ||||||
| TOTAL STOCKHOLDERS’ EQUITY | 1,962,161 | 1,858,587 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,832,625 | $ | 2,729,445 | ||||
See Notes to Condensed Consolidated Financial Statements.
-1-
CONCORD EFS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
Three months ended
March 31
2001 2000
-----------------------
(in thousands,
except per share data)
Revenue $375,638 $302,917
Cost of operations 270,268 222,515
Selling, general and
administrative expenses 23,812 21,837
Acquisition and
restructuring charges 125,362 776
-------- --------
Operating Income (Loss) (43,804) 57,789
Other income (expense):
Interest income 15,482 9,893
Interest expense (3,123) (2,416)
-------- --------
Income (Loss) Before Taxes and
Minority Interest (31,445) 65,266
Income taxes (benefit) (5,626) 23,608
-------- --------
Income (Loss) Before
Minority Interest (25,819) 41,658
Minority interest in
net income of subsidiary 173 146
-------- --------
Net Income (Loss) $(25,992) $ 41,512
======== ========
Pro forma provision
for income taxes - 260
-------- --------
Pro forma Net Income (Loss) $(25,992) $ 41,252
======== ========
Per Share Data:
Basic and proforma basic
earnings (loss) per share $ (0.11) $ 0.17
======== ========
Diluted and proforma diluted
earnings (loss) per share $ (0.11) $ 0.17
======== ========
Average shares outstanding:
Basic shares 241,664 238,636
======== ========
Diluted shares 241,664 244,748
======== ========
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| 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
Three months ended
March 31
2001 2000
----------------------
(in thousands)
Operating activities
Net cash provided by operating activities $ 69,563 $ 58,576
Investing activities
Acquisition of securities
available for sale (172,411) (69,538)
Proceeds from sales of securities
available for sale 110,784 29,325
Proceeds from maturity of securities
available for sale 15,532 9,763
Purchases of loans (9,417) (15,072)
Acquisition of property and equipment (23,843) (19,035)
Purchased merchant contracts (7,490) (6,661)
Other investing activity 1,629 (4,298)
----------------------
Net cash used in investing activities (85,216) (75,516)
Financing activities
Net increase (decrease) in deposits (1,109) 1,472
Repayment under credit agreement (net) (14,706) -
Proceeds from notes payable 13,000 6,000
Payments on notes payable - (7,808)
Proceeds from exercise of stock options 11,085 420
Activity by pooled subsidiaries - (2,905)
----------------------
Net cash provided by financing activities 8,270 (2,821)
----------------------
Net decrease in cash and cash equivalents (7,383) (19,761)
Cash and cash equivalents
at beginning of year 231,762 173,099
----------------------
Cash and cash equivalents at end of Quarter $ 224,379 $153,338
======================
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three months ended | |||||||||
| March 31, | |||||||||
| 2002 | 2001 | ||||||||
| (in thousands) | |||||||||
| OPERATING ACTIVITIES | |||||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | $ | (181,189 | ) | $ | 69,213 | ||||
| INVESTING ACTIVITIES | |||||||||
| Acquisition of securities available for sale | (232,020 | ) | (172,411 | ) | |||||
| Proceeds from sales of securities available for sale | 205,155 | 110,784 | |||||||
| Proceeds from maturity of securities available for sale | 47,499 | 15,532 | |||||||
| Purchases of loans | (15,828 | ) | (9,417 | ) | |||||
| Net change in loans | 18,952 | 3,522 | |||||||
| Acquisition of property and equipment | (36,981 | ) | (23,843 | ) | |||||
| Purchased merchant contracts | — | (7,490 | ) | ||||||
| Business acquisitions, net | (15,509 | ) | — | ||||||
| Other investing activity | (6,681 | ) | (1,893 | ) | |||||
| NET CASH USED IN INVESTING ACTIVITIES | (35,413 | ) | (85,216 | ) | |||||
| FINANCING ACTIVITIES | |||||||||
| Net increase (decrease) in deposits | 14,251 | (1,109 | ) | ||||||
| Proceeds from borrowings | — | 13,000 | |||||||
| Payments on borrowings | (161 | ) | (14,268 | ) | |||||
| Proceeds from exercise of stock options | 15,938 | 11,085 | |||||||
| Payments on leases payable | (59 | ) | (438 | ) | |||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 29,969 | 8,270 | |||||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (186,633 | ) | (7,733 | ) | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 682,906 | 298,383 | |||||||
| 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
March 31, 2001
(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 month periodmonths ended March 31, 20012002 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 the Concord EFS, Inc. and Subsidiaries (Concord) currentannual report on Form 8-K/A10-K filed April 16, 2001February 26, 2002 for the year ended December 31, 2000.
2001.
Nature of Operations: Concord is a vertically-integratedvertically integrated electronic transaction processor. Concord acquires, routes, authorizes, captures and settles virtually all types of non-cashelectronic payment and deposit access transactions for retailers and financial institutions and merchants nationwide. Concord'sConcord’s primary activities consist of (1)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 services for credit card, debit card,supermarkets, major retailers, petroleum dealers, convenience stores, restaurants, trucking companies and electronic
benefits transfer card transactions for retailers; and (2) Network Services,
which provides network and ATM processing services for financial institutions.
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.
Reclassification: Certain 20002001 amounts have been reclassified to conform to the 2002 presentation.
Note B — Business Combinations
In June 2001 presentation.
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.
-4-
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
Note B -— 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 its common stock and $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.
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.
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,Star Systems, Inc. (STARSM), a debit network. The acquisition was accounted for as a pooling of interests transaction in which Concord issued approximately 24.848.0 million shares of its common stock.
On August 21, 2000 Concord acquired Cash Station, Inc., a debit network. The
acquisition was accounted for as a pooling of interests transaction in which
Concord issued 2.5 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 6.2
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 | |||||||||
| 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) | The 2001 amounts reflect the results of STAR operations from January 1, 2001 through January 31, 2001. Results of operations from February 1, 2001 | |
| (2) | All material activity between Concord and STAR |
-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, 2001
(1)2002. During the first quarter, management approved a corporate consolidation plan initiated to continue improvements in overall operating efficiency and integrate recent acquisitions. The 2000 amounts reflectcharge 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 resultswrite-off of Card Payment Systems operations
from January 1, 2000 through Januarynon-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, 76 of which were eliminated as of March 31, 2000 (unaudited). Results of
operations from2002. Compensation and severance costs paid and charged against the effective merger date of February 1, 2000 are included
in Concord amounts.
(2) The 2000 amounts reflect the results of Cash Station operations from
January 1, 2000restructuring charge accrual were $0.7 million through March 31, 2000 (unaudited). Results2002. As of operations
from the effective merger date of July 1, 2000 are included in Concord
amounts.
(3) The 2001 amounts reflect the results of STAR operations from January 1,
2001 through January 31, 2001. Results of operations from February 1, to March 31, 2001 are included2002, $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 summary of activity in Concord amounts.
(4) All material activity between Concordthe 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 STAR has been eliminated.
(5) The results of operations include pro forma income taxes that would have
been required if Card Payment Systems had been a taxable corporation. The
former owners of Card Payment Systems were responsible for income taxes for
the periods prior to the merger.
Concord owns a majority interest in Primary Payment Systems, Inc., a risk
management service, as a result of Concord's acquisitions of STAR and Cash
Station. 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 $2.0 million, was accounted for as
a purchase transaction and was immaterial to Concord's financial statements.
Acquisition 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 arewere a result of a company-wide consolidation plan to address areas of operating redundancies created by our
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 includeconsisted 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, and $19.1 million for the termination of certain data center services contracts.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, 73all of which have beenwere eliminated as of March 31, 2001. The individual components of2002. Compensation and severance costs paid and charged against the expenses and charges are listed below.restructuring charge accrual were $9.8 million through March 31, 2002. As of March 31, 2001, $89.3 million
of these expenses were accrued but unpaid.
As of March 31, 2001, expenses of $2.2 million, primarily2002, the consolidation activities have been completed and there was no remaining balance related to Cash
Station network deconversion costs, were accrued but unpaid.
-6-
The following table presents a summary of activity in 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 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 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.
-8-
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
Note B - Business Combinations,C — Goodwill and Other Intangible Assets, continued
The following table detailspresents 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 activity inallocation 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 restructuring charge accrual by
category, in millions:
2001
Expenses
Cash or Balance & Charges Balance
Description Non-cash 12/31/00 Accrued Activity 3/31/01
- ------------------------------------------------------------------------------------
2000:
Compensation
and severance Cash $ 1.0 $ - $ 0.8 $ 0.2
Network de-conversion
costs Cash 2.4 - 0.4 2.0
2001:
Office closings and
operational
deconversions Cash - 63.9 3.1 60.8
Duplicate or abandoned
products & systems Cash - 4.4 0.7 3.7
Duplicate or abandoned
products & systems Non-cash - 11.6 5.9 5.7
Advisory, legal, &
accounting Cash - 15.6 15.0 0.6
Contract
terminations Cash - 19.1 8.7 10.4
Compensation
and severance Cash - 9.8 2.0 7.8
Other Non-cash - 1.0 0.7 0.3
---------------------------------------------
$ 3.4 $125.4 $ 37.3 $ 91.5
=============================================
-7-
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
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 C -D — Comprehensive Income (Loss)
Total comprehensive income (loss) was ($18,886)$49.4 million and $41,666, in thousands,$(18.9) million for the three months ended March 31, 20012002 and 2000,2001, respectively. Comprehensive income includes net income and the change in the unrealized gain or loss on securities available for sale arising during the period.
-9-
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note D -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 March 31
2001 2000
------------- ------------
(in thousands, except
per share data)
Numerator:
Net income (loss) ($ 25,992) $ 41,512
========= ========
Denominator:
Denominator for basic earnings
per share, weighted-average shares 241,664 238,636
Effect of dilutive employee
stock options - 6,112
--------- --------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions 241,664 244,748
========= ========
Basic (loss) earnings per share ($0.11) $ 0.17
========= ========
Diluted (loss) earnings per share ($0.11) $ 0.17
========= ========
| Three months ended | |||||||||
| March 31, | |||||||||
| 2002 | 2001 | ||||||||
| Numerator: | |||||||||
| Net income (loss) | $ | 54,209 | $ | (25,992 | ) | ||||
| Denominator: | |||||||||
| Denominator for basic earnings per share, weighted-average shares | 508,699 | 483,329 | |||||||
| Effect of dilutive stock options | 21,573 | — | |||||||
| Denominator for diluted earnings per share, adjusted weighted-average shares and assumed conversions | 530,272 | 483,329 | |||||||
| Basic earnings (loss) per share | $ | 0.11 | $ | (0.05 | ) | ||||
| Diluted earnings (loss) per share | $ | 0.10 | $ | (0.05 | ) | ||||
Excluding acquisition, costsrestructuring and restructuringwrite-off charges and related taxes, diluted earnings per share for the three month periodmonths ended March 31, 2002 and 2001 were $0.16 and 2000 were
$0.24 and $0.17,$0.12, respectively. Earnings (loss) per share and related per share data have been restated to reflect all stock splits.
-8-
Note F — 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.
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.
-10-
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
Note E -F — Operations by Business Segment, continued
Business segment information for the three months ended March 31, 2002 and 2001 is presented below (in thousands):
| 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 | ||||||||
| 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.
-11-
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.
-12-
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 may 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) 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 99.2 to our annual report on Form 10-K filed on February 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 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 the systems andpayment processing that allow retail clients
to accept virtually any type of cashless payment, including all card types-
credit, debit, electronic benefits transfer (EBT), fleet, prepaid and automated
clearing house (ACH) -- and a variety of check-based options. Payment Services
also includes providing payment cards that enable drivers offor supermarkets, major retailers, petroleum dealers, convenience stores, restaurants, trucking companies, to purchase fuel and obtain cash advances at truck stops.
independent retailers.
Network Services includes terminal driving and monitoring for ATMs, transaction routing and authorization via creditthe combined STARsm, MAC®, and Cash Station® debit network gateways,as well as other debit networks, deposit risk management, and real-time card management and authorization for onlinepersonal identification number (PIN)-secured debit and signature debit cards. We
alsoIn addition, we operate the network switch that connects a coast to coastcoast-to-coast network of ATMs and POSpoint of sale (POS) locations that accept debit cards issued by our member financial institutions. Our network access services include transaction switching and settlement.
Industry segment information, in thousands, for the three months ended March 31,
2001 and 2000 is presented below.
Payment Network
Services Services Other Total
---------- ---------- --------- ----------
2001
Revenue $ 227,860 $ 147,778 $ - $ 375,638
Cost of operations (185,839) (84,429) - (270,268)
Selling, general &
administrative expenses - - (23,812) (23,812)
Acquisition &
restructuring charges (21,787) (103,575) - (125,362)
Taxes & interest, net - - 17,985 17,985
Minority interest
in subsidiary - - (173) (173)
--------------------------------------------
Net income (loss) $ 20,234 $ (40,226) $ (6,000) $ (25,992)
============================================
2000
Revenue $ 190,397 $ 112,520 $ - $ 302,917
Cost of operations (150,821) (71,694) - (222,515)
Selling, general &
administrative expenses - - (21,837) (21,837)
Acquisition &
restructuring charges (776) - - (776)
Taxes & interest, net - - (16,131) (16,131)
Minority interest
in subsidiary - - (146) (146)
--------------------------------------------
Net income (loss) $ 38,800 $ 40,826 $(38,114) $ 41,512
============================================
-9-
-13-
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
MANAGEMENT’S DISCUSSION & ANALYSIS OF
FINANCIAL STATEMENTSCONDITION AND RESULTS OF OPERATIONS
In March 31,2002 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 expect 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 Note F - Subsequent Event
In Aprilwe expanded our debit network in our Network Services area. On February 1, 2001 Concord increased its ownership positionwe 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 all of STAR’s outstanding common stock.
As a result of our acquisition of STAR and subsequent purchase of shares, we acquired a majority interest in Primary Payment Systems, Inc., a company providing deposit risk management services to 85% through the purchase of newly issued shares, which largely fundedmerchants and financial institutions. We own an 85.5% interest in Primary Payment Systems'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 of Wally Industries, Inc. (doing businessd/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 WJM Technologies). The incremental investment was not material to Concord's
financial statements.
-10-
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2001
You should read the following discussion together with our condensed
consolidated financial statementswell as provide additional cross-selling opportunities and the notes to the condensed consolidated
financial statements which are included in this report. This management's
discussion and analysis contains forward-looking statements that reflect our
plans, estimates and beliefs about future events. These forward-looking
statements are not guarantees of future performance and involve risks,
uncertainties and assumptions, including those set forth in this paragraph.
Important factors that could cause actual results to differ materially from
those discussed in the forward-looking statements include, but are not limited
to, (i) the loss of key personnel or inability to attract additional qualified
personnel, (ii) risks related to acquisitions (including the acquisition of Star
Systems, Inc.), (iii) changes in card association rules, products, or practices,
(iv) changes in card association fees, (v) restrictions on surcharging or a
decline in the deployment of automated teller machines, (vi) dependence on VISA
and MasterCard registrations, (vii) the credit risk of merchant customers,
(viii) susceptibility to fraud at the merchant level, (ix) increasing
competition, (x) the loss of key customers, (xi) continued consolidation in the
banking and retail industries, (xii) changes in rules and regulations governing
financial institutions, (xiii) the inability to remain current with rapid
technological change, (xiv) dependence on third-party vendors, (xv) the
imposition of additional state taxes, (xvi) the adverse impact of shares
eligible for future sale, (xvii) volatility of our common stock price, and
(xviii) changes in interest rates. These forward-looking statements involve
substantial risks and uncertainties which we believe are within the meaning of
the Private Litigation Reform Act of 1995. Words such as "expect," "anticipate,"
"intend," "plan," "believe," "estimate" and variations of such words and similar
expressions are intended to identify such forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this quarterly report might not occur. See the cautionary
statements included as Exhibit 99 to the Form 10-Q for the quarter ended March
31, 1999 filed on May 11, 1999 for a more detailed discussion of the foregoing
and other factors.
Overview
Concord EFS, Inc. is a vertically-integrated electronic transaction processor.
We acquire, route, authorize, capture, and settle all types of non-cash payment
transactions for retailers and financial institutions nationwide. Our primary
activities consist of Payment Services, which provides payment processing for
supermarkets, major retailers, petroleum dealers, convenience stores, trucking
companies, and independent retailers, and Network Services, which provides
automated teller machine (ATM) processing, debit card processing, and nationwide
debit network access for financial institutions.
augment customer retention.
Payment Services provides the systems and processing that allow retail clients to accept virtually any type of cashlesselectronic payment, including all card types-
types—credit, debit, electronic benefits transfer (EBT), fleet, prepaid, and automated
-11-
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2001
Overview, continued
clearing house (ACH) -- andproprietary 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 retailersmerchants with point of
sale (POS)POS terminal equipment, transaction routing and authorization, settlement, funds movement, and sponsorship into all credit card associations (such as VISA and MasterCard) and major debit networks (such as STARsm,STAR, Pulse and NYCE).
Early in 2000 we completed two acquisitions in the Payment Services area. On
January 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 (ISOs), which in turn sell those services to
retailers. The acquisition was accounted for as a pooling of interests
transaction in which we exchanged 6.2 million shares of our stock for all the
outstanding shares of Card Payment Systems' common stock. We incurred
acquisition costs of $0.8 million related to this transaction during the first
quarter of 2000. On February 7, 2000 we completed our acquisition of Virtual
Cyber Systems, Inc., an Internet software development company. This acquisition,
for which we paid approximately $2.0 million, was accounted for as a purchase
transaction and was immaterial to our financial statements.
Network Services includes terminal driving and monitoring for ATMs, transaction
routing and authorization via credit and debit network gateways, and real-time
card management and authorization for online debit and signature debit cards. We
also operate the switch that connects a coast to coast network of ATMs and POS
locations that accept debit cards issued by our member financial institutions.
Our network access services include transaction switching and settlement.
We recently expanded our debit network in our Network Services area through two
acquisitions. On August 21, 2000 we completed our acquisition of Cash Station,
Inc., a leading Midwest debit network based in Chicago, Illinois. The
acquisition was accounted for as a pooling of interests transaction in which we
exchanged approximately 2.5 million shares of our stock for all of the
outstanding common stock of Cash Station. 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 24.8 million shares
of our stock for all of STAR's outstanding common stock.
We believe the STAR acquisition lays the foundation for important growth
opportunities in the future for our Network Services segment. Our debit network
which is comprised of our STAR, MAC, and Cash Station networks, now has 6,500
financial institution members with 124 million cards. Consumers carrying these
cards have access to their deposit accounts at approximately 180,000 ATMs and
-12-
-14-
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S
MANAGEMENT’S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2001
Overview, continued
720,000 POS locations nationwide.
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 national networkacquisition will increase our control over the sales channel, including pricing and compensation. We expect the acquisition to reduce the average cost of cardsacquiring merchant contracts, reduce the cost of operations, and terminals providesincrease selling, general and administrative expenses.
In the critical mass necessaryfirst quarter of 2002 we initiated a consolidation plan to bring new productscontinue 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. We incurred a charge of $30.6 million, net of taxes, related to the financial services industry, including person-to-person payments, check
electronification,consolidation plan. During the next 12 months, we will implement the plan and secure debit paymentfocus on consolidation activities for operational improvements in our Payment Services segment.
In the Internet. We also ownfirst quarter of 2001 we initiated a majority interest in Primary Payment Systems, Inc., a company providing deposit
risk management servicescompany-wide consolidation plan to merchantsaddress areas of operating redundancies created by our recent acquisitions. The plan included consolidation of data centers and financial institutions.
An exampleother 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 vertical integrationSTAR organization into Concord. We incurred a charge of $86.4 million, net of taxes, related to our services isconsolidation 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 STAR. Our consolidation activities to capture synergies within our ownershipnetwork operations and align our resources across the enterprise for greater efficiency and improved service delivery were completed as of two
financial institutions, EFS National Bank and EFS Federal Savings Bank. These
banks allow us to provide our merchants with bank sponsorship into credit and
debit card associations, and to own and deploy ATMs. They also provide
traditional banking activities such as lending and deposit-taking.
March 31, 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 in accordance with the pooling of interestspooling-of-interests method of accounting for business combinations. The financial information includes the financial position, operating results, and cash flows of STAR for all periods presented.
Components of Revenue and Expenses
Payment
Network Services and NetworkPayment 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 attributed togenerated 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.
A principal component of our revenue is derived from Network Services (40.2% and 39.3% for the three months ended March 31, 2002 and 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 (60.7%(59.8% and 62.9%60.7% for the three month periodmonths ended March 31, 20012002 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. TheOne result of basing revenue on the total dollar volume processed is that lower ticket size or other principal componentreduction in total purchases causes a reduction in our revenue. However, net income is not correspondingly affected because the majority of our revenue derives from Network Services
(39.3% and 37.1% for three month period ended March 31, 2001 and 2000). 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.
-13-
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2001
Components of Revenue and Expenses, continued
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 ended March 31
2001 2000
---------------------------
(in millions)
Payment Services $227.8 $190.4
Network Services 147.8 112.5
------ ------
Total $375.6 $302.9
====== ======
| Three months ended | ||||||||
| March 31, | ||||||||
| 2002 | 2001 | |||||||
| Network Services | $ | 185.6 | $ | 147.8 | ||||
| Payment Services | 276.5 | 227.8 | ||||||
| Total | $ | 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 associations.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 efficient marketing, 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.
-16-
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 ended March 31
2001 2000
---------------------------
(in millions)
Payment Services $185.9 $150.8
Network Services 84.4 71.7
------ ------
Total $270.3 $222.5
====== ======
| Three months ended | ||||||||
| March 31, | ||||||||
| 2002 | 2001 | |||||||
| Network Services | $ | 94.6 | $ | 84.4 | ||||
| Payment Services | 227.2 | 185.9 | ||||||
| Total | $ | 321.8 | $ | 270.3 | ||||
Our selling, general and administrative expenses include certain salaries and wages and other general administrative expenses (including certain amortization
costs).expenses. These costs are not allocated to the reportable segments.
-14-
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2001
Results of Operations
The following table shows, for the periods indicated, the percentpercentage of revenue represented by certain items on our consolidated statements of income:
Three months ended March 31
2001 2000
---------------------------
Revenue 100.0% 100.0%
Cost of operations 71.9 73.5
Selling, general and
administrative expenses 6.3 7.2
Acquisition and
restructuring charges 33.5 0.3
----- -----
Operating income (loss) (11.7) 19.0
Interest income, net 3.3 2.5
----- -----
Income (loss) before taxes (8.4) 21.5
Income taxes (benefit) (1.5) 7.8
----- -----
Net income (loss) (6.9%) 13.7%
===== =====
Three months ended March 31,
| 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
First Quarter 2002 Compared to 2001 compared
Revenue in the first quarter 2002 increased 23.0% to 2000
Revenue increased 24.0% to$462.1 million from $375.6 million in 2001 from $302.9 million in 2000.2001. In 2001the first quarter 2002 Network Services accounted for 40.2% of revenue, and Payment Services accounted for 60.7% of revenue, and Network Services
accounted for 39.3%59.8%. Revenue from Payment Services increased 19.7%, 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. Network Services revenue in the first quarter 2002 increased 31.3% over 200025.6% compared to 2001 as a result of an increase in the number of ATMs driven, 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 first quarter 2002 increased 21.3% compared to 2001, due primarily to increased transaction volumes. The increased volumes resulted from the addition of new merchants and the increased use of debit and EBT card transactions at new and existing merchants.
Cost of operations decreased in 2001the first quarter 2002 to 71.9%69.6% of revenue compared to 73.5%71.9% in 2000.2001. This percentage decrease was due primarily to a decrease as a percent of revenue, in
certain operating costs, such as telecommunications, payroll expenses and depreciation and amortization expenses.
Selling,expenses, improvements in operating efficiencies and economies of scale.
In the first quarter 2002 selling, general and administrative expenses decreased as a percentpercentage of revenue to 5.4% from 6.3% in 2001 from 7.2% in 2000.2001. Overall, selling, general and administrative expenses icreasedincreased to $23.8$24.8 million from $21.8 in the first quarter 2002 from $23.8 million in 2001. This increase is primarily attributable to the expenses related to the acquisition of 2000.
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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSIONH & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2001
Three months ended March 31, 2001 comparedF Services, Inc. sales force.
Acquisition, restructuring and write-off charges decreased to 2000, continued
Acquisition expenses and restructuring charges increased to$47.5 million in 2002 from $125.4 million in 2001 from $0.8 million in 2000.2001. In the first quarter of 2001,2002 we initiated a company-wide consolidation plan to continue improvements in order to address areas ofoverall operating redundancies created by ourefficiency and integrate recent acquisitions. The plan includes consolidationclosing and consolidating certain facilities, exiting several non-strategic businesses, eliminating approximately 165 positions, and writing off impaired assets. The charge of data centers$47.5 million ($30.6 million, net of tax) consisted of $6.7 million for closing and otherconsolidating certain facilities, to eliminate redundancies,$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 reassignment
or terminationwrite-off 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 12 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. Duringnon-performing purchased merchant contracts identified in the first quarter and $7.9 million was incurred for the write-off of 2001, we incurred a charge of $86.4 million, net of taxes,
related to our consolidation plan, including costs incurredcapitalized software and computer and communications equipment no longer 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 packages of $9.8 million to diminish
redundancies and consolidate operational groups. In addition to these charges we
also incurred legal, accounting and advisory fees totaling $15.6 million in
connection with the STAR merger.
use.
Excluding acquisition, restructuring and restructuringwrite-off charges, operating income as a percentpercentage of revenue increased to 25.0% in the first quarter 2002 from 21.7% in 2001 from 19.3% in 2000. An2001. This increase in operating income resulted from improved operating efficiencies and economies of scalescale.
Net interest income improved as a percentage of revenue to 3.5% in the first quarter 2002 compared to 3.3% in 2001. This improvement resulted primarily from our increased investment in various securities of available cash flow from operations plus approximately $420.6 million in proceeds from our June 2001 stock offering, which increased interest income by 26.4% compared to 2001.
Our overall tax rate increased to 35.5% in the first quarter 2002 compared to (17.9%) in 2001. Excluding acquisition, restructuring and decliningwrite-off charges, the tax rate was 35.5% in 2002 and 2001.
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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
First Quarter 2002 Compared to 2001, continued
Net income as a percentage of revenue increased to 11.7% in the first quarter 2002 from (6.9%) in 2001. Excluding acquisition, restructuring and write-off charges, net income as a percentage of revenue was 18.4% in 2002 compared to 16.1% in 2001. This increase is the result of improved margins, reduced selling, general and administrative expenses as a percentage of revenue.
Net interest income improved as a percent of revenue to 3.3% in 2001 compared to
2.5% in 2000. The improvement was the result of returns we received on our
investing available cash from operations, whichand increased interest income by
56.5% over 2000.
Our overall tax rate decreased to (17.9%) for the three months ended March 31,
2001 compared to 36.2% for the same period in 2000. Excluding acquisition and
restructuring charges, the tax rate was 35.5% in 2001 compared to 35.9% for the
same period in 2000.
Net income, as a percent of revenue, decreased to (6.9%) for the three months
ended March 31, 2001 from 13.7% for the same period in 2000. The primary factor
in this net margin decrease was the acquisition and restructuring charges.
Excluding these charges and related tax items, net income, as a percent of
revenue, increased to 16.1% for the three months ended March 31, 2001 compared
to 13.9% for the same period in 2000.
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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2001
income.
Liquidity and Capital Resources
In the three months ended March 31 2001,first quarter 2002 we generated $69.6 million from
operating activities. We also received $13.0used $181.2 million in proceeds from Federal
Home Loan Bank (FHLB) advances and $11.1operating 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. Deposits decreased $1.1plan and deposits increased $14.3 million. From
cash provided from operating and financing activities, we invested $46.1We liquidated $20.6 million in securities, net of salespurchases and maturities. We also spent $23.8$37.0 million on capital additions and $7.5$15.5 million to purchase merchant contracts. Additionally,
we reduced long-term debt by $14.7 million.for business acquisitions. Our capital additions were primarily for communications equipment, point-of-sale 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, furniture,software, 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-ownedwholly 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
There
Since December 31, 2001, there have been no significant changes with regard to market risk that would require further quantitative or qualitative disclosure. For our disclosures on quantitative and qualitative disclosures about market risk sincefor the fiscal year ending December 31, 2000. For
additional information,2001, refer to Exhibit 99.3 - Supplemental Consolidated
Financial Statements and Notes13 to our annual report on Form 8-K/A10-K, filed April 16, 2001.
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CONCORD EFS, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 1:1. Legal Proceedings
From time to time Concord is involved in various litigation matters arising out of the conduct of its 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 has beenwas named as a defendant in a purported class action lawsuit filed in September 2000 in the Circuit Court of Tennessee for the Thirtieth Judicial District at Memphis alleging that certain of EFS National Bank'sBank’s rate and fee changes were improper under Tennessee law due to allegedly deficient notice. The plaintiffs recently 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.changes over a several-year period. The amended complaint seeks damages in excess of $15$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 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. 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 thatit has various defenses to the claims against it, are without merit and if these matters cannot be resolved by settlement, EFS National Bank intends to vigorously defend against all claims.
Card Payment Services, a subsidiary of the Company has been named as a defendant
in a class action suit filed in the District Court, Harrison County, Texas.
Plaintiffs allege that the subsidiary has violated Section 227(b)(1)(C) of the
Telephone Consumer Protection Act, 47 U.S.C. Section 227 et seq., and Section
35.47(g) of the Texas Business and Commerce Code by sending unsolicited
advertisements by facsimile. Plaintiffs seek injunctive relief and statutory
damages in the amount of $500 per facsimile and treble damages in the amount of
$1500 per facsimile for willful or knowing violations of the statutes. The full
amount of damages sought by plaintiffs is not known at this time. Although this
matter is in the preliminary stages, Card Payment Services intends to file an
answer denying all liability to Plaintiffs and intends to vigorously defend
itself against all claims.
We are also a party to various routine lawsuits arising out fo the conduct of
our business, none of which are expected to have a material adverse effect upon
our financial condition or results of operations.
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CONCORD EFS, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds
On February 1, 2001, we issued 23,970,756 shares of our common stock in
connection with our acquisition of all the outstanding common stock of Star
Systems, Inc. (STAR). In the merger, STAR became our wholly-owned subsidiary,
and all the outstanding common stock of STAR at the time of the merger was
converted into shares of our common stock.
The 23,970,756 shares issued to the 49 shareholders of STAR who held all of the
outstanding shares of STAR common stock at the time of the merger were issued
without registration under the Securities Act of 1933 in reliance on the
exemption under Section 4(2) of that Act. We believe that each of these
shareholders was either an accredited investor or had such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of the investment in shares of Concord; was afforded access to
material information about Concord, understood that the shares of Concord
acquired in the merger were "restricted securities" and agreed not to transfer
those shares except pursuant to an effective registration statement under the
Securities Act of 1933 or an exemption from registration under that act.
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Item 6:6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Agreement and Plan of Merger among Concord EFS, Inc., Orion Acquisition
Corporation, and Star Systems, Inc. dated as of October 6, 2000 is
incorporated herein by reference to Exhibit 10 to the quarterly report on
Form 10-Q, (File No. 000-13848) filed on November 14, 2000.
3.2 Restated Certificate of Incorporation of the registrant is incorporated
herein by reference to Exhibit 4.1 to the registrant's registration
statement of Form S-8 (File No. 333-74215) filed on March 10, 1999.
3.3 Certificate of Amendment to the Restated Certificate of Incorporation of
the registrant is incorporated herein by reference to Exhibit 3.3 to
Amendment No. 2 to the registrant's registration statement on Form S-3
(File No 333-77829), filed on June 14, 1999.
3.4 By-Laws of the registrant are incorporated herein by reference to Exhibit
4.2 to the registrant's registration statement on Form S-8 (File No. 333-
74215) filed on March 10, 1999.
(b) 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 |
On February 14, 2001,January 22, 2002, we filed a current report on Form 8-K announcing we
had completed our acquisition of Star Systems, Inc. on February 1, 2001.
We subsequently amended the February 14, 2001 Form 8-K on April 16, 2001 to report, the audited financial statementsunder Item 5 of Star Systems, Inc. andthat form, developments with regard to report
and file the supplemental financial statements of Concord giving
retroactive effect to the merger of Concord and STAR on February 1, 2001,
which was accounted for as a pooling of interests.
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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: May 9, 2002 | By: | /s/ Dan M. Palmer Dan M. Palmer Chairman of the Board and Chief Executive Officer | ||
| Date: May 9, 2002 | By: | /s/ Edward T. Haslam Edward T. Haslam Senior Vice President, Chief Financial Officer and Treasurer | ||
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CONCORD EFS, INC. Date: May 15, 2001 By: /s/ Dan M. Palmer
--------------------------
Dan M. Palmer
Chairman of the Board and
Chief Executive Officer
Date: May 15, 2001 By: /s/ Edward T. Haslam
-------------------------
Edward T. Haslam
Chief Financial Officer
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