SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission file number 2-89213
CONCORD EFS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2462252
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2525 Horizon Lake Drive, Suite 120, Memphis, Tennessee 38133
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, Including Area Code: (901) 371-8000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $33.1/3 Par Value
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 has required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X
No
Disclosure of delinquent filings pursuant to Item 405 of Regulation S-K
will be contained in the registrant's proxy statement for its 1995
annual meeting of shareholders, which statement is incorporated by
reference in Part III of this Form 10-K. Yes No X
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 1, 1996 was $1,057,284,620.
The number of shares of the registrant's Common Stock outstanding as of
March 1, 1996, was 37,760,156.
DOCUMENTS INCORPORATED BY REFERENCE
PART II
Portions of this Registrant's 1995 Annual Report to Shareholders are
incorporated by reference into Items 5, 6, 7 and 8.
PART III
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held May 2, 1996 are incorporated by reference into
Items 10, 11, 12 and 13.
<PAGE>
CONCORD EFS, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Item No.
- -------- PART I
Page
1. Business ----
Description of Business 2
Data Processing and Field Service Support 2
Marketing and Customers 3
Competition 3
Supervision and Regulation 3
Employees 4
2. Properties 5
3. Legal Proceedings 5
4. Submission of Matters to a Vote of Security Holders 5
PART II
5. Market for Registrant's Common Stock
and Related Stockholder Matters 5
6. Selected Financial Data 5
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
8. Financial Statements and Supplementary Data 6
9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosures 7
PART III
10. Directors and Executive Officers of the Registrant 7
11. Executive Compensation 7
12. Security Ownership of Certain Beneficial Owners
and Management 7
13. Certain Relationships and Related Transactions 7
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 7
Index to Exhibits 7
Signatures 9
<PAGE>
PART I
Item 1. Business
Concord EFS, Inc. and its subsidiaries (the Company) provide electronic
transaction processing, authorization and settlement services and ATM
processing and ATM driving services to retailers, grocery stores,
financial institutions and trucking companies nationwide. The related
electronic terminal equipment used in transaction processing is sold
and/or maintained by the Company .
On February 20, 1992, Concord Computing Corporation changed its name to
Concord EFS,Inc.(the Parent) and became a holding company.Subsequently,
Concord Computing Corporation (Concord) incorporated as a Delaware
corporation and acquired the operational assets and liabilities of the
Parent. Concord is a wholly owned subsidiary of the Parent. The
Parent was originally incorporated as a Massachusetts company on
January 23, 1970 and has operated continuously since that time. During
1990, the Parent reincorporated in Delaware. The Parent became a one-
bank holding company on December 1, 1992, in connection with the
formation of EFS National Bank (EFSNB) described below.
The Parent acquired a 100% interest in EFS, Inc. (EFS), a Delaware
corporation, on March 15, 1985. EFS National Bank (formerly EFS, Inc.)
(EFSNB), sells credit, debit, and electronic benefits transfer (EBT)
card authorization, data capture and settlement services to retailers
and grocery stores. It also sells cash card and cash forwarding
services to trucking companies through agreements with a network of
truck stops. On December 1, 1992, EFSNB was formed. Simultaneous to
its formation, the Bank issued 1,000,000 outstanding shares of common
stock to the Parent in exchange for all of the outstanding shares of
common stock of EFS, Inc., a wholly owned subsidiary of the Parent.
EFS, Inc. was subsequently dissolved.
EFSNB's formation occurred so the Company could provide a full spectrum
of electronic transaction processing and settlement services to its
customers. Previously, EFS had to contract settlement services and
sponsorship into bankcard associations with unrelated financial
institutions. As a bank, EFSNB can provide its existing services in a
more efficient and cost effective manner as well as new services such
as debit card processing to retailers, convenience stores and
supermarkets and banking services to trucking companies and truck
drivers.
The services of EFSNB do not consist of material amounts of traditional
banking activities (i.e., consumer and commercial loans, demand and
time deposits, real estate, etc.). Therefore, the Company did not
change to the reporting format and related disclosures normally
required for bank holding companies.
Concord Computing Corporation's (Concord) primary activity is check
authorization and POS terminal driving, servicing and maintenance for
grocery store chains. It also owns and operates cash dispensing
machines (ATMs) at truck stops and grocery stores nationwide.
Additionally, Concord provides certain processing services for its
affiliated companies.
The Parent acquired a majority interest in Network EFT, Inc.(NEFTI ), a
Delaware corporation located in Chicago, Illinois, on June 14, 1981.
NEFTI sells electronic funds transfer services to financial
institutions in grocery stores. Depositors of financial institutions
may make deposits and withdrawals and perform electronic banking
-1-
<PAGE>
transactions at these terminals. The Parent sold a 37% interest in
NEFTI to a customer in April of 1983. The Parent currently retains a
57% interest in NEFTI.
The Parent incorporated a wholly-owned Tennessee subsidiary, Concord
Equipment Sales, Inc. (formerly VMT, Inc.) on September 5, 1991.
Concord Equipment Sales, Inc. purchases from manufacturers point-of-
sale (POS) terminal products and communications equipment for use by
the Company's customers in connection with the Company's transaction
processing services.
Concord Computing Corporation incorporated a wholly-owned Delaware
subsidiary, Concord Retail Services, Inc. (CRS). CRS provides POS
terminal driving, servicing and maintenance to the Company's customers
in the northeast United States.
Description of Business
The Company operates exclusively in the payment services industry. The
primary components of the services are:
Bank Card Services consist of credit, debit, and EBT card
authorization, data capture and settlement services provided to
retail and grocery store merchants.
Trucking Services consist of cash card, cash forwarding services,
ATM operations and banking services for trucking companies and
truck drivers.
Check Services consist of check authorization services sold to
retail and grocery store merchants.
In addition, the Company provides Electronic Funds Transfer (EFT)
services and sells electronic terminal equipment to customers who are
users of the services.
All of these services are sold directly to the end-user on a nationwide
basis.
The following table is a listing of revenues by service type for the
three years ended December 31:
1995 1994 1993
-------- ------- -------
(in thousands)
Bank Card Services $ 92,223 $66,959 $47,482
Trucking Services 16,687 12,853 12,022
Check Services 12,168 9,954 9,279
EFT and Terminal Services 6,684 6,447 6,660
-------- ------- -------
$127,762 $96,213 $75,443
======== ======= =======
As transaction service revenues are similar in nature, total operating
expenses are not directly attributable to any individual revenue type.
Data Processing and Field Service Support
The Company maintains a data processing facility in Elk Grove,Illinois,
primarily for the Company's Check Services and EFT Services, and a data
processing facility in Memphis, Tennessee for Trucking Services and
Bank Card Services. These facilities utilize fully redundant computers
-2-
<PAGE>
which provide the high levels of availability and the transaction
speed necessary for processing large numbers of financial transactions.
Backup power is available to provide service in the event of power
failure at a computer center. The Company maintains dedicated
telephone networks, packet switching networks and In-Watts networks
connecting data processing centers to retail stores where transaction
and electronic funds transfer terminals are located.
The Company also provides field support and repair services for POS
terminal installations. The Company maintains field support and repair
facilities in Elk Grove, Illinois, Aurora, Colorado and West Chester,
Pennsylvania.
Marketing and Customers
The Company markets its services and products on a nationwide basis
directly to retail merchant companies, electronic funds transfer
networks, financial institutions and trucking companies through sales
offices located in suburbs of Chicago and Memphis. The Company's
executive officers participate in the Company's marketing efforts.
The Company's principal services are designed and programed by the
Company, and, in general, utilize commonly available system hardware
and components and are not dependent upon scarce materials, patents or
trademarks for continued viability.
Competition
The Company competes with a large number of suppliers of services and
products, many of which are large companies with substantially greater
financial and marketing resources than those of the Company. The
Company's competition includes other providers of data processing and
switching services including several banks and/or bank holding
companies, electronic funds transfer networks and equipment vendors.
The markets for the services and products which are offered by the
Company are highly fragmented, and no supplier has a dominant share of
the market for Check Services, EFT Services, Terminal Products or Bank
Card Services. One supplier, ComData Network, a wholly-owned sub-
sidiary of Ceridian Corporation, has a dominant share of the Trucking
Services market. Another competitor, First Data Corporation, has a
large share of the Bank Card Services market.
The Company competes in its markets in terms of price, quality, speed
and flexibility in customizing systems to meet the particular needs of
customers. The Company believes that it is one of the few integrated
suppliers of both services and hardware for use in transaction services
at retail locations.
Supervision and Regulation
Concord EFS, Inc. and its subsidiaries are subject to a number of
federal and state laws. As a bank holding company, the Parent is
subject to regulation under the Bank Holding Company Act of 1956, as
amended (the "Act") which is administered by the Federal Reserve Board
(the "Board"). Under the Act, the Company is generally prohibited from
directly engaging in any activities other than banking, managing or
controlling banks, and bank-related activities. Also, the Act
prohibits a bank holding company, with certain exceptions, from
acquiring, directly or indirectly, ownership or control of 5% or more
of the voting shares of any company which is not a bank or bank holding
company. The primary exception to this prohibition involves activities
which the Board determines are closely related to banking. A bank is
-3-
<PAGE>
also generally prohibited from engaging in certain tie-in arrangements
with its bank holding company or affiliates with respect to the lease
or sale of property, furnishing of services, or the extension of
credit. The Act contains certain restrictions concerning future
mergers with other bank holding companies and banks. The Financial
Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA)
contains certain merger restrictions with Savings and Loan
Associations.
Under the Act, a bank holding company is required to file with the
Board an annual report and such additional information which the Board
may require. The Board may examine the Company's and each of its
subsidiaries' records, including a review of capital adequacy in
relation to guidelines issued by the Board. If the level of capital
is deemed to be inadequate, the board may restrict the future expansion
and operations of the Company. The Board possesses cease and desist
powers over a bank holding company if its actions or actions of any of
its subsidiaries represent unsafe or unsound practices or violations of
law.
Federal law also regulates transactions among the Company and its
affiliates, including the amount of a banking affiliate's loan to, or
investments in non-bank affiliates and the amount of advances to third
parties collateralized by securities of an affiliate. In addition,
various requirements and restrictions under federal and state laws
regulate the operations of the Company's banking affiliates, requiring
the maintenance of reserves against deposits, limiting the nature of
loans and the interest that may be charged thereon, restricting
investments and other activities. The Company's bank affiliates are
also limited in the amount of dividends that they may declare. Prior
regulatory approval must be obtained before declaring any dividends if
the amount of capital, surplus and retained earnings is below certain
statutory limits.
As a national bank, EFSNB operates under the rules and regulations of
the Comptroller of the Currency and is also a member of the Federal
Reserve System, subject to provisions of the Federal Reserve Act. The
FDIC insures the domestic deposits of all the Banks. Periodic audits
and regularly scheduled reports of financial information are required
by all regulatory agencies. Federal laws also regulate certain
transactions among EFSNB and its affiliates, including Concord EFS,Inc.
The Company's EFT Services sold to financial institutions are regulated
by certain State and Federal banking laws. Material changes in
federal or state regulation could increase the cost to the Company of
providing EFT Services, change the competitive environment or otherwise
adversely affect the Company. The Company is not aware of any such
change which is pending.
Employees
As of December 31, 1995, the Company employed 474 full and part-time
personnel, including 51 data processing and technical employees, 257 in
operations, and 166 in sales and administration. Many of the Company's
employees are highly skilled, and the Company believes its future
success will depend in a large part on its ability to attract and
retain such employees. The Company does not have employment contracts
with any of its personnel. None of the Company's employees are
represented by a labor union and the Company has experienced no work
stoppages. The Company considers its employee relations to be
-4-
<PAGE>
excellent.
Item 2. PROPERTIES
The following table sets forth certain information concerning the
principal facilities of the Company, all of which are leased:
APPROXIMATE
AREA IN LEASE
LOCATION SQUARE FEET PRIMARY USES EXPIRATION .
Memphis, TN 34,125 Corporate Offices July 31, 1997
& EFSNB Operations
Elk Grove, IL 18,300 Data Processing, May 31, 1996
Field Service,
NEFTI and Concord
Operations
Aurora, Co 2,800 Field Service month to month
West Chester,
Pennsylvania 1,300 Field Service month to month
The Company believes all facilities are adequate.
Item 3. LEGAL PROCEEDINGS
The Company is a party to various routine lawsuits arising out of the
conduct of its business, none of which are expected to have a material
adverse effect upon the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders in the fourth
quarter of fiscal 1995.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
This information is included under the caption "Market Value For the
Registrant's Common Stock and Related Stockholders Matters" on page 5
of the Company's Annual Report (the "Annual Report"), and is herein
incorporated by reference.
Item 6. SELECTED FINANCIAL DATA
This information is included under the caption "Selected Consolidated
Financial Data" on page 1 of the Annual Report and is herein
incorporated by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This information is included under the captions "Management's Discus-
sion and Analysis of Financial Condition and Results of Operations" on
pages 3, 4 and 5 of the Annual Report and is herein incorporated by
reference.
-5-
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial state-
ments set forth below are included on pages 6 - 16 of the Annual
Report, and are incorporated herein by reference.
Report of Independent Auditors.
Consolidated Balance Sheets as of December 31, 1995 and 1994.
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1994, and 1993.
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994, and 1993.
Notes to Consolidated Financial Statements as of December 31, 1995.
Quarterly results of operations for the years ended December 31, 1995
and 1994 on page 5 of the Annual Report are incorporated herein by
reference.
Schedule II, Valuation and Qualifying Accounts, is listed below. All
schedules for which provision is made in the applicable accounting
regulations of the Securities & Exchange Commission are not required
under the related instructions and, therefore, have been omitted.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT
CONCORD EFS, INC.
Balance Charged to Balance
Beginning Costs and * End
of Period Expenses Deductions of Period
--------- ---------- ---------- ---------
Year ended
December 31, 1995
Allowance for
uncollectible accounts $750,206 $500,000 $490,771 $759,435
======== ======== ======== ========
Year ended
December 31, 1994
Allowance for
uncollectible accounts $605,247 $480,000 $355,041 $750,206
======== ======== ======== ========
Year ended
December 31, 1993
Allowance for
uncollectible accounts $891,210 $525,000 $810,963 $605,247
======== ======== ======== ========
* Uncollectible accounts written off, net of recoveries.
-6-
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See Item 13 below.
Item 11. EXECUTIVE COMPENSATION
See Item 13 below.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See Item 13 below.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Items 10, 11, 12, and 13 is included in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be
held on May 2, 1996 under the captions "Election of Directors",
"Executive Compensation", "Stock Options", Beneficial Ownership of
Common Stock", and "Certain Transactions" and is herein incorporated by
reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) and (2) -- The response to this portion of Item 14 is
submitted as a separate section of this report.
(3) Listing of Exhibits
Exhibit
Numbers
2 Agreement and Plan of Merger dated January 12, 1990 by and
between Concord Computing Corporation, a Massachusetts
corporation , and Concord Computing Corporation, a Delaware
corporation *
3(A) Certificate of Incorporation of Concord Computing Corporation,
a Delaware corporation *
3(B) Bylaws of Concord Computing Corporation, a Delaware
corporation *
3(C) Certificate of Merger of Concord Computing Corporation, a
Massachusetts corporation, with and into Concord Computing
Corporation, a Delaware corporation, filed with the Secretary
of State of Delaware March 22, 1990 *
3(D) Articles of Merger of Concord Computing Corporation, a
Massachusetts corporation, with and into Concord Computing
Corporation, a Delaware corporation, filed with the Secretary
of State of Massachusetts March 22, 1990 *
10 1993 Incentive Stock Option Plan (incorporated by reference
from exhibit to the Registrant's Proxy Statement for the
Annual Meeting of Shareholders held on May 12, 1993.)
11 Statement Re: Computation of Per-share Earnings.
-7-
<PAGE>
13 Annual Report
22 List of Subsidiaries
Jurisdiction of
Company Organization Ownership
Concord Computing Corp. Delaware 100%
EFS National Bank National Bank Charter 100%
Network EFT, Inc. Delaware 57%
Concord Equipment Sales Tennessee 100%
23 Consent of Independent Auditors
27 Financial Data Schedule
* Incorporated by reference from exhibits to the Registrant's
Amendment No. 1 to Form 10-Q for quarter ended March 31, 1990.
(b) Reports on Form 8-K -- No reports on Form 8-K were filed during the
quarter ended December 31, 1995.
(c) Exhibits -- The response to this portion of Item 14 is submitted as
a separate section of this report.
(d) Financial Statement Schedules -- The response to this portion of
Item 14 is submitted as a
separate section of this report.
*************************************************************************
For the purposes of complying with the amendments to the rules
governing the Form S-8 (effective July 13, 1990) under the Securities
Act of 1933, the undersigned registrant hereby undertakes as follows,
which undertaking shall be incorporated by reference into registrant's
Registration Statements on Form S-8 No's. 33-60871.
-8-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has fully caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Concord EFS, Inc.
By:/s/ Dan M. Palmer
Dan M. Palmer
Chief Executive Officer
Date: March 29, 1996
/s/ Thomas J. Dowling
Thomas J. Dowling
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
- ----------------------------------------------------------------------
/s/ Dan M. Palmer Chairman of the Board and CEO March 29, 1996
Dan M. Palmer of the Company and EFS National
Bank
/s/ Edward A. Labry President of the Company and March 29, 1996
Edward A. Labry III EFS National Bank
/s/ Richard M. Harter Director and Secretary of March 29, 1996
Richard M. Harter the Company
/s/ David C. Anderson Director of the Company March 29, 1996
David C. Anderson
/s/J. Richard Buchignani Director of the Company and March 29, 1996
J. Richard Buchignani EFS National Bank
/s/ Joyce Kelso Director of the Company and March 29, 1996
Joyce Kelso EFS National Bank
/s/ Jerry D. Mooney Director of the Company March 29, 1996
Jerry D. Mooney
/s/Paul L. Whittington Director of the Company March 29, 1996
Paul L. Whittington
-9-
<PAGE>
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER-SHARE EARNINGS *
CONCORD EFS, INC.
Year Ended December 31
1995 1994 1993
----------- ----------- -----------
For primary earnings per share:
Weighted average of common
shares outstanding net of
treasury shares 36,896,309 36,212,164 35,928,549
Weighted average common
stock equivalent for stock
options by treasury stock
method 1,676,074 1,053,330 1,188,654
---------- ---------- ----------
Weighted average common and
common equivalent shares 38,572,383 37,265,494 37,117,203
========== ========== ==========
Net income $18,315,353 $12,713,370 $9,862,910
=========== =========== ==========
Per-share amount $0.47 $0.34 $0.27
===== ===== =====
For fully diluted earnings per share:
Weighted average common
and common equivalent
shares for primary earning
per share 38,572,383 37,265,494 37,117,203
Add shares representing
additional shares for stock
options based on period-end
market price 208,170 524,287
---------- ---------- ----------
Weighted average common
and common equivalent
shares-fully diluted basis 38,780,553 37,789,781 37,117,203
========== ========== ==========
Net income $18,315,353 $12,713,370 $9,862,910
=========== =========== ==========
Per-share amount $0.47 $0.34 $0.27
===== ===== =====
* Earnings per share and related per share data have been restated to
reflect stock splits issued through January 18, 1996.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and notes thereto
appearing elsewhere herein.
Fiscal Year End *
1995 1994 1993 1992 1991
(in thousands except per share data)
INCOME STATEMENT DATA:
Revenues $127,762 $96,213 $75,443 $65,562 $48,144
Cost of Operations 90,579 69,840 53,188 46,024 31,137
Selling, General and
Administrative Expenses 10,913 8,312 7,861 5,969 5,572
OPERATING INCOME 26,270 18,061 14,394 13,569 11,435
Interest, Net 2,116 1,588 825 503 661
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 28,386 19,649 15,219 14,072 12,096
Income Taxes 10,146 6,979 5,357 5,011 4,717
INCOME BEFORE MINORITY
INTEREST 18,240 12,670 9,862 9,061 7,379
Minority Interest 75 43 1 (87) (106)
NET INCOME $ 18,315 $12,713 $ 9,863 $ 8,974 $ 7,273
======== ======= ======= ======= =======
Weighted Average Common and
Common Equivalent Shares
Outstanding ** 38,572 37,265 37,117 36,779 36,664
====== ====== ====== ====== ======
Earnings Per Share ** $0.47 $0.34 $0.27 $0.24 $0.20
===== ===== ===== ===== =====
BALANCE SHEET DATA:
Working Capital $68,213 $45,717 $34,655 $26,240 $16,318
Total Assets 156,887 99,462 71,033 56,316 44,562
Long Term Debt,Less Current
Maturities 978 1,371 55
Total Stockholders' Equity 89,545 61,935 50,251 39,573 26,289
Percentage of Percentage
Revenue Change
Year FY95 FY94
End Over Over
INCOME STATEMENT DATA: 1995 1994 1993 FY94 FY93
Revenues 100.0% 100.0% 100.0% 32.8% 27.5%
Cost of Operations 70.9 72.6 70.5 29.7 31.3
Selling, General and
Administrative Expenses 8.6 8.6 10.4 31.3 5.7
OPERATING INCOME 20.5 18.8 19.1 45.4 25.5
Interest, Net 1.7 1.7 1.1 33.2 92.5
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 22.2 20.5 20.2 44.5 29.1
Income Taxes 7.9 7.3 7.1 45.4 30.3
INCOME BEFORE MINORITY
INTREST 14.3 13.2 13.1 44.0 28.5
Minority Interest 0.0 0.0 0.0 74.4 N/A
NET INCOME 14.3 13.2 13.1 44.1 28.9
==== ==== ====
* Fiscal year 1991 ended September 30. Fiscal years 1995, 1994, 1993 and 1992
ended December 31.
** Earnings per share and related per share data have been restated to reflect
stock splits issued through January 18, 1996.
-1-
<PAGE>
Dear Shareholders:
We are excited about the Company's strong financial results for 1995 and
the prospects for future years. Revenues are up 33%, Net Income is up 44%
and Earnings Per Share is up 38%. These results are ahead of management's
overall stated goals of 25% growth.
The antitrust lawsuit again a major competitor that was filed in early 1993
was resolved at midyear. Under the terms of the settlement agreement, the
details cannot be disclosed, however, there is no material financial impact
on the Company.
The new services introduced in 1994, checking accounts and processing
services for cash dispensing machines (ATMs), were near breakeven at year
end. Although a small percentage of revenues at year end, these services
continue to grow at a rapid rate. With the coming rule changes by the
networks allowing surcharging at ATMs nationwide, the Company's ATM network
should be highly profitable in 1996. Additionally, we are pursuing other
opportunities outside the trucking industry for new checking accounts.
The Company's principal source of revenue, Bankcard Services, has shown
average growth of 40%+ over the last several years. The Company has
emphasized growth in the small merchant and grocery markets. Small
merchants have been the backbone of the Company's growth for the last ten
years and we continue to emphasize this market nationwide. The recent
strategy for pushing merchant acquisition in the grocery market has been
to capitalize on (1) the strong growth in usage of bankcards to purchase
groceries, (2) the high recent growth in debit card usage and (3) the new
government requirement for usage of Electronic Benefits Transfer (EBT)
cards at grocery stores. EBT programs will eventually require the use of
plastic debit cards in all states. This requires grocers to have electronic
POS (point of sale) devices Therefore, the Company's benefit from grocery
market merchants is two phased: (1) adding them as high volume merchants for
traditional bankcardservices, with a continuing strong year over year
growth in usage, and (2) increasing fee income by adding bank debit card and
government EBT debit card volume to the basic bankcard business. This
growth strategy continues to be very successful.
Additionally, near the end of the year the Company added a new Check
Services product. This product uses a national database, which tracks
bounced checks, closed accounts, etc., to authorize checks for merchants
at a much lower fee than traditional check guarantee programs and still
allow merchants to achieve a very low percentage of check losses.
The Company's Trucking Services also has shown double digit growth in 1995.
This growth was due in large measure to the new offering of checking
accounts and/or ATM cards to drivers and the aforementioned placement of
ATMs at over 300 major truckstops nationwide. Considering all the positive
developments in 1995 and our plans for growth, we believe 1996 will be
another year of strong financial performance for the Company.
On behalf of all our employees, thank you again for your commitment and
support throughout the year.
Very truly yours,
/s/ Dan M. Palmer /s/ Ed Labry
Dan M. Palmer Edward A. Labry III
Chairman of the Board President
Chief Executive Officer
-2-
<PAGE>
IN MEMORIAM
At mid-year Don Rutherford, a board member for over 20 years, passed
away suddenly due to a stroke. Don was an ardent supporter of the Company, its
management, and employees. He was the oldest board member and his
years of business experience made him a very knowledgeable counsel to Vic
Tyler, Chairman Emeritus, and myself. Don will be missed greatly, not
only because of his wise counsel and mediation abilities when tempers
flared, but because of his great sense of humor.
In his memory we all thank him again for an excellent job.
/s/ Dan M. Palmer
Dan M. Palmer
Chairman of the Board
Chief Executive Officer
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Calendar 1995 Compared to Calendar 1994
Net income increased 44% in 1995 over 1994 due to increased revenues from
transaction processing and decreases in telephone and maintenance
operating costs. Transaction processing included Bank Card Services, up
38% through the addition of grocery and retail merchants as well as volume
increases in credit card usage; Trucking Services, up 30% due to growth in
ATM revenues and increases in trucking customers; and Check Services, up
22% on the addition of new merchants and higher debit card revenues.
Continued telemarketing efforts combined with merchant association
endorsements were responsible for the new customers.
Net income improved in 1995 to 14.3% from 13.2% as operational costs grew
at a slower rate than transaction revenue. Savings of approximately $2.3
million in telephone and maintenance expenses were recognized.. The
Company does not currently anticipate significant changes in margins in
the future.
The Company resolved its antitrust lawsuit against Deluxe Data Systems,
Inc. (Deluxe) in July 1995. The lawsuit, initiated in January 1993,
alleged that Deluxe was monopolizing electronic benefits transfer business
in the state of Maryland. The terms of the settlement had no material
financial statement impact in the current year.
Calendar 1994 Compared to Calendar 1993
Net income increased 29% in 1994 over 1993 due to increased revenues in
Bank Card Services, Trucking Services and Check Services. Bank Card
Services revenues increased 41%, while Trucking Services and Check
Services revenues increased 7%. The increase in these revenues was due to
additional volume from existing customers and the addition of new
customers. Continuing telemarketing efforts were responsible for the new
customers.
Profit margins remained consistent with the prior year as operational
costs related to service volume growth and new services were offset by
increased interest income from investment management.
Calendar 1993 Compared to Calendar 1992
Net income increased 10% in 1993 over 1992 due to increased revenues in
Bank Card Services and Trucking Services. Bank Card Services revenues
increased 35% while Trucking Services increased 14%. The increase in
these revenues was due to additional volume from existing customers and
the addition of new customers. Continuing telemarketing efforts were
responsible for the new customers. Revenues increased only 15% due to
unusually high terminal product sales in the prior year. Excluding
terminal product sales, revenues increased 23% over the prior year.
Current year net income as a percentage of revenue decreased due to three
factors: (1) additional legal fees for the Deluxe antitrust lawsuit, in
which the Company is a plaintiff, (2) decreased margins from Bank Card
Services as a result of adding supermarkets, a lower margin business, to
the Company's customer base, and (3) higher margins on terminal product
sales in the prior year. Increased interest income from investment
management offset the decrease in operating income as a percentage of
revenue.
-3-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company consistently generates significant resources from operating
activities. Over the past three years operating activities generated
$28.3, $19.9 and $ 12.6 million, respectively. During fiscal 1995, the
Company invested $10.4 million in securities, net, and $8.1 million on
capital additions. Capital additions were primarily for new computer
equipment and cash dispensing machines (ATMs). Operating cash funded these
purchases.
Significant changes in accounts receivable and accounts payable result
from the day of the week the calendar year end falls combined with the
increases in settlement volume from one year to the next.
Stock issued from the Company's Incentive Stock Option Plan provided $4.1
million in additional capital in 1995. The disqualifying disposition of
the options also reduced corporate income taxes paid by $4.1 million.
Management cannot estimate the timing or amount of future cash flows from
exercise of options, however, this will continue to be a source of funds
to the Company.
The Company has unused unsecured lines of credit of $10 million with
financial institutions. The Company holds securities with a market value
of approximately $20.9 million that are available for operating needs or
as collateral to obtain short term financing if needed.
With adequate available credit and strong cash generation, the Company is
in sound financial condition and expects to fund continued growth from
currently available resources. EFS National Bank, a wholly-owned
subsidiary of the Company, exceeds required capital ratios. The Company's
working capital ratio exceeded 2 to 1 at December 31, 1995 and 1994.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived to be Disposed Of",
which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first quarter of 1996 and, based
on current circumstances, does not believe the effect of adoption will be
material.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
based Compensation," which provides an alternative to APB Opinion No. 25
in accounting for stock-based compensation issued to employees. The
statement allows for a fair value based method of accounting for employee
stock options and similar equity instruments. However, for companies that
continue to account for stock-based compensation arrangements under
Opinion No. 25, FAS No. 123 requires disclosure of the pro forma effect on
net income and earnings per share of its fair value based accounting for
those arrangements. These disclosure requirements are effective for
fiscal years beginning after December 15, 1995. The Company expects to
continue to account for stock options under APB Opinion No. 25.
-4-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
EFFECTS OF INFLATION
The Company's 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.
Management believes that replacement costs of equipment, furniture and
leasehold improvements will not materially affect operations. However,
the rate of inflation affects the Company's expenses, such as those for
employee compensation and communications, which may not be readily
recoverable in the price of services offered by the Company.
RECENT QUARTERLY RESULTS
The following table presents an unaudited summary of quarterly results for
the quarters of the calendar years 1995 and 1994. Earnings per share
have been restated to reflect stock splits issued through January 18,
1996.
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1995 (in thousands except per share data)
Revenues $25,928 $29,897 $33,945 $37,992
Operating Income 4,920 5,918 6,956 8,575
Net Income 3,459 4,080 4,841 5,935
Earnings Per Share $0.09 $0.11 $0.12 $0.15
1994
Revenues $19,639 $22,126 $25,195 $29,253
Operating Income 3,442 3,981 4,626 6,012
Net Income 2,435 2,833 3,289 4,156
Earnings Per Share $0.07 $0.08 $0.09 $0.11
MARKET VALUE FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDERS MATTERS
The Company's Common Stock trades on the Nasdaq National Market tier of
the Nasdaq Stock Market (NASDAQ) under the symbol "CEFT". The following
table sets forth the range of high and low bid quotations per share of the
Company's Common Stock through December 31, 1995, as reported by NASDAQ.
Quotes have been restated to reflect stock splits issued through January
18, 1996.
HIGH LOW
FISCAL YEAR ENDED DECEMBER 31, 1995:
First Quarter ................ $12.78 $ 9.78
Second Quarter................ 17.83 12.00
Third Quarter................. 21.33 16.00
Fourth Quarter................ 30.00 16.67
FISCAL YEAR ENDED DECEMBER 31, 1994:
First Quarter ................ $ 7.50 $ 6.22
Second Quarter................ 7.61 5.84
Third Quarter................. 8.59 6.28
Fourth Quarter................ 11.33 8.22
As of March 1, 1996, there were 274 stockholders of record or through
nominee or streetname accounts with brokers.
The Company has never paid cash dividends. It is the present policy
of the Company's Board of Directors to retain earnings to finance
expansion of the Company's operations, and the Company does not
expect to pay dividends in the foreseeable future.
-5-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
1995 1994
ASSETS ------------ -----------
CURRENT ASSETS
Cash and cash equivalents $ 36,572,976 $23,030,329
Securities available-for-sale(amortized
cost of $23,742,451 in 1995
and $13,995,836 in 1994) 23,439,135 12,113,593
Accounts receivable, less allowance of
$759,435 in 1995 and $705,206 in 1994 63,690,114 33,763,804
Inventories 4,765,304 2,907,661
Prepaid expenses 2,899,604 2,908,968
Deferred income taxes 407,000 902,000
Refundable income taxes 328,197
------------ -----------
TOTAL CURRENT ASSETS 132,102,330 75,626,355
SECURITIES HELD-TO-MATURITY (Fair value of
$4,736,000 in 1995 and $3,538,156 in 1994) 4,865,865 4,196,454
PROPERTY AND EQUIPMENT 57,749,905 49,789,902
Less accumulated depreciation and amortization 37,831,369 30,150,571
------------ -----------
19,918,536 19,639,331
------------ -----------
TOTAL ASSETS $156,886,731 $99,462,140
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other liabilities $ 60,966,543 $30,508,847
Accrued liabilities 2,530,310 3,228,829
Current maturities of long-term debt 392,177 368,198
------------ -----------
TOTAL CURRENT LIABILITIES 63,889,030 34,105,874
LONG-TERM DEBT, LESS CURRENT MATURITIES 978,327 1,370,504
DEFERRED INCOME TAXES 1,743,000 1,244,000
MINORITY INTEREST IN SUBSIDIARY 731,579 806,891
STOCKHOLDERS' EQUITY
Common Stock, $.33 1/3 par value; authorized
40,000,000 shares, issued and outstanding
24,940,938 shares in 1995 and
16,105,434 shares in 1994. 8,313,646 5,368,478
Additional paid-in capital 10,491,454 5,183,978
Retained earnings 70,940,011 52,624,658
Unrealized losses on securities, net of taxes (200,316) (1,242,243)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 89,544,795 61,934,871
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $156,886,731 $99,462,140
============ ===========
See notes to consolidated financial statements.
-6-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1995 1994 1993
------------ ----------- -----------
Revenues $127,762,333 $96,212,958 $75,443,939
Cost of operations 90,579,212 69,839,671 53,188,474
Selling, general and
administrative expenses 10,913,426 8,312,187 7,861,299
------------ ----------- -----------
OPERATING INCOME 26,269,695 18,061,100 14,394,166
Other income (expense):
Interest income 2,219,412 1,688,252 825,018
Interest expense (103,075) (99,605)
------------ ----------- -----------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 28,386,041 19,649,747 15,219,184
Income taxes 10,146,000 6,979,000 5,357,000
------------ ----------- -----------
INCOME BEFORE MINORITY
INTEREST 18,240,041 12,670,747 9,862,184
Minority interest 75,312 42,623 726
------------ ----------- -----------
NET INCOME $ 18,315,353 $12,713,370 $ 9,862,910
============ =========== ===========
Per share data:
Weighted average common
and common equivalent
shares outstanding 38,572,383 37,265,494 37,117,203
========== ========== ==========
Earnings per share $0.47 $0.34 $0.27
===== ===== =====
See notes to consolidated financial statements.
-7-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Unrealized
Common Stock Addn'l Gains
Stock $.33 1/3 Paid-In Retained Treasury (Losses)on
Shares par Capital Earnings Stock Securities Total
------ -------- ------- -------- -------- ---------- ------
(In thousands)
BALANCE AT
JANUARY 1, 1993 11,067 $3,689 $6,926 $30,048 ($1,090) $ $39,573
Exercise of
stock options 69 23 412 436
Tax benefit of
disqualifying
dispositions of
incentive stock
option shares 379 379
Net income 9,863 9,863
------ ------ ------- ------- ------ ------ ------
BALANCE AT
DECEMBER 31, 1993 11,136 3,712 7,718 39,911 (1,090) 50,251
Exercise of
stock options 51 17 163 180
Tax benefit of
disqualifying
dispositions of
incentive stock
option shares 33 33
Cancellation of
treasury stock (450) (150) (940) 1,090
3 for 2 stock split 5,368 1,789 (1,789)
Unrealized losses
on securities,
net of tax (1,242) (1,242)
Net income 12,713 12,713
------ ------ ------- ------- ------ ------ -------
BALANCE AT
DECEMBER 31, 1994 16,105 5,368 5,184 52,625 (1,242) 61,935
Exercise of
stock options 632 211 3,915 4,126
Tax benefit of
disqualifying
dispositions of
incentive stock
option shares 4,127 4,127
3 for 2 stock split 8,203 2,735 (2,735)
Unrealized gains on
securities, net
of tax 1,042 1,042
Net income 18,315 18,315
------ ------ ------- ------- ------ ------ -------
BALANCE AT
DECEMBER 31, 1995 24,940 $8,314 $10,491 $70,940 $ ($ 200) $89,545
====== ====== ======= ======= ====== ====== =======
See notes to consolidated financial statements.
-8-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
1995 1994 1993
------- ------- -------
OPERATING ACTIVITIES (In thousands)
Net income $18,315 $12,713 $9,863
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,796 7,424 5,797
Provision for losses on accounts receivable 500 480 525
Loss on disposal of property and equipment 21
Minority interest (75) (43) (1)
Deferred income taxes 457 (12) 195
Changes in operating assets and liabilities:
Accounts receivable (30,426)(15,742) (4,682)
Inventories (1,858) 442 (2,810)
Other current assets 9 (590) (1,078)
Accounts payable and other liabilities 30,458 13,667 3,282
Accrued liabilities 3,100 1,522 1,477
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 28,276 19,861 12,589
INVESTING ACTIVITIES
Acquisition of property and equipment (8,075) (9,450) (8,135)
Securities held-to-maturity:
Acquisition of securities (2,360)
Proceeds from maturity of securities 1,047 769
Securities available-for-sale:
Acquisition of securities (11,347) (6,870)
Proceeds from sales of securities 248 4,168
Proceeds from maturity of securities 1,997 167
Investment Securities:
Acquisition of securities (27,319)
Proceeds from sales of securities 16,579
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (18,491)(11,216)(18,875)
FINANCING ACTIVITIES
Proceeds from exercise of stock options 4,126 180 435
Proceeds from note payable 2,000
Payments on note payable (368) (261)
------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,758 1,919 435
------- ------- -------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 13,543 10,564 (5,851)
Cash and cash equivalents at beginning of period 23,030 12,466 18,317
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $36,573 $23,030 $12,466
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 104 $ 90 $
======= ======= =======
Income taxes $ 6,472 $ 6,861 $ 4,400
======= ======= =======
See notes to consolidated financial statements.
-9-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of Concord EFS, Inc. (Parent); its wholly-owned subsidiaries,
Concord Computing Corporation (Concord), EFS National Bank (EFSNB), Concord
Retail Services, Inc. and Concord Equipment Sales, Inc. (formerly VMT, Inc.);
and its majority-owned subsidiary, Network EFT, Inc. (NEFTI) (collectively,
the Company). All material intercompany balances and transactions have been
eliminated in consolidation.
Operations: The Company provides transaction processing, authorization and
settlement services, throughout the United States. The primary components of
these services are Bank Card, Trucking and Check Services. The Company
requires certain Trucking Services customers to provide letters of credit,
surety bonds or cash deposits as collateral for outstanding accounts
receivable.
Cash Equivalents: The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Securities Held-to-Maturity and Available-for-Sale: In accordance with
Financial Accounting Statement (FAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," (which was adopted by the Company
January 1, 1994) securities available-for-sale are carried at market. The
amortized cost of debt securities classified as available-for-sale is
adjusted for amortization of premiums and accretion of discounts to maturity,
or in the case of mortgage-backed securities, over the estimated life of the
security. Unrealized gains or losses on these securities are included in
stockholders' equity net of tax. Securities which the Company intends to
hold until maturity are stated at cost adjusted for amortization of premiums
and accretion of discounts. The adjusted cost of the specific securities sold
is used to compute gains or losses on the sale of securities.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property and Equipment: Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.
Use of Estimates: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Income Taxes: The Company and its wholly-owned subsidiaries file a
consolidated Federal tax return. Each subsidiary provides for income taxes
on a separate-return basis and remits to or receives from the Company amounts
currently payable or receivable. NEFTI files its own Federal tax return.
Income taxes have been provided using the liability method in accordance
with FAS No. 109, "Accounting for Income Taxes".
Revenue Recognition: Credit card and other transaction processing activities
are recorded when the service is provided, gross of interchange and network
fees charged to the Company, which are recorded as a cost of operations when
the transactions have been settled.
-10-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE A - SIGNIFICANT ACCOUNTING POLICIES - Continued
Revenue Recognition: Credit card and other transaction processing activities
are recorded when the service is provided, gross of interchange and network
fees charged to the Company, which are recorded as a cost of operations when
the transactions have been settled.
Revenues from service contracts and product sales are recognized when the
service is provided or the equipment is shipped. Service contracts and
related sales include all revenues under system service contracts, including
revenues from sales of terminal hardware when the contract included such sales.
Earnings Per Share: Earnings per share are calculated using the weighted
average number of common and common equivalent shares outstanding. Common
equivalent shares result from the assumed exercise of common stock options
using the "treasury stock" method. Earnings per share and related per share
data have been restated to reflect stock splits issued through January 18, 1996.
Stock-based Compensation: The Company grants options for a fixed number of
shares to employees with an exercise price equal to the fair value at the
date of the grant. These stock option grants are accounted for in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
accordingly, recognizes no compensation expense for the stock option grants.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-based Compensation," which provides an
alternative to APB Opinion No. 25 in accounting for stock-based compensation
issued to employees. The statement allows for a fair value based method of
accounting for employee stock options and similar equity instruments. However,
for companies that continue to account for stock-based compensation
arrangements under Opinion No. 25, FAS No. 123 requires disclosure of the pro
forma effect on net income and earnings per share of its fair value based
accounting for those arrangements. These disclosure requirements are
effective for fiscal years beginning after December 15, 1995. The Company
expects to continue to account for stock options under APB Opinion No. 25.
NOTE B - SECURITIES
The following is a summary of securities available-for-sale and securities
held-to-maturity.
Securities Available-for-Sale
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
December 31, 1995 ----------- ---------- ---------- -----------
Mortgage-backed securities $22,636,651 $ 47,849 ($ 351,150) $22,333,350
State obligations 500,000 (15) 490,985
----------- ---------- --------- -----------
Total debt securities 23,136,651 47,849 ( 351,165 22,833,335
Equity securities 605,800 605,800
----------- ---------- --------- -----------
$23,742,451 $ 47,849 ($ 351,165) $23,439,135
=========== ========== ========= ===========
December 31, 1994
Mortgage-backed securities $13,142,478 $ ($1,846,085) $11,296,393
State obligations 247,558 (36,158) 211,400
----------- ---------- ---------- -----------
Total debt securities 13,390,036 ( 1,882,243) 11,507,793
Equity securities 605,800 605,800
----------- ---------- ---------- -----------
$13,995,836 $ ($1,882,243) $12,113,593
=========== ========== ========== ===========
-11-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE B - SECURITIES - Continued
Securities Held-to-Maturity
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
December 31, 1995 ---------- ---------- ---------- ----------
Mortgage-backed securities $4,865,866 $ ($ 129,266) $4,746,600
========== ========== ========== ==========
December 31, 1994
Mortgage-backed securities $4,196,454 $ ($ 658,298) $ 3,538,156
========== ========== ========== ===========
At December 31, 1995, the state obligations listed above mature on July 1,
2005. Expected maturities will differ from contractual maturities because the
issuers of the securities may have the right to prepay obligations without
prepayment penalties. There were no gains or losses on securities sold during
the three years ended December 31, 1995.
NOTE C - INVENTORIES
At December 31, inventories consists of:
1995 1994
---------- ----------
Point of sale equipment $4,559,574 $2,565,507
Repair parts 205,730 342,154
---------- ----------
$4,765,304 $2,907,661
========== ==========
NOTE D - PROPERTY AND EQUIPMENT
At December 31, property and equipment consists of:
1995 1994
----------- -----------
Computer facilities $46,734,106 $42,319,578
Plant equipment 8,189,984 5,002,181
Office furniture and equipment 2,459,033 2,119,498
Leasehold improvements 366,782 348,645
----------- -----------
$57,749,905 $49,789,902
=========== ===========
Maintenance and repair expense amounted to $906,537, $1,408,206, and $961,981
for the years ended December 31, 1995, 1994, and 1993, respectively.
NOTE E - LONG-TERM DEBT AND LEASES
At December 31, long-term debt consists of:
1995 1994
---------- ----------
Note payable to bank $1,370,504 $1,738,702
Less current maturities 392,177 368,198
---------- ----------
$ 978,327 $1,370,504
========== ==========
The note payable to bank is payable through March 1, 1999 in monthly
installments of $38,969 including interest at 6.25% and is secured by cash
dispensing machines (ATMs) with a net book value of $1,542,269 at December
31, 1995 and $1,822,682 at December 31, 1994.
-12-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE E - LONG-TERM DEBT AND LEASES - Continued
The Company rents office facilities under agreements classified as operating
leases which expire in various years through 2000 and generally contain
renewal options. Rental expense for operating leases amounted to $416,510,
$391,188, and $496,607, for the years ended December 31, 1995, 1994, and 1993,
respectively.
Future maturities of notes payable and minimum lease payments for operating
leases with initial or remaining terms in excess of one year are as follows:
Note Operating
Payable Leases
---------- ----------
Year ending December 31:
1996 $ 392,177 $ 429,241
1997 417,718 302,635
1998 444,922 314,472
1999 115,687 314,472
2000 183,442
---------- ----------
Total future payments $1,370,504 $1,544,262
========== ==========
At December 31, 1995 the Company had available $10 million in unsecured lines
of credit with other financial institutions. The lines of credit are con-
tractual in nature, require no compensating balances or fees, expire at
various dates through May 1997 and are subject to renewal at the discretion
of the institutions. No borrowing occurred in 1995 under these lines of
credit.
NOTE F - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets at December 31, were:
1995 1994
Deferred tax liabilities: ---------- ----------
Property and equipment $1,677,000 $1,342,000
Other, net 66,000 (98,000)
---------- ----------
Total deferred tax liabilities $1,743,000 $1,244,000
---------- ----------
Deferred tax assets:
Securities available-for-sale $ 103,000 $ 640,000
Bad debt allowance 288,000 283,000
Inventory 16,000
Prepaid insurance (21,000)
---------- ----------
Total deferred tax assets 407,000 902,000
---------- ----------
Net deferred tax liabilities $1,336,000 $ 342,000
========== ==========
-13-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE F - INCOME TAXES - Continued
The components of the provision (benefit) for income taxes for the three
years ended December 31:
1995 1994 1993
Current ----------- ---------- ----------
- Federal $ 9,463,000 $6,742,000 $4,887,000
- State 226,000 249,000 285,000
----------- ---------- ----------
9,689,000 6,991,000 5,162,000
----------- ---------- ----------
Deferred
- Federal 421,000 (22,000) 189,000
- State 36,000 10,000 6,000
----------- ---------- ----------
457,000 (12,000) 195,000
----------- ---------- ----------
$10,146,000 $6,979,000 $5,357,000
=========== ========== ==========
The reconciliation of income taxes computed at the U. S. federal statutory
tax rate of 35% in 1995 and 1994 and 34% in 1993 to income tax expense for
the three years ended December 31 were:
1995 1994 1993
----------- ---------- ----------
Tax at statutory rate $ 9,935,000 $6,892,000 $5,175,000
State income taxes, net of
federal benefit 170,000 172,000 192,000
Other, net 41,000 (85,000) (10,000)
----------- ---------- ----------
$10,146,000 $6,979,000 $5,357,000
=========== ========== ==========
Income tax benefits resulting from the disqualifying dispositions of certain
employee incentive stock option shares were credited to additional paid-in
capital because no compensation expense was charged to income for financial
reporting purposes related to the exercise of such options.
NOTE G - STOCKHOLDERS' EQUITY
The Company has an Incentive Stock Option Plan allowing for the grant of up
to 6,075,000 shares of Common Stock for the benefit of the Company's key
employees. Options are granted at not less than 100% of the market value on
the date of the grant (110% in the case of a holder of more than 10% of the
outstanding shares) and are generally become exercisable within four years of
the date of the grant.
Information pertaining to the Incentive Stock Option Plan is summarized below:
Number of Shares Price Aggregate Options
Under Option Per Share Price Exercisable
Balance at ---------------- ------------ ----------- -----------
January 1, 1994 2,854,411 $0.54--$7.85 $13,582,362 1,481,207
Options granted 637,875 $7.70 =========== =========
Options exercised (167,123) $0.54--$6.15
Options terminated (4,388) $1.58--$7.85
Balance at ---------
December 31, 1994 3,320,775 $0.54--$7.85 $18,288,621 1,845,198
Options granted 661,125 $10.78-$15.50 =========== =========
Options exercised (1,174,236) $0.54-$ 7.85
Options terminated (20,960) $7.70-$13.33
Balance at ---------
December 31, 1995 2,786,704 $1.19-$15.50 $22,877,512 1,290,231
========= =========== =========
-14-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE G - STOCKHOLDERS' EQUITY -Continued
On June 19, 1995, options to purchase 30,000 shares at $15.50 per share were
granted. On April 18, 1995, options to purchase 619,875 shares at $13.33 per
share were granted. On January 4, 1995, options to purchase 11,250 shares at
$10.78 per share were granted. On August 18, 1994, options to purchase
637,875 shares at $7.70 per share were granted.
On December 15, 1995, the Board of Directors approved a three for two stock
split. Stockholders of record as of January 8, 1996 received additional
shares on January 18, 1996. The Board of Directors met on April 27, 1995 and
approved a three for two stock split. Stockholders of record as of May 8,
1995 received additional shares on May 22, 1995. The Board of Directors
approved a three for two stock split on August 18, 1994. Stockholders of
record as of September 6, 1994 received additional shares on September 16,
1994. Earnings per share, related per share data, stock options and stock
option prices have been restated to reflect stock splits declared through
January 18, 1996.
NOTE H - MAJOR CUSTOMER In the years ended December 31, 1995, 1994, and
December 31, 1993, one customer, which holds a 37% ownership interest in NEFTI
accounted for 4%, 4%, and 5% respectively, of revenues. Contract terms with
this customer are no less favorable to the Company than terms available to
other customers.
NOTE I - COMMITMENTS AND CONTINGENCIES
The Company is a party to various claims and litigation in the normal course
of business, none of which is expected to have a material effect on the
consolidated financial statements.
NOTE J - DEBT AND DIVIDEND RESTRICTIONS
In accordance with federal banking laws, certain restrictions exist regarding
the ability of the banking subsidiary to transfer funds to the Parent in the
form of cash dividends, loans or advances. The approval of certain
regulatory authorities is required to pay dividends in excess of earnings
retained in the current year plus retained net earnings for the preceding
two years. As of December 31, 1995, $35,007,856 of undistributed earnings
of the EFSNB, included in consolidated retained earnings, was available for
distribution to the Parent as dividends without prior regulatory approval.
Under Federal Reserve regulations, the banking subsidiary is also limited
as to the amount it may loan to affiliates, including the Parent, unless
such loans are collateralized by specific obligations. At December 31, 1995,
the maximum amount available for transfer from the EFSNB to the Parent in the
form of loans approximated 6.3% of consolidated net assets.
NOTE K - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value. These fair values are provided for disclosure purposes only, and
do not impact carrying values of financial statement amounts.
Cash and Cash Equivalents. The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair values.
Securities (Including Mortgage-backed Securities). Fair values for
securities are based on quoted market prices, where available. If quoted
market prices are not available, fair values are based on quoted market
prices of comparable instruments.
-15-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE K - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Long-term Borrowings. The fair values of the Company's long-term borrowings
are estimated using discounted cash flow analyses based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements.
December 31, 1995
Carrying Amount Fair Value
--------------- ------------
Financial assets:
Cash and cash equivalents $36,572,976 $36,572,976
Available-for-sale securities 23,742,451 23,439,135
Held-to-maturity securities 4,865,865 4,736,600
Financial liabilities:
Current maturities of long-term debt 392,177 361,454
Long-term debt, less current maturities 978,327 901,683
-16-
<PAGE>
CORPORATE DIRECTORY SEC Form 10-K
Board of Directors Copies of the Company's Annual Report on
(and their principal occupation) Form 10-K as filed with The Securities
and Exchange Commission may be
Dan M. Palmer obtained without charge upon
request to:
Chairman and Chief Executive Officer
Concord EFS, Inc. and Investor Relations
EFS National Bank Concord EFS, Inc.
2525 Horizon Lake Drive,
Victor M. Tyler Suite 120
Chairman Emeritus, Concord EFS, Inc. Memphis, Tennessee 38133
David C. Anderson * Market for Common Stock
Retired Executive Vice President and
CFO, Burlington Northern, Inc. NASDAQ National Market
Ticker Symbol: CEFT
J. Richard Buchignani, Esq. *
Partner, Wyatt, Tarrant & Combs
Annual Meeting
Richard M. Harter, Esq. *
Partner, Bingham, Dana & Gould May 2, 1996
Joyce Kelso Transfer Agent & Registrar
Retired Senior Vice President,
Concord EFS, Inc. and EFS National State Street Bank and Trust Company
Bank Boston, Massachusetts
Edward A. Labry III
President, Concord EFS, Inc. Corporate Counsel
and EFS National Bank
Bingham Dana & Gould
Jerry D. Mooney * Boston, Massachusetts
President and CEO
ServiceMaster Diversified Health Auditors
Services, Inc.
Ernst & Young LLP
Paul L. Whittington * Memphis, Tennessee
Retired Partner Ernst & Young LLP
Corporate Offices
* Audit Committee Member 2525 Horizon Lake Drive
Suite 120
Memphis, Tennessee 38133
(901) 371-8000
EXECUTIVE MANAGEMENT GROUP
Dan M. Palmer, Chairman, CEO and William E. Lucado, Senior Vice President
President, Concord EFS, Inc. and Compliance Officer, Concord EFS, Inc.
EFS National Bank and EFS National Bank
Edward A. Labry III, President, J. Anthony Greaves, President, Concord
Concord EFS, Inc. and Computing Corporation
EFS National Bank
Thomas J. Dowling, Vice President & Vicki Birdsong, Executive Vice President
Controller, Concord EFS, Inc. and Concord Computing Corporation
EFS National Bank
<PAGE>
CONCORD EFS, INC.
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
To Be Held on May 2, 1996
To the Shareholders of
Concord EFS, Inc.
Notice is hereby given that the Annual Meeting of Shareholders of
Concord EFS, Inc. ("Concord" or the "Company") will be held at Colonial
Country Club, 2736 Countrywood Parkway, Memphis Tennessee on May 2, 1996
beginning at 9:30 a.m. local time, for the following purposes:
1. To elect directors to serve for the ensuing year;
2. To approve the Amendment to the Certificate of Incorporation to
increase the number of authorized shares of Common Stock;
3. To approve Amendment of 1993 Incentive Stock Option Plan to
change the formula grants to directors;
4. To transact such other business as may properly come before the
annual meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on March 1,
1996 as the record date for determination of the shareholders entitled to
notice of and to vote at the Annual Meeting. The By-Laws of the Company
require that the holders of a majority of all stock issued, outstanding and
entitled to vote be present in person or represented by proxy at the meeting
in order to constitute a quorum.
By Order of the Board of Directors
Richard M. Harter
Secretary
March 29, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING,
PLEASE SIGN AND RETURN THE ENCLOSED PROXY.
No postage is required if mailed in the United States.
<PAGE>
CONCORD EFS, INC.
PROXY STATEMENT
March 29, 1996
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Concord EFS, Inc. ("Concord" or the
"Company") of proxies for use at the Annual Meeting of Shareholders to be
held on May 2, 1996 and any adjournments thereof. Shares as to which
proxies have been executed will be voted as specified in the proxies. A
proxy may be revoked at any time by notice in writing received by the
Secretary of the Company before it is voted.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The Company's only issued and outstanding class of voting securities is
its Common Stock, par value $.33 1/3 per share. Each shareholder of record
on March 1, 1996 is entitled to one vote for each share registered in such
shareholders's name. As of that date, the Company's Common Stock was held
by approximately 274 shareholders of records or through nominee or street
name accounts with brokers.
The following table sets forth, as of March 1, 1996, the ownership of
the Company's Common Stock by each person who is known by the Company to own
beneficially more than 5% of the Company's outstanding Common Stock, by each
director who owns shares and by all directors and officers of the Company as
a group.
Percent of
Shares Outstanding
Beneficial Owner (1) Owned Shares (2)
- --------------------------- ------- -----------
Dan M. Palmer (3) 611,719 1.6%
Edward A. Labry III (4) 243,282 0.6%
Joyce Kelso 399 0.0%
Richard M. Harter 47,625 0.1%
Jerry D. Mooney 6,300 0.0%
David C. Anderson 3,375 0.0%
J. Richard Buchignani 3,405 0.0%
Paul Whittington 2,250 0.0%
All officers, directors and nominees
as a group (8 persons) (5) 918,355 2.4%
-1-
<PAGE>
(1) The address of each beneficial owner is the same as the Company's.
(2) Percentage ownership is based on 37,760,165 shares issued and
outstanding, plus the number of shares subject to options exercisable
within 60 days from the record date by the person or the aggregation
of persons for which such percentage ownership is being determined.
(3) Shares owned include 409,219 shares covered by unexercised stock
options.
(4) Shares owned include 141,914 shares covered by unexercised stock
options.
(5) Shares owned include 551,133 shares covered by unexercised stock
options.
ELECTION OF DIRECTORS
Eight directors are to be elected to hold office until the next
annual meeting of shareholders and until their successors are elected and
qualified. Unless a proxy is executed to withhold authority for the
election of any or all of the directors, then the persons named in the
proxy will vote the shares represented by the proxy for the election of the
following eight nominees. If the proxy indicates that the shareholder
wishes to withhold a vote from one or more nominees for director, such
instruction will be followed by the persons named in the proxy. All eight
of the nominees are now members of the Board of Directors. The Board of
Directors has no reason to believe that any of the nominees will be unable
to serve. In the event that any nominee should not be available, the
persons named in the proxies will vote for the others and may vote for a
substitute for such nominee. An affirmative vote of a majority of the
Company's Common Stock represented in person or by proxy at the meeting is
necessary for the election of the individuals named below.
Recommended Vote
The Board of Directors recommends that you vote "FOR" the election of
these eight individuals as directors.
The following table lists the name of each proposed nominee; his/her
age; his/her business experience during at least the past five years,
including principal offices with the Company or a subsidiary of the Company;
and the year since which he/she has served as a director of the Company.
There are no family relationships among the nominees.
Office With the Company, Business
Nominees and Ages Experience and Year First Elected Director
----------------- ------------------------------------------
Dan M. Palmer (53) Mr. Palmer became Chairman of the Board in
February 1991. Mr. Palmer has been Chief
Executive Officer of the Company since August
1989, and a Director of the Company since May
1987. Mr. Palmer has been the Chief Executive
Officer of EFS National Bank (formerly EFS,
Inc.) since its inception in 1982. He joined
Union Planters National Bank in June 1982 and
founded the EFS operations within the bank. He
continued as President and Chief Executive
Officer of EFS when it was acquired by Concord
in March 1985.
-2-
<PAGE>
Joyce Kelso (54) Mrs. Kelso has been a Director since May 1991,
and Vice President in charge of Customer
Service since EFS began operations. In August
1990, she was elected Senior Vice President of
the Company. As of January 1, 1995,Mrs. Kelso
is semi-retired.
Edward A. Labry III (33) Mr. Labry joined EFS in 1984. He was made
Director of Marketing in March 1987 and Vice
President of Sales in February 1988. In August
1990, he was elected to Chief Marketing Officer
of the Company. In February 1991, he was
elected Senior Vice President of the Company,
President of the Company in October 1994, and
President of EFS National Bank in December
1994.
Richard M. Harter (59) Mr. Harter has been the Company's Secretary
and a Director since the Company's formation,
and he has been the Secretary of NEFTI since
its acquisition by the Company in 1981. He is
a partner of Bingham, Dana and Gould LLP,legal
counsel to the Company and NEFTI.
Jerry D. Mooney (43) Mr. Mooney has been a Director of the Company
since August 1992. He is President and CEO of
ServiceMaster Diversified Health Services,Inc.
formerly VHA Long Term Care since 1981.
David C. Anderson (53) Mr. Anderson has been a Director of the Company
since August 1992. He retired as Executive
Vice President and Chief Financial Officer of
Burlington Northern, Inc. in Fort Worth, Texas,
October 1995. Prior to that, Mr. Anderson was
with Federal Express in Memphis for seven years
as Senior Vice President and Chief Financial
Officer.
J. Richard Buchignani (47) Mr. Buchignani has been a Director of the
Company since August 1992. He is a partner in
the Memphis office of the law firm of Wyatt,
Tarrant and Comb, who also serves as local
counsel to the Company. Mr. Buchignani has
been affiliated with the law firm since 1995
when most of the members of his firm of
eighteen years joined Wyatt, Tarrant and Combs.
Paul L. Whittington (60) Mr. Whittington has been a Director since May
1993. He was Managing Partner of the Memphis,
Tennessee and Jackson, Mississippi offices of
Ernst & Young LLP from 1988 until his
retirement in 1991.
-3-
<PAGE>
Compensation of Directors
The Company currently pays an annual fee of $8,000 plus $2,000 for each
meeting attended to each non-employee Director of the Company. There are
normally four meetings per year. In addition, non employee directors are
granted options to purchase Company common stock. See page 8. Directors are
reimbursed for expenses incurred in attending meetings of the Board of
Directors. Three of the eight nominees are employees of the Company and are
not separately compensated for serving as directors.
Executive Compensation
The following summary compensation table is intended to provide a
comprehensive overview of the Company's executive pay practices. It
includes the cash compensation paid or accrued by the Company and its
subsidiaries for services in all capacities during the fiscal year ended
December 31, 1995, to or on behalf of each of the Company's named
executives. Named executives include the Chief Executive Officer and the
President of the Company.
Summary Compensation Table
Annual Compensation Long-Term Compensation
Name and Principal Salary Bonus
Position Year ($) ($) Options Awarded*
- -------- ---- ------- ------- ----------------------
Dan M. Palmer 1995 363,738 80,000 135,000
Chairman of the Board & 1994 342,335 70,000 118,125
Chief Executive Officer 1993 302,104 60,000 101,250
of the Company and EFS
National Bank
Edward A. Labry III 1995 279,315 100,000 112,500
President of the Company 1994 255,912 50,000 101,250
and EFS National Bank 1993 153,835 70,000 84,375
* Options awarded have been restated to reflect stock splits issued through
January 18, 1996.
-4-
<PAGE>
STOCK OPTIONS
The following tables present the following types of information for
options granted to the Company's named executives under the Company's 1993
Incentive Stock Option Plan. Table I - options granted and the potential
realizable value of such options, and Table II - options exercised in the
latest fiscal year and the number of unexercised options held.
Table I
Options Granted in 1995
Individual Grants
-----------------------------------------------
Options
Granted to Exercise
Options Employees in price Expiration
Name Granted 1995 ($/Share) Date
- ---- ------- ------------ --------- ----------
Dan M. Palmer 135,000 20.4% $13.33 4/18/2005
Edward A. Labry 112,500 17.0% $13.33 4/18/2005
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
for Option Term
Name 5% ($) 10% ($)
- ---- --------- ---------
Dan M. Palmer 1,131,277 2,867,569
Edward A. Labry 942,731 2,389,641
Table II
Options Exercised in 1995 and 1995 Year End Option Values
Value of
Number of Unexercised
Shares Acquired Value ($ Unexercised In-the-money
Name on Exercise (#) Realized(1) Options (#) Options($)(2)
- ---- --------------- ---------- ----------- ------------
Dan M. Palmer 182,025 4,601,211 577,969(E) 13,600,084(E)
299,531(U) 5,401,166(U)
Edward A. Labry 83,531 1,428,007 215,157(E) 4,507,438(E)
251,718(U) 4,544,124(U)
(1) Values are calculated by subtracting the exercise price from the fair
market value of the stock as of the exercise date.
(2) Values are calculated by subtracting the exercise price from the fair
market value of the stock on December 31, 1995.
(E) = Exercisable at December 31, 1995
(U) = Unexercisable at December 31, 1995
-5-
<PAGE>
Committees; Attendance
The Board of Directors held five meetings during the fiscal year ended
December 31, 1995. Each of the directors attended at least 75% of the total
number of meetings of the Board.
The Audit Committee, consisting of Messrs. Anderson, Buchignani,
Harter, Mooney, Rutherford and Whittington met twice during the fiscal year
ended December 31, 1995. The Audit Committee reviewed the results of the
audit conducted by outside auditors and management's response to the
management letter prepared by outside auditors.
The Board of Directors has no Nominating Committee.
The Board of Directors has a Compensation Committee consisting of
directors who are not employees of the Company or any of its affiliates and
have never been employees of the Company or any of its affiliates. It is
the policy of the Compensation Committee to establish base salaries, award
bonuses and grant stock options to such executives and in such amounts as
will assure the continued availability to the Company of the services of the
executives and will recognize the contributions made by the executives to
the success of the Company's business and the growth over time in the market
capitalization of the Company. To achieve these goals, the Committee
establishes base salaries at levels which it believes to be below the mid-
point for comparable executives in companies of comparable size and scope.
The Committee then awards cash bonuses reflecting individual performance
during the year for which the awards are made. For executives other than
the Chief Executive Officer, the Committee receives bonus award recom-
mendations from the Chief Executive Officer. The Committee grants stock
options to senior and middle management executives of the Company and its
affiliates at levels which it believes to be slightly higher than average
for comparable companies in order to give the executives significant
incentive to improve the business of the Company and its market
capitalization. Section 162(m) of the Internal Revenue Code limits the tax
deduction to $1 million for compensation paid to certain executives of
public companies. The Committee has considered these new requirements and
believes that the Company's 1993 Incentive Stock Option Plan meets the
requirements that it be "performance based", and therefore, exempt from the
limitations on deductibility. Historically, the combined salaries and
bonuses of the Company's executive officers have been well under the $1
million limit. The Committee's present intention is to comply with Section
162(m) unless the Committee feels that required changes would not be in the
best interest of the Company or its shareholders.
The Chief Executive Officer's base salary, cash bonus and option grants are
established by the Committee based upon its members' own experience in their
companies and in other companies which they serve as directors or advisors.
For 1995, the compensation, bonus and options for the Chief Executive
Officer were believed by the Committee to be, in the aggregate, lower than
the aggregate value of such arrangements for chief executive officers of
comparable companies.
David C. Anderson
J. Richard Buchignani
Richard M. Harter
Jerry D. Mooney
Paul L. Whittington
-6-
<PAGE>
Below is a performance table which compares the Company's cumulative
total shareholder return during the previous five years with NASDAQ stock
market, and NASDAQ financial stocks (the Company's peer group).
NASDAQ
Concord NASDAQ Financial
Date EFS,Inc. Stock Market Stocks
- -------- --------- ------------ ---------
9/30/90 100.00 100.00 100.00
9/30/91 373.26 157.33 152.95
12/31/92 411.63 205.15 238.69
12/31/93 308.79 235.50 277.42
12/31/94 523.26 230.20 278.07
12/31/95 1,326.45 325.30 405.13
-7-
<PAGE>
AMEND CERTIFICATE OF INCORPORATION TO INCREASE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, $.33 1/3 par value. The Board of Directors finds advisable
that the Company's Certificate of Incorporation be amended to increase the
number of authorized shares of Common Stock to 80,000,000 shares, $.33 1/3
par value.
The holders of Common Stock are not entitled to preemptive rights to
purchase Common Stock of the Company.
The authorized shares of Common Stock can be issued without shareholder
approval upon such terms and in consideration of such amounts as the Board
of Directors determines is in the best interest of the Company. Aside from
regular recurring grants of options under the Corporation's stock option
plan, the Board presently has no plans to issue any of the authorized shares
of Common Stock.
Recommended Vote
An affirmative vote of a majority of the Company's outstanding Common
Stock is necessary to adopt the amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock to
80,000,000 shares. The Board of Directors recommends that you vote "FOR"
the proposal.
APPROVE AMENDMENT OF 1993 INCENTIVE STOCK OPTION PLAN
TO CHANGE THE FORMULA GRANTS TO DIRECTORS
The Company's 1993 Incentive Stock Option Plan provides formula grants
of stock options to non-employee directors. Prior to amendment, the Plan
provided than an option would be automatically granted each year to each
non-employee director for the number of shares calculated by dividing
$10,000 by the fair market value of the stock on the date of the annual
Meeting. The Compensation Committee of the Board of Directors has recently
amended the Plan to provide that the annual formula grant would be for 2,000
shares, a fixed number of shares, at the fair market value on the date of
the annual Meeting. The Compensation Committee believes that this change in
the formula grant arrangements makes the Plan easier to administer and is
consistent with stock option arrangements made for non-employee directors of
comparable companies.
Recommended Vote
An affirmative vote of a majority of the Company's Common Stock voting
on the issue is necessary to approve the amendment to the Company's 1993
Incentive Stock Option Plan. The board of Directors recommends that you for
"FOR" the proposal.
-8-
<PAGE>
OTHER MATTERS
The Board of Directors knows of no matters which are likely to be
presented for action at the Annual Meeting other than the proposals
specifically set forth in the Notice and referred to herein. If any other
matter properly comes before the Annual Meeting for action, it is intended
that the persons named in the accompanying proxy and acting thereunder will
vote or refrain from voting in accordance with their best judgement pursuant
to the discretionary authority conferred by the proxy. If, in a proxy
submitted on behalf of a shareholder by a person acting solely in a
representative capacity, the proxy is marked clearly to indicate that the
shares represented thereby are not being voted with respect to one or more
proposals, then such proxies will not be counted as present at the meeting
with respect to such proposals, and such "non-votes" will have no effect on
the voting on such proposals. Proxies submitted with abstentions as to one
or more proposals will be counted as present for purposes of establishing a
quorum for such proposals, and such abstentions will have the affect of a
vote against such proposals.
CERTAIN TRANSACTIONS
Bingham, Dana & Gould LLP serves as legal counsel to the Company.
Richard M. Harter, Secretary and Director of the Company, is a partner of
that firm. Wyatt, Tarrant and Combs also serves as legal counsel to the
Company. J. Richard Buchignani, Director of the Company, is a partner of
that firm.
INFORMATION CONCERNING AUDITORS
Representatives of Ernst & Young LLP are expected to be at the Annual
Meeting and will have an opportunity to make a statement if they desire to
do so. Such representatives are also expected to be available to respond to
appropriate questions.
SHAREHOLDERS PROPOSALS
Shareholder proposals to be submitted for vote at the 1997 Annual
Meeting must be delivered to the Company on or before December 8, 1996.
EXPENSES OF SOLICITATION
Solicitations of proxies by mail is expected to commence on March 29,
1996, and the cost thereof will be borne by the Company. Copies of
solicitation materials will also be furnished to brokerage firms,
fiduciaries and custodians to forward to their principals, and the Company
will reimburse them for their reasonable expenses.
By Order of the Board of Directors
Richard M. Harter
Secretary
-9-
<PAGE>
ANNUAL REPORT ON FORM 10-K
The Company will deliver without charge to each of its shareholders,
upon their written request, a copy of the Company's most recent annual
report on Form 10-K and any information contained in any subsequent reports
filed with The Securities and Exchange Commission. Request for such
information should be directed to Investor Relations, Concord EFS, Inc.,
2525 Horizon Lake Drive, Suite 120, Memphis, Tennessee 38133.
-10-
<PAGE>
EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Concord EFS, Inc. of our report dated January 26, 1996,
included in the 1995 Annual Report to Shareholders of Concord EFS, Inc.
Our audit also included the financial statement schedule of Concord
EFS, Inc. listed in Item 8. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-60871) pertaining to the Concord EFS, Inc.
1993 Incentive Stock Option Plan of our report dated January 26, 1996
with respect to the consolidated financial statements incorporated
herein by reference and our report included in the preceding paragraph
with respect to the financial statement schedules included in this
Annual report (Form 10-K) of Concord EFS, Inc.
/s/ Ernst & Young LLP
Memphis Tennessee
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<PERIOD-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<CASH> 36572976 23030329 0
<SECURITIES> 28305000 16310047 0
<RECEIVABLES> 64449549 34469010 0
<ALLOWANCES> 759435 705206 0
<INVENTORY> 4765304 2907661 0
<CURRENT-ASSETS> 132102330 75626355 0
<PP&E> 57749905 49789902 0
<DEPRECIATION> 37831369 30150571 0
<TOTAL-ASSETS> 156886731 99462140 0
<CURRENT-LIABILITIES> 63889030 34105874 0
<BONDS> 0 0 0
<COMMON> 8313646 5368478 0
0 0 0
0 0 0
<OTHER-SE> 81231149 56566393 0
<TOTAL-LIABILITY-AND-EQUITY> 156886731 99462140 0
<SALES> 127762333 96212958 75443939
<TOTAL-REVENUES> 127762333 96212958 75443939
<CGS> 90079212 69359671 52663474
<TOTAL-COSTS> 100992638 77671858 60524773
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 500000 480000 525000
<INTEREST-EXPENSE> 103075 99605 0
<INCOME-PRETAX> 28386041 19649747 15219184
<INCOME-TAX> 10146000 6979000 5357000
<INCOME-CONTINUING> 18315353 12713370 9862910
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 18315353 12713370 9862910
<EPS-PRIMARY> .47 .34 .27
<EPS-DILUTED> .47 .34 .27
</TABLE>
