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
For the quarter ended Commission file number 0-13848
March 31, 1997
___________________________
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 of Organization) Identification Number)
2525 Horizon Lake Drive, Suite 120, Memphis, Tennessee 38133
(Address of Principal Executive Offices)
(901) 371-8000
(Registrant's telephone number, including area code)
_________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes[X] No[ ]
The number of shares of the registrant's Common Stock, $.33 1/3 par value, as
of March 31, 1997 was 60,833,885.
<PAGE>
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, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Income for
the Three Months ended March 31, 1997 and
March 31, 1996 2
Condensed Consolidated Statements of Cash Flows
for the Three Months ended March 31, 1997 and
March 31, 1996 3
Notes to Condensed Consolidated Financial
Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 7
Signatures 8
Exhibit 11 - Computation of Earnings Per Share
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31 December 31
1997 1996
-------- -----------
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $109,216 $ 96,164
Securities available-for-sale 76,947 63,345
Accounts receivable, net 42,509 38,248
Inventories 3,768 4,353
Prepaid expenses and other 3,996 3,577
-------- --------
TOTAL CURRENT ASSETS 236,436 205,687
SECURITIES HELD-TO-MATURITY 56,173 56,714
OTHER ASSETS 5,872 3,375
PROPERTY AND EQUIPMENT
Less accumulated depreciation 75,379 73,819
and amortization 49,015 46,782
-------- --------
26,364 27,037
-------- --------
TOTAL ASSETS $324,845 $292,813
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other
liabilities $ 73,211 $ 71,814
Accrued liabilities 25,853 2,849
Current maturities of
long-term debt 424 418
-------- --------
TOTAL CURRENT LIABILITIES 99,488 75,081
LONG TERM DEBT, LESS
CURRENT MATURITIES 452 561
DEFERRED INCOME TAXES 2,098 2,023
STOCKHOLDERS' EQUITY:
Common Stock-par value $.33 1/3
per share; authorized 80,000,000
shares, issued 60,833,885 shares
at March 31, 1997 and 60,817,424
shares at December 31, 1996 20,278 20,272
Other stockholders' equity 202,529 194,876
-------- --------
TOTAL STOCKHOLDERS' EQUITY 222,807 215,148
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $324,845 $292,813
======== ========
See Notes to Condensed Consolidated Financial Statements - Unaudited.
-1-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31
--------------------------
1997 1996
------- -------
(In thousands, except earnings per share)
Revenues $47,045 $33,895
Cost of operations 34,951 24,534
Selling, general and
administrative expenses 2,018 2,734
------- -------
OPERATING INCOME 10,076 6,627
Other income (expense):
Interest income 2,273 658
Interest expense (16) (27)
------- --------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 12,333 7,258
Income taxes 4,400 2,640
------- -------
INCOME BEFORE MINORITY
INTEREST 7,933 4,618
Minority interest 42
------- -------
NET INCOME $ 7,933 $ 4,660
======= =======
Per share data:
Weighted average common
and common equivalent
shares outstanding 62,849 58,804
====== ======
Earnings per share $0.13 $0.08
====== ======
See Notes to Condensed Consolidated Financial Statements
- Unaudited
-2-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31
--------------------
1997 1996
------- -------
(In thousands)
NET CASH PROVIDED BY OPERATING
ACTIVITIES $31,017 $ 9,185
INVESTING ACTIVITIES:
Acquisition of property and equipment (1,561) (5,995)
Purchases of securities available-for-sale (32,700) (4,498)
Purchases of securities held-to-maturity (8,915)
Sale of securities avaialble-for-sale 2,996
Maturities of securities available-for-sale 15,521
Maturities of securities held-to-maturity 9,455 71
Purchased merchant contracts (2,746)
------- --------
NET CASH USED IN INVESTING ACTIVITIES (17,950) (10,422)
FINANCING ACTIVITIES:
Proceeds from sale of common stock 87 1,041
Payments on notes payable (102) (96)
------- --------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (15) 945
------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 13,052 (292)
Cash and cash equivalents at beginning
of period 96,164 36,573
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $109,216 $ 36,281
======== ========
For purposes of these statements, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.
See Notes to Condensed Consolidated Financial Statements - Unaudited.
-3-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997
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 Regulations 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 period ended March 31, 1997 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1997. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant's annual report on Form 10-K for
the year ended December 31, 1996.
The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
SECURITIES
Net unrealized loss on securities available-for-sale:
March 31 December 31
1997 1996
---------- -----------
Decrease in securities
available-for-sale $1,338,874 $757,606
Increase in deferred tax assets 465,000 261,000
Decrease in equity 873,874 496,606
STOCKHOLDERS' MATTERS AND EARNINGS PER SHARE
Earnings per share and related per share data have been restated to reflect
the stock splits through March 31, 1997.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of primary earnings per share and fully diluted earnings per share for the
first quarter ended March 31, 1997 and March 31, 1996 is not expected to be
material.
-4-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q may contain or incorporate by reference statements which may
constitute "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. Prospective investors are cautioned that any
such statements are not guarantees for future performance and involve risks and
uncertainties, and that actual results may differ materially from those com-
templated by such forward-looking statements. Important factors currently
known to management that could cause actual results to differ materially from
from those in forward-looking statements include significant fluctuations in
interest rates, inflation, economic recession, significant changes in the
federal and state legal and regulatory environment, and competition in the
Company's markets. The Company undertakes no obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurence of
unanticipated events or changes to future results over time.
RESULTS OF OPERATIONS
Revenues increased 39% in the first quarter of 1997 when compared to the same
quarter of the prior year. Transaction processing revenue from Card Services
(76% of total revenues in the first quarter 1997) increased 37% as new
merchants were added and usage at existing merchants increased. Trucking
Services (19% of total revenues in the first quarter 1997) increased 82%,
driven by surcharge revenue at cash dispensing machines (ATM), ATM
transaction processing fees and additional trucking companies using the
Company's fuel and cash advance services. Check, EFT and Terminal Services
(5% of total revenues in the first quarter 1997) offset these increases,
declining 18%. The decrease was primarily attributable to competitive
repricing in Check Services and the elimination of EFT Services in 1996.
Net income as a percentage of revenue increased in the first quarter of 1997
to 16.9% from 13.7% in the same quarter of the prior year. Historically, the
Company has generated sales through senior management, commissioned
telemarketing activities and outside sales representatives; however, in 1996
the Company reorganized its marketing activities to meet future growth
objectives by increasing direct marketing staff, downsizing the telemarketing
staff and entering into agreements with independent sales organizations to
purchase individual merchant contracts and merchant portfolios. As the cost
of merchant contracts and portfolio acquisitions are amortized over the
average life of the contract, current year selling, general and
administrative expenses decreased by approximately $2.5 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $16.7 million from operating activities for the first
quarter of 1997, net of $14.3 million in securities purchased but not settled
at March 31, 1997. The Company invested $1.6 million on capital additions,
primarily new computer equipment. Additionally, the Company spent $2.7
million to purchase individual merchant contracts.
Significant changes in cash, accounts receivable and accounts payable result
from the day of the week the period end falls combined with increases in
settlement volume from one period to the next.
-5-
<PAGE>
CONCORD EFS, INC. AND SUBIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
The company has unused unsecured lines of credit of $10 million with
financial institutions. The Company also holds securities with an
approximately market value of $76.9 million that are available for operating
needs or as collateral to obtain short term financing if needed.
With little debt, adequate 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 regulatory capital ratios. The Company's
working capital ratio was approximately 2.4 to 1 at March 31, 1997.
-6-
<PAGE>
PART II
OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
11 - Computation of Earnings Per Share.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the first quarter.
-7-
<PAGE>
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 15, 1997 By: /s/ Dan M. Palmer
------------------------
Dan M. Palmer
Chief Executive Officer
Date: May 15, 1997 By: /s/ Thomas J. Dowling
-------------------------
Thomas J. Dowling
Vice President & Controller
-8-
<PAGE>
EXHIBIT 11
CONCORD EFS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Three Months
Ended
March 31
--------------------------
1997 1996
------- -------
(In thousands, except earnings per share)
For primary earnings per share:
Net income $ 7,933 $ 4,660
======= =======
Weighted average of common shares
outstanding 60,821 56,368
Weighted average common stock
equivalent shares for stock options
by treasury stock method 2,028 2,436
------- -------
Weighted average common and common
equivalent shares 62,849 58,804
======= =======
Per share amount $0.13 $0.08
======= ======
For fully diluted earnings per share:
Net income $ 7,933 $ 4,660
======= =======
Weighted average common and common
equivalent shares for primary
earnings per share 62,849 58,804
Add shares representing additional
shares for stock options based on
period-end market price 42
------- -------
Weighted average common and common
equivalent shares-fully diluted
basis 62,849 58,846
======= =======
Per share amount $0.13 $0.08
======= ======
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000740112
<NAME> CONCORD EFS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 109216
<SECURITIES> 133120
<RECEIVABLES> 43573
<ALLOWANCES> 1064
<INVENTORY> 3768
<CURRENT-ASSETS> 236436
<PP&E> 75379
<DEPRECIATION> 49015
<TOTAL-ASSETS> 324845
<CURRENT-LIABILITIES> 99488
<BONDS> 0
0
0
<COMMON> 20278
<OTHER-SE> 202529
<TOTAL-LIABILITY-AND-EQUITY> 324845
<SALES> 47045
<TOTAL-REVENUES> 47045
<CGS> 34951
<TOTAL-COSTS> 36969
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> 12333
<INCOME-TAX> 4400
<INCOME-CONTINUING> 7933
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7933
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
