SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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
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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
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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
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Disclosure of delinquent filings pursuant to Item 405 of Regulation S-K
will be contained in the registrant's proxy statement for its 1996
annual meeting of shareholders, which statement is incorporated by
reference in Part III of this Form 10-K. Yes No X
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The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 10, 1997 was $1,399,004,693.
The number of shares of the registrant's Common Stock outstanding as of
March 10, 1997, was 60,826,291.
DOCUMENTS INCORPORATED BY REFERENCE
PART II
Portions of this Registrant's 1996 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 15, 1997 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. Page
- - -------- PART I ----
1. Business
Overview 1
Subsidiaries 2
Description of Business 2
Data Processing and Field Service Support 6
Marketing and Customers 6
Competition 7
Supervision and Regulation 7
Employees 9
2. Properties 9
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 9
PART II
5. Market for Registrant's Common Stock
and Related Stockholder Matters 9
6. Selected Financial Data 9
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
8. Financial Statements and Supplementary Data 10
9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosures 11
PART III
10. Directors and Executive Officers of the Registrant 11
11. Executive Compensation 11
12. Security Ownership of Certain Beneficial Owners
and Management 11
13. Certain Relationships and Related Transactions 11
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 11
Index to Exhibits 11
Signatures 13
<PAGE>
PART I
Item 1. BUSINESS
Overview
- - --------
Concord EFS, Inc. and its subsidiaries (the Company or Concord)
provide electronic transaction authorization, processing, settlement
and funds transfer services in selected markets. The Company's primary
activity is Card Services, which involves the provision of integrated
electronic transaction services for credit card, debit card and
electronic benefits transfer ("EBT") card transactions to supermarket
chains, grocery stores, convenience store merchants and other
retailers. The Company believes it is one of the few fully integrated
transaction processors, supplying electronic payment and verification
terminals, cash dispensing machines ("ATMs"), processing services,
payment settlement, depository services and transaction data
compilation. In addition, the Company is one of the few companies
offering full credit and debit card processing on a nationwide basis.
The Company also provides electronic payment and banking facilities to
a large customer base in the trucking industry for use at major truck
stop chains throughout the United States. In addition to maintaining a
network of over 350 ATMs at truck stops nationwide, the Company
provides fuel purchase cards, ATM bank cards and general banking
services to truck drivers. The Company offers trucking companies
payroll deposit and cash forwarding services, as well as real-time data
compilation with respect to fuel volume usage, fuel expenditures,
vehicle and driver tracking and truck routine maintenance schedules.
In addition, the Company provides check verification services to
grocery and other retail merchants.
Concord offers merchants a cost-effective, reliable, turnkey debit and
credit card processing system. The Company is able to provide its
system on a profitable basis because of its low-cost operational
structure, which includes efficient marketing, volume purchasing
arrangements with equipment and communications vendors, and direct
membership by its subsidiary, EFS National Bank, in bank card
associations (such as VISA, and MasterCard) and national and regional
debit card networks (such as Interlink, MAC, Explore and NYCE). In
1992, Concord entered into an agreement with the National Grocers
Association, Inc. ("NGA") whereby Concord became the preferred vendor
of the NGA for electronic payment services for a range of applications,
including both turnkey packaged solutions and customized payment
service agreements covering credit and debit card transaction
processing. The agreement has enabled Concord to increase
substantially its grocery store customer base. Currently, 6% to 7% of
grocery transactions use credit or debit card payment, and the Company
believes that this percentage is growing rapidly.
The Company seeks to grow its funds transfer and payment transaction
processing business by providing a fully integrated range of transfer
and processing services at competitive prices. The principal elements
of the Company's strategy include the following:
The Company focuses on specific markets that historically have been
underserved by the transaction processing industry, seeking a diverse
group of customers with low credit risk profiles.
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<PAGE>
The Company seeks to be a low-cost, highly reliable provider of
electronic payment processing services by providing a fully integrated
range of relevant services, including designing equipment solutions,
selling and leasing equipment, authorizing transactions, capturing
information on its own host computer, directly participating in all
major credit and debit card associations and networks, and effecting
settlement of payment transactions and transfer of funds.
The Company offers maximum technological versatility for the provisions
of electronic processing services for a wide variety of communication
protocols and processing equipment of different manufacturers, in order
to provide a tailored solution to the customer's specific needs.
The Company adheres to a balanced marketing approach through the use of
internal marketing specialists, independent sales representatives and a
number of independent sales organizations ("ISOs") in an effort to
provide, at the most efficient cost, broader access to new merchant
customers and portfolio acquisition opportunities nationwide.
Subsidiaries
- - ------------
EFS National Bank (EFSNB), the largest subsidiary of the Company, sells
credit, debit, and electronic benefits transfer (EBT) card authori-
zation, 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.
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 is not
required to use the reporting format and related disclosures normally
required for bank holding companies.
Concord Computing Corporation's (CCC) 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, CCC provides certain processing services for its
affiliated companies.
CCC incorporated Concord Retail Services, Inc. (CRS), a wholly-owned
Delaware subsidiary. CRS provides POS terminal driving, servicing and
maintenance to the Company's customers in the northeast United States.
The Company incorporated Concord Equipment Sales, Inc. (CES), a wholly-
owned Tennessee subsidiary, on September 5, 1991. CES 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.
Description of Business
The Company operates in the transaction processing and payment services
industry, providing targeted markets with a fully integrated range of
services and products for credit card, debit card and EBT card trans-
actions, trucking company services, check verification data compilation
and payment settlement.
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The following table is a listing of revenues by service type for the
three years ended December 31:
1996 1995 1994
-------- -------- -------
(in thousands)
Card Services $129,658 $ 95,906 $69,169
Trucking Services 24,301 16,687 12,853
Check Verification Services 6,905 8,485 7,744
EFT and Terminal Services 5,836 6,684 6,447
-------- -------- -------
$166,700 $127,762 $96,213
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As transaction service revenues are similar in nature, total operating
expenses are not directly attributable to any individual revenue type.
Card Services
- - -------------
Card services accounted for 78% of the Company's revenue for the year
ended December 31, 1996. The Company processes credit card
transactions using VISA, MasterCard, Discover, American Express, Diners
Club and JCB cards. The Company processes debit card transactions for
banks issuing such cards, which permit direct payment debit from the
POS terminal against the cardholder's deposit account. In addition, in
those states where EBT programs have been implemented, the Company
similarly processes payments effected with EBT cards against funds made
available by public assistance benefit programs through the primary EBT
third-party providers.
The bank card (e.g., Visa and MasterCard) transaction process begins
when the consumer presents the card and the merchant "swipes" the card
at the POS terminal and enters the transaction amount. The Company
processes the data from the POS terminal through the relevant
electronic communications network to the card issuer. The transaction
is approved or rejected by the issuer bank, and the response is
transmitted almost instantaneously back through the Company's
processing systems to the POS terminal. The purchase transaction is
then confirmed against the authorization data retained in the Company's
system, whereupon the Company (through its subsidiary, EFSNB) settles
the payment by crediting the merchant with the transaction amount, less
the agreed discount rate, and submits the transaction through the
relevant network for crediting by the issuing bank to EFSNB of the
transaction amount less the interchange and/or association fee. To
complete the transaction, the issuing bank bills the consumer for the
transaction amount.
The authorization process is similar for other credit cards (e.g.,
Discover and American Express), debit card (e.g., Explore and NYCE) and
EBT transactions. In a credit card or EBT transaction, the credit card
issuer or EBT primary provider effects the payment settlement by
crediting the merchant's account with the issuer and credits the
Company's account with the related processing service fee. In a debit
card transaction, the transaction is initiated by the consumer's
insertion of the personal identification number, and the transaction is
settled by directly debiting the cardholder's account in the payment
amount plus the surcharge (if any), crediting the merchant in the
payment amount less the processing service charge, paying the network
fee and crediting the Company in the amount of the processing service
charge plus the surcharge (if applicable).
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<PAGE>
The Company's principal business is the provision of electronic payment
services to supermarket chains, grocery stores, convenience store
merchants and other retailers. The Company has been selective in the
merchants to which it has marketed its services and has historically
chosen retailers whose businesses are less economically volatile and
involve less risk of chargeback and merchant fraud. The Company will
not, for instance, deal with merchants who book transactions for
delivery at a later date, such as mail-order retailers and travel
agents. No single customer of the Company accounts for a material
portion of the Company's revenues.
Trucking Services
- - -----------------
The Company's trucking services accounted for 15% of its revenue for
the year ended December 31, 1996. The Company provides a variety of
flexible payment systems that enable truckers to use payment cards to
purchase fuel and services and to obtain cash advances at more than
4,000 truck stops. Through its national bank subsidiary, EFSNB, the
Company offers payroll and cash distribution programs to trucking
companies and truck drivers. In connection with the issuance of ATM
bank cards to truck drivers and payroll distribution programs, EFSNB
opens individual payroll deposit accounts and/or full service checking
accounts in the truck drivers' names. Payroll deposit accounts are
special purpose accounts for deposit by the trucking company of
payments for the drivers' accounts, with the drivers' benefits limited
to the right of withdrawal. Under this program, the trucking company
transmits payment instructions to EFSNB, and the specified funds are
made available to the designated drivers within minutes. A substantial
number of truck drivers with payroll deposit accounts choose to open
full-service checking accounts with EFSNB.
The Company also provides trucking companies with private label fuel
cards for use by their drivers. When such fuel cards are utilized, the
Company gathers fuel purchase and other trucking data at the same time
as it processes the payment transactions; the data gathered by the
Company include truck vehicle and trailer identification numbers and
odometer mileage, in addition to fuel volume and expenditure
information. The data gathered from aggregate transactions of a
trucking company provide current information with respect to fuel
volume usage, fuel expenditures, vehicle and driver tracking and truck
routine maintenance schedules. The trucking company customer has real-
time direct access to the Company's database for the trucking company's
drivers and operations.
The Company has established over 350 ATMs at selected locations of
major truck stop chains nationwide. As the Company and its
competitors place ATM cards in truck driver's hands, the Company's ATMs
will be increasingly utilized, and the Company will receive fees both
from the use of its own ATM cards and those of its competitors.
The Company is a member of all major ATM networks, including Cirrus and
Plus.
Check Verification Services
- - ---------------------------
The Company provides check verification programs, which may be
customized to a particular merchant's needs or to a particular market.
The Company's check payment verification services accounted for
approximately 4% of its revenue for the year ended December 31, 1996.
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<PAGE>
The traditional check verification program, which is customized to the
specific merchant or merchant chain, consists of a positive and
negative file based upon the check writing history for the checking
account party with the specific merchant or merchant chain. Under the
program's negative file, if a customer tenders a check at any one store
of a merchant chain that is returned for insufficient funds, any
additional checks tendered by such customer will be rejected at all
stores of the merchant chain. Under the positive file, if a customer
cashes a check at any one store in a chain, the amount of that check
reduces for the specified time period that customer's check-cashing
limit for further check presentation at any other store of the chain.
Beginning in the fall of 1995, the Company began to offer a new check
verification program for electronic comparison of a tendered check
against a nationwide multi-merchant database which aggregates the bad
check experiences of all participating merchants. The Company has
entered into arrangements with two providers of such nationwide check
history databases. For check verification utilizing a nationwide
database, the merchant "swipes" the magnetic ink bank and account
identification ("MICR") line of the check using an electronic check
reader, and the check account number is immediately compared against
the nationwide database, which will not verify the tendered check while
a previous bad check on such account remains outstanding against any
other merchant using the database. The Company is able to customize a
particular merchant's use of the nationwide database to include
checking against various identification references in addition to the
check MICR, such as the driver's license number and social security
number of the purchaser. Currently, the Company's fees deriving from
check verification utilizing the nationwide databases represent an
insignificant portion of total check verification revenues; however,
the Company believes merchant use of the nationwide verification
databases will increase as their benefits become more widely known.
Check verification programs provide more limited payment assurance than
check guarantee programs but at a substantially lower cost. Typically
only approximately 1% of checks tendered to merchants are rejected for
insufficient funds or other reasons. Guarantee charges typically range
from 2.5% to 4% of the face value of a check, while check verification
charges amount to only pennies per check. In addition, electronic
check verification is virtually instantaneous, while obtaining the
payment benefit under a check guarantee for a rejected check involves
substantial delay and additional merchant effort. The Company believes
that its check verification services represent a valuable add-on
product which enhances the card processing and settlement services
offered by the Company to supermarket chains, grocery stores,
convenience store merchants and other retailers, and are of particular
value in comparison to check guarantee programs to high-volume, low-
margin retailers.
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.
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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
Card Services. These facilities utilize fully redundant computers
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 and through ISOs and independent sales representatives to
supermarket chains, grocery stores, convenience store merchants, and
other retailers, electronic funds transfer networks, financial
institutions and trucking companies. Historically, the Company has
grown its merchant customer base primarily through its in-house
telemarketing and sales force working with independent contractor sales
representatives nationwide. During 1996, the Company has reorganized
its sales and marketing activities relating to its card services
business by adding marketing professionals focused upon multi-store
merchants in certain specialized markets, by reducing the Company's in-
house telemarketing staff, and by outsourcing a portion of its
telemarketing activities to independent sales organizations and by
expanding its relationships with ISOs nationwide. The Company's
strategy is to increase its in-house marketing expertise in certain
specialized market areas and broaden its access to growth opportunities
nationwide by utilizing the broader market penetration of ISOs. The
Company believes that the most promising growth opportunities currently
exist in certain small retail merchant chains in specialized markets,
and in the acquisition of merchant processing portfolios developed by
smaller processing services providers.
The Company has had success historically in marketing through key trade
association relationships, such as its relationship with the NGA, as
the recommended provider of electronic services to grocers, and through
agreements with other payment services providers. Management is
committed to the cultivation of such trade association relationships
and the development of arrangements with other service providers.
As an integrated services provider, the Company has natural cross-
selling marketing opportunities. When the Company established itself
with the major truck stop chains as an authorized issuer of payment
cards and processor of card transactions, the Company gained a
substantial advantage in selling its card payment systems to trucking
companies. The Company's established relationships with the truck stop
owners also afforded an opportunity to sell the placement of ATMs at
truck stops, which in turn provided a further advantage in selling the
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<PAGE>
Company's integrated processing and banking services to trucking
companies and truck drivers. The Company's established presence in
grocery stores, grocery chains, convenience stores and other small and
mid-size retailers gives it an advantage in establishing relationships
with EBT providers, whose benefits are utilized largely at such retail
locations.
The Company's sales offices are located in suburbs of Memphis,
Tennessee and Chicago, Illinois. The Company's executive officers
actively participate in the Company's marketing efforts.
Competition
- - -----------
The markets for electronic payment processing, credit and debit card
payment settlement, check authorization programs, fuel card and cash
forwarding services, and ATM services are all highly competitive. The
Company's principal competitors include major national and regional
banks, local processing banks, non-bank processors and other
independent service organizations, many of which have substantially
greater capital, management, marketing and technological resources than
those of the Company. The three largest credit and debit card
processors accounted for 49.5% of the total credit and debit card sales
volume in 1995 (The Nilson Report, April 1996). A single competitor
accounted for 58.6% of the total dollar volume of payment transaction
processing for the trucking industry in 1995 (The Nilson Report,
February 1996). A single competitor accounted for 66.6% of the total
dollar volume of check verifications in the United States in 1995 (The
Nilson Report, April 1996). There can be no assurance that the Company
will continue to be able to compete successfully with such competitors.
In addition, the competitive pricing pressures that would result from
any increase in competition could adversely affect the Company's
margins and may have a material adverse effect on the Company's
financial condition and results of operations.
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 fully
integrated suppliers of a broad range of hardware and processing,
banking and data compilation services for use in transactions at retail
locations.
The Company also competes with other electronic payment processing
organizations for growth opportunities. The recent consolidation in
banking in the Untied States has resulted in fewer opportunities for
merchant portfolio acquisitions, as many small banks have been acquired
by large banks, some of which are competitors with the Company in the
provision of processing services.
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 Company 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
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<PAGE>
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
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 sub-
sidiaries' 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 oper-
ations of the Company. The Board possesses cease and desist powers over
a bank holding company if its actions or actions of any of its subsidi-
aries 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
Federal Deposit Insurance Corporation 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.
In addition to regulation by federal and state laws and governmental
agencies, the Company is subject to the rules and regulations of the
various credit card and debit card associations and networks, including
requirements for equity capital commensurate with processing
transaction dollar volume.
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Employees
- - ---------
As of December 31, 1996, the Company employed 447 full and part-time
personnel, including 53 data processing and technical employees, 320 in
operations, and 74 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
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
Location Square Feet Primary Uses Expiration
- - ----------- ----------- ----------------- -------------
Memphis, TN 43,375 Corporate Offices July 31, 2000
& EFSNB Operations
Elk Grove, IL 20,330 Data Processing, July 31, 1997
Field Service,
Concord Operations
Aurora, Co 3,072 Field Service month to month
West Chester,
Pennsylvania 1,300 Field Service May 31, 1997
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's financial condition or results of
operations.
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 1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK 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 6
of the Company's Annual Report(the "Annual Report"),and is incorporated
herein 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 incorporated
herein by reference.
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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 and 4 of the Annual Report and is incorporated herein by
reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial state-
ments set forth below are included on pages 7 - 20 of the Annual
Report, and are incorporated herein by reference.
Report of Independent Auditors.
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995, and 1994.
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994.
Notes to Consolidated Financial Statements as of December 31, 1996.
Quarterly results of operations for the years ended December 31, 1996
and 1995 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, 1996
Allowance for
uncollectible accounts $759,435 $816,786 $691,470 $884,751
======== ======== ======== ========
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
======== ======== ======== ========
* Uncollectible accounts written off, net of recoveries.
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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 15, 1997 under the captions "Election of Directors",
"Executive Compensation", "Stock Options", Beneficial Ownership of
Common Stock", and "Certain Transactions" and is incorporated herein by
reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT 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.
-11-
<PAGE>
22 List of Subsidiaries
Jurisdiction of
Company Organization Ownership
------- --------------- ---------
Concord Computing Corp. Delaware 100%
EFS National Bank National Bank Charter 100%
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, 1996.
(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
seperate 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 Statement on Form S-8 No. 33-60871.
-12-
<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 31, 1997
/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 31, 1997
- - ----------------- of the Company and EFS
Dan M. Palmer National Bank
/s/ Edward A. Labry President of the Company and March 31, 1997
- - ------------------- EFS National Bank
Edward A. Labry III
/s/ Richard M. Harter Director and Secretary of March 31, 1997
- - --------------------- the Company
Richard M. Harter
/s/ David C. Anderson Director of the Company March 31, 1997
- - ---------------------
David C. Anderson
/s/J. Richard Buchignani Director of the Company and March 31, 1997
- - ------------------------ EFS National Bank
J. Richard Buchignani
/s/ Joyce Kelso Director of the Company and March 31, 1997
- - ---------------- EFS National Bank
Joyce Kelso
/s/ Richard P. Kiphart Director of the Company March 31, 1997
- - -----------------------
Richard P. Kiphart
/s/ Jerry D. Mooney Director of the Company March 31, 1997
- - --------------------
Jerry D. Mooney
/s/Paul L. Whittington Director of the Company March 31, 1997
- - ----------------------
Paul L. Whittington
-13-
<PAGE>
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER-SHARE EARNINGS *
CONCORD EFS, INC.
Year Ended December 31
1996 1995 1994
-------- -------- ---------
(in thousands, except
earnings per share)
For primary earnings per share:
Weighted average of common
shares outstanding net of
treasury shares 57,484 55,344 54,318
Weighted average common
stock equivalents for stock
options by treasury stock
method 2,451 2,515 1,580
------ ------ ------
Weighted average common and
common equivalent shares 59,935 57,859 55,898
====== ====== ======
Net income $26,789 $18,315 $12,713
======= ======= =======
Per-share amount $0.45 $0.32 $0.23
===== ===== =====
For fully diluted earnings per share:
Weighted average common
and common equivalent
shares for primary earnings
per share 59,935 57,859 55,898
Add shares representing
additional shares for stock
options based on period-end
market price 40 312 787
------ ------ ------
Weighted average common
and common equivalent
shares-fully diluted basis 59,975 58,171 56,685
====== ====== ======
Net income $26,789 $18,315 $12,713
======= ======= =======
Per-share amount $0.45 $0.31 $0.22
===== ===== =====
* Earnings per share and related per share data have been restated to
reflect stock splits issued through June 28, 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 Ending
1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
(in thousands except per share data)
INCOME STATEMENT DATA:
Revenues $166,700 $127,762 $96,213 $75,443 $65,562
Cost of Operations 119,675 90,579 69,840 53,188 46,024
Selling, General and
Administrative Expenses 9,724 10,913 8,312 7,861 5,969
-------- -------- ------- ------- -------
OPERATING INCOME 37,301 26,270 18,061 14,394 13,569
Interest, Net 4,014 2,116 1,588 825 503
-------- -------- ------- ------- -------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 41,315 28,386 19,649 15,219 14,072
Income Taxes 14,526 10,146 6,979 5,357 5,011
-------- -------- ------- ------- -------
INCOME BEFORE MINORITY
INTEREST 26,789 18,240 12,670 9,862 9,061
Minority Interest 75 43 1 (87)
-------- -------- ------- ------- -------
NET INCOME $ 26,789 $ 18,315 $12,713 $ 9,863 $ 8,974
======== ======== ======= ======= =======
Weighted Average Common and
Common Equivalent Shares
Outstanding ** 59,935 57,859 55,898 55,676 55,169
====== ====== ====== ====== ======
Earnings Per Share ** $0.45 $0.32 $0.23 $0.18 $0.16
===== ===== ===== ===== =====
BALANCE SHEET DATA:
Working Capital $130,606 $68,212 $45,717 $34,655 $26,240
Total Assets 292,813 156,887 99,462 71,033 56,316
Long Term Debt,Less Current
Maturities 561 978 1,371
Total Stockholders' Equity 215,148 89,544 61,935 50,251 39,573
Percentage of Revenue Percentage Change
Year End FY96 FY95
------------------------ Over Over
1996 1995 1994 FY95 FY94
INCOME STATEMENT DATA: ------ ------ ------ ------ ------
Revenues 100.0% 100.0% 100.0% 30.5% 32.8%
Cost of Operations 71.8 70.9 72.6 32.1 29.7
Selling, General and
Administrative Expenses 5.8 8.6 8.6 (10.9) 31.3
----- ----- -----
OPERATING INCOME 22.4 20.5 18.8 42.0 45.4
Interest, Net 2.4 1.7 1.7 89.7 33.2
----- ----- -----
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 24.8 22.2 20.5 45.5 44.5
Income Taxes 8.7 7.9 7.3 43.2 45.4
----- ----- -----
INCOME BEFORE MINORITY INTEREST 16.1 14.3 13.2 46.9 44.0
Minority Interest 0.0 0.0 0.0 0.0 74.4
----- ----- -----
NET INCOME 16.1 14.3 13.2 46.3 44.1
===== ===== =====
** Earnings per share and related per share data have been restated to reflect
stock splits issued through June 28, 1996.
-1-
<PAGE>
Dear Stockholders:
All of us at the Company are proud of the financial results for 1996.
The continuing trend of strong year-to-year increases in revenues and
profits enhances shareholders' returns and keeps the Company in a strong
position for growth and prosperity in the years ahead. The financial results
are summarized as follows: Revenues up 30%, Net Income up 46% and Earnings
Per Share up 41%. Revenues for Card Services (78% of total revenues) were
up 35% and Trucking Services revenues (15% of total revenues) were up 46%,
driven by surcharge revenue at ATMs in truckstops. Check, EFT and Terminal
Services, (7% of total revenues) declined 16%. These decreases were due to
lower Check Services fee rates and the gradual phase out of EFT Services in
the current year.
In addition to its financial returns from profits, the Company
completed a secondary offering of common stock in October. Proceeds from
the 3.45 million shares issued were $87.7 million, which will be used to
further enhance the growth of the Company.
In mid-1996, we refocused our marketing plans and sales department
organization to better meet our growth objectives. We increased our
internal direct marketing staff, which sells to larger merchants, and
simultaneously downsized our internal telemarketing staff. We entered into
agreements with several ISOs (independent sales organizations) whereby the
Company purchases merchant contracts individually or in portfolios. In the
latter part of 1996 this strategy was fully implemented and by the end of
the year we began to see results in line with our expectations. The Company
continues to focus on its supermarket strategy, concentrating on increased
credit card usage, debit card acceptance, and Electronic Benefit Transfer
(EBT). We also have begun to implement additional sales efforts in
other market niches to complete our new marketing strategy. These new
efforts, combined with our core strategies could make 1997 another strong
year of growth for the Company.
At this point we would like to thank all of you for the numerous phone
calls, letters and faxes congratulating management and employees for the
very positive article that appeared in the February 27, 1997, edition of The
Wall Street Journal. In the article the Company was shown to have provided
the best total return to shareholders, over the last ten years, of the 1,000
corporations tracked in Shareholder Scoreboard. We are so proud of this
accomplishment that we have included the text of the article* in this year's
Annual Report following this letter (in case some of you missed it!).
Again thanks for your continued support.
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
* Not included in Annual Report filed electronically with the Securities
and Exchange Commission.
-2-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Calendar 1996 Compared to Calendar 1995
- - ---------------------------------------
Revenues increased 30% in 1996 over 1995. Transaction processing revenue
from Card Services (78% of total revenues) increased 35% for the year as
new merchants were added and usage at existing merchants increased.
Trucking Services (15% of total revenues) was up 46%, driven by surcharge
revenue at cash dispensing machines and additional trucking companies
using the Company's fuel and cash advance services. Check, EFT and
Terminal Services (7% of total revenues) offset these increases, declining
16%, net. The decrease was primarily attributable to competitive
repricing in Check Services and the gradual elimination of EFT Services.
Net income as a percentage of revenue increased in 1996 to 16.1% from
14.3% in the prior year. The primary factor was lower selling, general
and administrative expenses. 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
the 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 contracts, current year selling, general and
administrative expenses decreased by approximately $3.4 million.
Calendar 1995 Compared to Calendar 1994
- - ---------------------------------------
Net income increased 44% in 1995 over net income in 1994 due to increased
revenues in all three of the Company's core businesses and decreases in
telephone and maintenance operating costs. Revenues from Card Services
increased 38% as a result of the addition of grocery and retail merchants
and volume increases in credit and debit card usage. Continued marketing
efforts combined with merchant association endorsements were responsible
for the new customers. Trucking Services revenues rose 30% due to the
growth in ATM revenues and increases in the number of trucking customers.
Revenues from Check Verification Services rose 22% on the addition of new
merchants utilizing such services.
Net income as a percentage of revenue increased in 1995 to 14.3% from
13.2% in 1994 as operational costs grew at a slower rate than transaction
revenue. Savings of approximately $2.3 million in telephone and
maintenance expenses were recognized in 1995.
Selling, general and administrative expenses in the year ended December
31, 1994 were significantly affected by costs associated with the
Company's antitrust lawsuit against Deluxe Data Systems, Inc. ("Deluxe").
The lawsuit, initiated in January 1993, alleged that Deluxe was
monopolizing electronic benefits transfer business in the state of
Maryland. The dispute with Deluxe was settled in July 1995, and the terms
of the settlement had no material financial statement impact in the fiscal
year 1995.
Calendar 1994 Compared to Calendar 1993
- - ---------------------------------------
Net income increased by 29% in 1994 over net income in 1993 due to
increased revenues in Card Services, Trucking Services and Check
-3-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Calendar 1994 Compared to Calendar 1993- Continued
- - --------------------------------------------------
Verification Services. 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 marketing efforts were
responsible for the new customers.
Profit margins remained consistent with the prior year as incremental
operational costs related to service volume growth and new services were
offset by increased interest income.
LIQUIDITY AND CAPITAL RESOURCES
The Company consistently generates significant resources from operating
activities. Over the past three years operating activities generated cash
of $80.0, $28.3 and $19.9 million, respectively.
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, impacting cash
generated from operations. At December 31, 1996, approximately $35.1
million was received from credit card associations prior to disbursement
of the funds to the Company's card service customers. Under normal
circumstances, these funds would have been paid to the customers prior to
December 31, 1996, and cash generated from operating activities would have
been $44.9 million.
The Company completed a secondary offering of common stock in October
1996. Proceeds from the 3.45 million shares issued were $87.7 million.
$30 million was used as a capital contribution to EFS National Bank
(EFSNB), a wholly-owned subsidiary of the Company, in order for it to remain
in compliance with the guidelines of credit card associations as its
processing transaction volume increases. It is expected that portions of
this additional EFSNB equity will be utilized from time to time to acquire
selected merchant payment processing portfolios from banks and other pro-
cessing organizations. The balance of the net proceeds held by the Company
will be available for working capital and general corporate purposes,
including placing additional ATMs, the possible acquisition of transaction
processing businesses and use in other subsidiaries of the Company. The
Company invested the net proceeds of the offering in short- and medium-term,
interest bearing obligations described in Note B - Securities.
During fiscal 1996, the Company invested $92.2 million in securities, net
of maturities, and $16.0 million in capital additions. Capital additions
were primarily for new computer equipment. These investing activities were
funded primarily through operating activities and the secondary offering
of the Company's stock.
Stock issued upon exercises of options under the Company's Incentive Stock
Option Plan provided $4.9 million in additional capital in 1996. The
disqualifying disposition of the options also reduced corporate income
-4-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES - Continued
taxes paid by $6.6 million. Management cannot estimate the timing or
amount of future cash flows from exercise of options, however, this is
expected to 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 $63.3 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. EFSNB exceeds required capital ratios. The
Company's working capital ratio was approximately 2.7 to 1 and 2.1 to 1 at
December 31, 1996 and 1995, respectively.
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 Assets to Be Disposed
Of". The Company adopted Statement 121 in the first quarter of 1996 with
no material effect to the financial statements.
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, Statement 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 disclosures are included in Note
I -Incentive Stock Option Plan as the Company continues to account for
stock options under APB Opinion No. 25.
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 1996 and 1995. Earnings per share
have been restated to reflect stock splits issued through June 28, 1996.
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1996 (in thousands except per share data)
Revenues $33,895 $40,858 $44,051 $47,896
Operating Income 6,627 9,130 10,158 11,386
Net Income 4,659 6,271 7,149 8,710
Earnings Per Share $0.08 $0.11 $0.12 $0.14
-5-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RECENT QUARTERLY RESULTS - Continued
1995
Revenues $25,928 $29,897 $33,945 $37,992
Operating Income 4,920 5,919 6,956 8,475
Net Income 3,459 4,081 4,840 5,935
Earnings Per Share $0.06 $0.07 $0.08 $0.10
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, 1996, as reported by NASDAQ.
Quotes have been restated to reflect stock splits issued through June 28,
1996.
HIGH LOW
YEAR ENDED DECEMBER 31, 1996:
First Quarter................. $19.83 $12.56
Second Quarter................ 24.25 17.33
Third Quarter................. 28.50 21.50
Fourth Quarter................ 31.50 22.25
YEAR ENDED DECEMBER 31, 1995:
First Quarter ................ $ 8.52 $ 6.52
Second Quarter................ 11.89 8.00
Third Quarter................. 14.22 10.67
Fourth Quarter................ 20.00 11.11
As of March 10, 1997 there were approximately 11,500 stockholders.
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.
-6-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
---------------------
1996 1995
-------- --------
ASSETS (in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 96,164 $36,573
Securities available-for-sale (amortized
cost of $64,102 at December 31, 1996
and $23,742 at December 31, 1995) 63,345 23,439
Accounts receivable, less allowance of
$885 at December 31, 1996 and $759
at December 31, 1995 38,248 63,690
Inventories 4,353 4,765
Prepaid expenses and other current assets 2,931 2,900
Deferred income taxes 632 407
Refundable income taxes 14 328
-------- --------
TOTAL CURRENT ASSETS 205,687 132,102
SECURITIES HELD-TO-MATURITY (Fair value of
$56,950 at December 31, 1996 and
$4,736 at December 31, 1995) 56,714 4,866
OTHER ASSETS 3,375
PROPERTY AND EQUIPMENT 73,819 57,750
Accumulated depreciation and amortization (46,782) (37,831)
-------- --------
27,037 19,919
-------- --------
TOTAL ASSETS $292,813 $156,887
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other liabilities $ 71,814 $ 60,967
Accrued liabilities 2,849 2,531
Current maturities of long-term debt 418 392
-------- --------
TOTAL CURRENT LIABILITIES 75,081 63,890
LONG-TERM DEBT, LESS CURRENT MATURITIES 561 978
DEFERRED INCOME TAXES 2,023 1,743
MINORITY INTEREST IN SUBSIDIARY 732
STOCKHOLDERS' EQUITY
Common Stock, $.33 1/3 par value; authorized
80,000 shares, issued and outstanding
60,817 shares at December 31, 1996 and
24,940 shares at December 31, 1995. 20,272 8,313
Additional paid-in capital 97,644 10,492
Retained earnings 97,728 70,939
Unrealized losses on securities, net of taxes (496) (200)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 215,148 89,544
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $292,813 $156,887
======== ========
See notes to consolidated financial statements.
-7-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
---------------------------------
1996 1995 1994
-------- -------- -------
(in thousands, except earnings per share)
Revenues $166,700 $127,762 $96,213
Cost of operations 119,675 90,579 69,840
Selling, general and
administrative expenses 9,724 10,913 8,312
-------- -------- -------
OPERATING INCOME 37,301 26,270 18,061
Other income (expense):
Interest income 4,104 2,219 1,688
Interest expense (90) (103) (100)
-------- -------- -------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 41,315 28,386 19,649
Income taxes 14,526 10,146 6,979
-------- -------- -------
INCOME BEFORE MINORITY INTEREST 26,789 18,240 12,670
Minority interest 75 43
-------- -------- -------
NET INCOME $26,789 $18,315 $12,713
======= ======= =======
Per share data:
Weighted average common
and common equivalent
shares outstanding 59,935 57,859 55,898
====== ====== ======
Earnings per share $0.45 $0.32 $0.23
===== ===== =====
See notes to consolidated financial statements.
-8-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unrealized
Common Addn'l Gains
Stock Common Paid-In Retained Treasury(Losses)on
Shares Stock Capital Earnings Stock Securities Total
------ ------- ------- ------- ------- ---------- --------
(In thousands)
BALANCE AT
JANUARY 1, 1994 11,136 $3,712 $7,717 $39,911 ($1,090) $50,250
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
Stock split 5,368 1,789 (1,789)
Unrealized losses
on securities,
net of taxes (1,242) (1,242)
Net income 12,713 12,713
------ ------ ------ ------- ------ ----- --------
BALANCE AT
DECEMBER 31, 1994 16,105 5,368 5,184 52,624 (1,242) 61,934
Exercise of
stock options 632 211 3,915 4,126
Tax benefit of
disqualifying
dispositions of
incentive stock
option shares 4,127 4,127
Stock split 8,203 2,734 (2,734)
Change in un-
realized losses
on securities,
net of taxes 1,042 1,042
Net income 18,315 18,315
------- ------ ------- ------- ------ ----- --------
BALANCE AT
DECEMBER 31, 1995 24,940 8,313 10,492 70,939 (200) 89,544
Exercise of
stock options 1,074 358 4,496 4,854
Secondary offering
of common stock 3,450 1,150 86,521 87,671
Tax benefit of
disqualifying
dispositions of
incentive stock
option shares 6,586 6,586
Stock splits 31,353 10,451 (10,451)
Change in un-
realized losses
on securities,
net of taxes (296) (296)
Net income 26,789 26,789
------ ------- ------- ------- ------ ----- --------
BALANCE AT
DECEMBER 31, 1996 60,817 $20,272 $97,644 $97,728 ($496) $215,148
====== ======= ======= ======= ====== ===== ========
See notes to consolidated financial statements.
-9-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
------------------------
1996 1995 1994
------- ------- -------
OPERATING ACTIVITIES (In thousands)
Net income $26,789 $18,315 $12,713
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,140 7,796 7,424
Provision for losses on accounts receivable 817 500 480
Minority interest (75) (43)
Deferred income taxes 213 457 (12)
Changes in operating assets and liabilities:
Accounts receivable 24,625 (30,426 )(15,742)
Inventories 412 (1,858) 442
Other current assets (31) 9 (590)
Accounts payable and other liabilities 10,847 30,458 13,667
Accrued liabilities 7,219 3,100 1,522
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 80,031 28,276 19,861
INVESTING ACTIVITIES
Acquisition of property and equipment (16,069) (8,075) (9,451)
Securities held-to-maturity:
Acquisition of securities (57,135) (2,360)
Proceeds from maturity of securities 809 1,047 769
Securities available-for-sale:
Acquisition of securities (36,054) (11,347) (6,869)
Proceeds from sales of securities 247 4,169
Proceeds from maturity of securities 173 1,997 167
Purchased merchant contracts (3,565)
Buyout of minority shareholders (732)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (112,573) (18,491) (11,215)
FINANCING ACTIVITIES
Proceeds from exercise of stock options 4,854 4,126 180
Proceeds from secondary offering of common stock 87,671
Proceeds from note payable 2,000
Payments on notes payable (392) (368) (262)
------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 92,133 3,758 1,918
------- ------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 59,591 13,543 10,564
Cash and cash equivalents at beginning of period 36,573 23,030 12,466
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $96,164 $36,573 $23,030
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 82 $ 104 $ 90
======= ======= =======
Income taxes $ 8,036 $ 6,472 $ 6,861
======= ======= =======
See notes to consolidated financial statements.
-10-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of Concord EFS, Inc. (Parent) and its wholly-owned subsidiaries,
Concord Computing Corporation (Concord), EFS National Bank (EFSNB), Concord
Retail Services, Inc. and Concord Equipment Sales, Inc. (formerly VMT, Inc.)
(collectively, the Company). The Company repurchased the minority interest
in Network EFT, Inc. during the year and transferred its residual business
and operational assets to Concord. 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 Card Services, Trucking Services and Check Verification
Services, comprising 96% of revenues in 1996. 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 to be cash equivalents.
Change of Method of Accounting for Securities: The Company adopted the pro-
visions of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," on January 1, 1994. As a result,
securities have been classified as either held-to-maturity, trading, or
available-for-sale.
Securities Held-to-Maturity and Available-for-Sale: Management determines the
appropriate classification of debt securities at the time of purchase and re-
evaluates such designation as of each balance sheet date. Debt securities
are classified as held-to-maturity when the Company has the positive intent
and ability to hold the securities to maturity. Held-to-maturity securities
are stated at amortized cost.
Debt and equity securities not classified as held-to-maturity or trading are
classified as available-for-sale. Available-for-sale securities are stated
at fair value, with the unrealized gains and losses, net of tax, reported in
a separate component of stockholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
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. Such amortization is included in interest
income from investments. Interest and dividends are included in interest
income from investments. Realized gains and losses, and declines in value
judged to be other-than-temporary are included in net securities gains
(losses). The cost of securities sold is based on the specific
identification method.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
-11-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE A - SIGNIFICANT ACCOUNTING POLICIES - Continued
Purchased Merchant Contracts: Noncurrent other assets are purchased merchant
contracts recorded at cost. Amortization expense is recognized on a straight
line basis over five years. Purchased merchant contracts are evaluated by
management for impairment at each balance sheet date through review of actual
attrition and cash flows generated by the contracts in relation to the
expected attrition and cash flows and the recorded amortization expense.
If, upon review, actual attrition and cash flows indicate impairment of the
value of the purchased merchant contracts, an impairment loss would be
recognized. The balance of purchased merchant contracts at December 31, 1996
was $3,375,370, net of accumulated amortization of $189,867.
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 consolidated 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
using the liability method on a separate-return basis and remits to or
receives from the Company amounts currently payable or receivable.
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 June 28,
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, the Company recognizes no compensation expense for the stock
option grants.
-12-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE B - SECURITIES
The following is a summary of securities available-for-sale and held-to-
maturity:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
Available-for-Sale (in thousands)
December 31, 1996:
U.S. Treasury securities $ 4,012 $ 2 $ $ 4,014
U.S. Government and agency
securities 48,100 38 ( 616) 47,522
Mortgage-backed securities 8.143 ( 236) 7,907
Municipal securities 3,241 55 3,296
------- ---- ---- -------
Total debt securities 63,496 95 ( 852) 62,739
Equity securities 606 606
------- ---- ---- -------
$64,102 $ 95 ($852) $63,345
======= ==== ==== =======
December 31, 1995
Mortgage-backed securities $22,636 $ 48 ($351) $22,333
Municipal securities 500 500
------- ---- ---- -------
Total debt securities 23,136 48 ( 351) 22,833
Equity securities 606 606
------- ---- ---- -------
$23,742 $ 48 ($351) $23,439
======= ==== ==== =======
Held-to-Maturity
December 31, 1996
U.S. Government and agency
securities $10,999 $ 19 $ $11,018
Municipal securities 19,395 430 19,825
Mortgage-backed securities 26,320 34 ( 247) 26,107
------- ---- ---- -------
$56,714 $483 ($247) $56,950
======= ==== ==== =======
December 31, 1995
Mortgage-backed securities $ 4,866 $ ($130) $4,736
======= ==== ==== ======
There were no gains or losses on securities sold during the three years ended
December 31, 1996.
The scheduled maturities of securities held-to-maturity and available-for-
sale, excluding equity securities, at December 31, 1996 was as follows:
Held-to-maturity Available-for-sale
Amortized Fair Amortized Fair
Cost Value Cost Value
------- ------- ------- -------
(in thousands)
Due in one year or less $ 9,993 $10,014 $36,840 $36,560
Due from one to five years 17,384 17,417 16,095 15,824
Due from five to ten years 22,092 22,278 10,561 10,355
Due after ten years 7,245 7,241
------- ------- ------- -------
$56,714 $56,950 $63,496 $62,739
======= ======= ======= =======
-13-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE B - SECURITIES - Continued
For purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity
groupings based on the weighted-average contractual maturities of underlying
collateral. The mortgage-backed securities may mature earlier than their
weighted-average contractual maturities because of principal prepayments.
Expected maturities on other securities may differ from contractual
maturities because the issuers of the securities may have the right to prepay
obligations without prepayment penalties.
Securities carried at approximately $2.5 million at December 31, 1996 were
pledged to a major credit card association to secure settlement liabilities.
NOTE C - INVENTORIES
At December 31, inventories consists of:
1996 1995
------ ------
(in thousands)
Point of sale equipment $3,989 $4,559
Repair parts 364 206
------ ------
$4,353 $4,765
====== ======
NOTE D - PROPERTY AND EQUIPMENT
At December 31, property and equipment consists of:
1996 1995
------ ------
(in thousands)
Computer facilities and equipment $70,066 $54,924
Office furniture and equipment 3,382 2,459
Leasehold improvements 371 367
------- -------
$73,819 $57,750
======= =======
Maintenance and repair expense amounted to $1,500,203, $906,537, and
$1,408,206 for the years ended December 31, 1996, 1995, and 1994,
respectively.
NOTE E - LONG-TERM DEBT AND LEASES
At December 31, long-term debt consists of:
1996 1995
------ ------
(in thousands)
Note payable to bank $ 978 $1,370
Less current maturities 417 392
------ ------
$ 561 $ 978
====== ======
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 $1,261,856 at
December 31, 1996 and $1,542,269 at December 31, 1995.
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 $483,632
$416,510, and $391,188, for the years ended December 31, 1996, 1995, and
1994, respectively.
-14-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE E - LONG-TERM DEBT AND LEASES - Continued
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
------- ---------
(in thousands)
Year ending December 31:
1997 $ 417 $ 411
1998 445 323
1999 116 323
2000 189
------ ------
Total future payments $ 978 $1,246
====== ======
NOTE F - UNUSED LINES OF CREDIT
At December 31, 1996 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 1996 under these lines.
NOTE G - 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, are as follows:
1996 1995
------ ------
Deferred tax liabilities: (in thousands)
Property and equipment $1,996 $1,677
Other 27 66
------ ------
Total deferred tax liabilities $2,023 $1,743
Deferred tax assets:
Securities available-for-sale $ 261 $ 103
Bad debt allowance 311 288
Inventory 9 16
Merchant contracts purchased 51
------ ------
Total deferred tax assets 632 407
------ ------
Net deferred tax liabilities $1,391 $1,336
====== ======
The components of the provision (benefit) for income taxes for the three
years ended December 31 are as follows:
1996 1995 1994
------- ------- -------
Current (in thousands)
- Federal $14,221 $ 9,463 $6,742
- State 92 226 249
------- ------- -------
14,313 9,689 6,991
Deferred
- Federal 187 421 (22)
- State 26 36 10
------- ------- -------
213 457 (12)
------- ------- -------
$14,526 $10,146 $6,979
======= ======= ======
-15-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE G -INCOME TAXES - Continued
The reconciliation of income taxes computed at the U. S. federal statutory
tax rate of 35% to income tax expense for the three years ended December 31
are as follows:
1996 1995 1994
------- ------- ------
(in thousands)
Tax at statutory rate $14,460 $ 9,935 $6,892
State income taxes, net of
federal benefit 77 170 172
Tax exempt interest income 124
Other, net (135) 41 (85)
------- ------- ------
$14,526 $10,146 $6,979
======= ======= ======
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 H - STOCKHOLDERS' EQUITY
On October 24, 1996, the Company filed a prospectus with the Securities and
Exchange Commission offering 3.45 million shares of common stock (including
underwriters' over-allotment shares of 450,000). The net proceeds to the
Company from the offering was $87.7 million.
Earnings per share, related per share data, stock options and stock option
prices have been restated to reflect stock splits. The following table
summarizes recent stock splits approved by the Board of Directors:
Split Ratio Distribution Date
----------- -----------------
3 for 2 June 28, 1996
3 for 2 January 18, 1996
3 for 2 May 22, 1995
NOTE I - INCENTIVE STOCK OPTION PLAN
The Company has an Incentive Stock Option Plan allowing for the grant of up
to 9,112,500 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 generally become exercisable within four years of
the date of the grant.
-16-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE I - INCENTIVE STOCK OPTION PLAN - Continued
Information pertaining to the Incentive Stock Option Plan is summarized below
in thousands, except price per share:
Weighted
Weighted Average
Number of Shares Average Aggregate Options
Under Option Exercise Price Price Exercisable
---------------- -------------- --------- -----------
Outstanding at
January 1, 1995 4,982 $ 3.67 $18,289 2,768
======= =====
Granted 1,026 $ 9.03
Exercised (1,761) $ 2.34
Terminated (32) $ 4.44
-----
Outstanding at
December 31, 1995 4,215 $ 5.52 $23,283 1,935
======= =====
Granted 872 $20.59
Exercised (1,251) $ 3.88
Terminated (334) $ 6.39
-----
Outstanding at
December 31, 1996 3,502 $ 9.77 $34,203 1,587
===== ======= =====
The weighted average grant date fair value of options granted during 1996 and
1995 was $5.47 and $2.47, respectively.
The following table provides additional information regarding options out-
standing as of December 31, 1996:
Weighted Weighted
Average Average
Remaining Exercise
Option Options Weighted Contractual Number of Price of
Exercise Out- Average Life of Options Options
Price Range standing Exercise Price Options in Years Exercisable Exercisable
- - ------------ -------- -------------- ---------------- ----------- -----------
$ 1.58- 5.23 1,831 $ 4.98 6.3 1,376 $ 4.88
7.19-12.00 800 9.08 8.3 171 9.10
19.50-28.75 871 20.46 9.3 40 19.35
$ 1.58-28.75 3,502 $ 9.77 7.5 1,587 $ 5.70
===== =====
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25) and related Inter-
pretations in accounting for its employee stock options because, as discussed
below, the alternative fair value accounting provided for under FASB State-
ment No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB No. 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required
by Statement 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1996 and 1995, respectively, risk-free interest rate of 6.5%
and 6.0%,and volatility factors of the expected market price of the Company's
-17-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE I - INCENTIVE STOCK OPTION PLAN - Continued
common stock of .265 and .282. Assumptions that remained constant for both
years were dividend yields of 0% and a weighted average expected life of the
options of three years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price vol-
atility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Company's pro forma information follows for the years ended December 31
(in thousands, except for earnings per share):
1996 1995
------- -------
Pro forma net income $25,883 $18,033
Pro forma earnings per share $0.43 $0.31
Pro forma disclosures are not likely to be representative of the effects of
reported pro forma net income and earnings per share in future years as ad-
ditional options may be granted in future years and the vesting of options
already granted will impact the pro forma disclosures.
NOTE J - 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 con-
solidated financial statements.
NOTE K - 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 regula-
tory 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, 1996, $54,533,230 of undistributed earnings of
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, 1996,
the maximum amount available for transfer from EFSNB to the Parent in the
form of loans approximated 5.3% of consolidated net assets.
NOTE L - 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.
-18-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE L - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
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.
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.
Carrying Amount Fair Value
--------------- ----------
(in thousands)
December 31, 1996
Financial assets:
Cash and cash equivalents $96,164 $96,164
Available-for-sale securities 63,345 63,345
Held-to-maturity securities 56,714 56,950
Financial liabilities:
Note payable to bank 978 965
December 31, 1995 Financial assets:
Cash and cash equivalents $36,573 $36,573
Available-for-sale securities 23,439 23,439
Held-to-maturity securities 4,866 4,736
Financial liabilities:
Note payable to bank 1,371 1,323
-19-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of Concord EFS,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Concord EFS,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note A to the Consolidated Financial Statements, in 1994 the
Company changed its method of accounting for certain securities.
/s/ Ernst & Young LLP
---------------------
Memphis, Tennessee
January 31, 1997
-20-
<PAGE>
CORPORATE DIRECTORY
Board of Directors SEC Form 10-K
(and their principal occupation) Copies of the Company's Annual Report
on Form 10-K as filed with The
Dan M. Palmer Securities and Exchange Commission may
Chairman and Chief Executive Officer be obtained without charge upon
Concord EFS, Inc. and request to:
EFS National Bank Investor Relations
Concord EFS, Inc.
Victor M. Tyler 2525 Horizon Lake Drive,
Chairman Emeritus, Concord EFS, Inc. Suite 120
Memphis, Tennessee 38133
David C. Anderson*
Retired Executive Vice President and Market for Common Stock
CFO, Burlington Northern, Inc. NASDAQ National Market
Ticker Symbol: CEFT
J. Richard Buchignani, Esq.*
Partner, Wyatt, Tarrant & Combs Annual Meeting
May 15, 1997
Richard M. Harter, Esq.*
Partner, Bingham, Dana & Gould Transfer Agent & Registrar
State Street Bank and Trust Company
Joyce Kelso Boston, Massachusetts
Retired Senior Vice President,
Concord EFS, Inc. and EFS National Corporate Counsel
Bank Bingham Dana & Gould
Boston, Massachusetts
Richard P. Kiphart*
Head of Corporate Finance Department Auditors
William Blair & Company LLC Ernst & Young LLP
Memphis, Tennessee
Edward A. Labry III
President, Concord EFS, Inc. Corporate Office
and EFS National Bank 2525 Horizon Lake Drive
Suite 120
Jerry D. Mooney* Memphis, Tennessee 38133
President and CEO (800) 238-7675
ServiceMaster Diversified Health
Services, Inc.
Paul L. Whittington*
Retired Partner Ernst & Young LLP
* Audit Committee Member
EXECUTIVE MANAGEMENT GROUP
Dan M. Palmer, Chairman and CEO William E. Lucado, Senior Vice President,
Concord EFS, Inc. and Investment and Compliance Officer,
EFS National Bank Concord EFS, Inc. and EFS National Bank
Edward A. Labry III, President, Vickie Brown, Senior Vice President
Concord EFS,Inc., EFS National Bank and Chief Operating Officer,
and Concord Computing Corporation Concord EFS, Inc. and EFS National Bank
Thomas J. Dowling, Vice President
and Controller, Concord EFS, Inc.
and EFS National Bank
-21-
<PAGE>
CONCORD EFS, INC.
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
To Be Held on May 15, 1997
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 15, 1997
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 Number of Authorized Shares of Common Stock;
3. 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 10,
1997 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
April 11, 1997
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
April 11, 1997
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 15, 1997 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 10, 1997 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 11,500 shareholders.
The following table sets forth, as of March 10, 1997, 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), Chairman 679,688 1.1%
Edward A. Labry III (4), Director 407,288 0.7%
Joyce Kelso (5), Director 338,099 0.6%
Richard P. Kiphart, (6) Director 2,477,830 4.1%
Richard M. Harter (6), Director 59,386 0.1%
Jerry D. Mooney (6), Director 13,896 -
David C. Anderson (6), Director 5,458 -
J. Richard Buchignani (6), Director 5,502 -
Paul Whittington (6), Director 3,771 -
All officers, directors and nominees
as a group (9 persons) (7) 3,990,918 6.4%
William Blair & Company, LLC
222 West Adams Street
Chicago,IL 60606 (8)(9) 8,230,283 13.5%
Pilgrim Baxter & Associates, Ltd.
1255 Drummers Lane, Suite 300
Wayne, Pennsylvania 19087 (10) 3,509,347 5.8%
<PAGE>
(1) The address of each beneficial owner that is also a director, is the
same as the Company's.
(2) Percentage ownership is based on 60,826,291 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 are unexercised stock options.
(4) Shares owned include 405,236 shares covered by unexercised stock
options.
(5) Shares owned include 337,501 shares covered by unexercised stock
options.
(6) Shares owned include 396 shares covered by unexercised stock options.
(7) Shares owned include 1,424,405 shares covered by unexercised stock
options.
(8) Based on a Schedule 13G dated as of February 14, 1997, filed by Blair.
Includes 759,722 shares as to which Blair has sole voting power and
8,230,283 shares as to which Blair has sole dispositive power.
(9) Blair disclaims beneficial ownership as to 7,470,561 of such shares.
(10) Based on a Schedule 13G dated as of February 14, 1997, filed by Pilgrim
Baxter & Associates.
ELECTION OF DIRECTORS
Nine 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 nine 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 nine 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 nine 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.
<PAGE>
Office With the Company, Business
Nominees and Ages Experience and Year First Elected Director
----------------- ------------------------------------------
Dan M. Palmer (54) 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
Joyce Kelso (55) 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. January 1, 1995, Mrs. Kelso semi-
retired and on January 1, 1997, she became
fully retired.
Edward A. Labry III (34) 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.
He became President of the Company in October
1994, and President of EFS National Bank in
December 1994.
Richard M. Harter (60)* Mr. Harter has been the Company's Secretary
and a Director since the Company's formation.
He is a partner of Bingham, Dana and Gould,
LLP, legal counsel to the Company.
Jerry D. Mooney (44)* 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 (54)* Mr. Anderson has been a Director of the Company
since August 1992. Mr. Anderson was with
Federal Express in Memphis, Tennessee for seven
years as Senior Vice President and Chief
Financial Officer and Burlington Northern, Fort
Worth, Texas as Executive Vice President and
Chief Financial Officer for three years prior
to his retirement in 1995.
J. Richard Buchignani (48)* 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 & Combs in Memphis, Tennessee 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 18 years joined Wyatt, Tarrant & Combs.
Paul L. Whittington (61)* Mr. Whittington has been a Director of the
Company since May 1993. Mr. Whittington had
been the Managing Partner of the Memphis,
Tennessee and Jackson, Mississippi offices of
Ernst & Young from 1988 until his retirement in
1991. Since 1979, he had been the partner in
charge of consulting at various Ernst & Young
offices.
<PAGE>
Richard P. Kiphart (55)* Mr. Kiphart was voted a Director of the Company
in November 1996 to assume responsibilities in
March 1997. In 1972 he became a General Partner
of William Blair & Company, LLC. He served as
head of Equity Trading from 1972 to 1980. He
joined the Corporate Finance Department in
1980, and was made head of that department in
January 1995.
* Member of the Board's Compensation and Audit Committees.
Compensation of Directors
The Company currently pays an annual fee of $8,000 plus $2,000 for each
meeting attended to each non-employee Director of the Company. There are
normally four meetings per year. In addition, non-employee directors are
granted options to purchase Company common stock. See page 8. Directors
are reimbursed for expenses incurred in attending meetings of the Board of
Directors. Three of the nine nominees are employees of the Company and are
not separately compensated for serving as directors.
Executive Compensation
The following summary compensation table is intended to provide a
comprehensive overview of the Company's executive pay practices. It
includes the cash compensation paid or accrued by the Company and its
subsidiaries for services in all capacities during the fiscal year ended
December 31, 1996, to or on behalf of each of the Company's named
executives. Named executives include the Chief Executive Officer and the
President of the Company.
Summary Compensation Table
Long Term
Annual Compensation Compensation
------------------------ ----------------
Name and Principal Salary Bonus
Position Year ($) ($) Options Awarded*
- - ----------------------------- ---- ------- ------- ----------------
Dan M. Palmer 1996 425,000 125,000 237,500
Chairman of the Board, 1995 363,738 80,000 202,500
Chief Executive Officer 1994 342,335 70,000 177,188
of the Company and
EFS National Bank
Edward A. Labry III 1996 392,308 125,000 237,500
President of the Company 1995 279,315 100,000 168,750
and EFS National Bank 1994 255,912 50,000 151,875
* Options awarded have been restated to reflect stock splits issued
through June 28, 1996.
<PAGE>
STOCK OPTIONS
The following tables present the following types of information for
options granted to the Company's named executives under the Company's 1993
Incentive Stock Option Plan. Table I - options granted and the potential
realizable value of such options, and Table II - options exercised in the
latest fiscal year and the number of unexercised options held.
Table I
Options Granted in 1996
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
--------------------------------------------------------------
% of Total
Options
Granted to Exercise
Options Employees in price Expiration
Name Granted 1996 ($/Share) Date 5% ($) 10% ($)
- - ---------------- ------- ------------ --------- ---------- --------- ---------
Dan M. Palmer 187,500 28% $19.50 4/13/2007 2,299,396 5,827,121
50,000 50% $28.75 11/20/2007 904,036 2,291,005
Edward A. Labry 187,500 28% $19.50 8/18/2007 2,299,396 5,827,121
50,000 50% $28.75 11/20/2007 904,036 2,291,005
Table II
Options Exercised in 1996 and 1996 Year End Option Values
Value of
Number of Unexercised
Shares Acquired Value ($) Unexercised In-the-money
Name on Exercise (#) Realized(1) Options (#) Options($)(2)
- - --------------- --------------- ----------- ----------- -------------
Dan M. Palmer 354,375 6,582,187 582,188(E) 13,429,938(E)
515,938(U) 7,478,371(U)
Edward A. Labry 150,000 1,971,008 316,173(E) 7,180,064(E)
471,641(U) 6,549,673(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, 1996.
(E) = Exercisable at December 31, 1996
(U) = Unexercisable at December 31, 1996
<PAGE>
Committees; Attendance
The Board of Directors held five meetings during the fiscal year
ended December 31, 1996. 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, Whittington and Kiphart met twice during the fiscal year
ended December 31, 1996. 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 and President,
the Committee receives bonus award recommendations 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 requirement 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 and President'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 1996, the compensation, bonus and options
for the Chief Executive Officer and the President were believed by the
Committee to be, in the aggregate, lower than the aggregate value of such
arrangements for similar officers of comparable companies.
David C. Anderson
J. Richard Buchignani
Richard M. Harter
Richard P. Kiphart
Jerry D. Mooney
Paul L. Whittington
<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 NASDAQ
Year Concord EFS, Inc. Stock Market Financial Stocks
- - -------- ----------------- ------------ ----------------
09/30/91 100.00 100.00 100.00
12/31/92 110.28 116.38 143.03
12/31/93 82.73 133.60 166.23
12/31/94 140.19 130.59 166.62
12/31/95 355.37 184.67 242.62
12/31/96 534.64 227.16 311.08
<PAGE>
AMEND CERTIFICATE OF INCORPORATION TO INCREASE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Company's authorized capital stock consists of 80,000,000 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 100,000,000
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. 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 100,000,000 shares. The Board of Directors recommends that you vote
"FOR" the proposal.
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.
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 1998 Annual
Meeting must be delivered to the Company on or before December 8, 1997.
<PAGE>
EXPENSES OF SOLICITATION
Solicitations of proxies by mail is expected to commence on April 11,
1997, 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
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.
<PAGE>
(This is the front side of the proxy card.)
CONCORD EFS, Inc.
2525 Horizon Lake Drive, Suite 120
Memphis, Tennessee 38133
This proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Dan M. Palmer and Thomas J. Dowling
or either of them as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote as
designated below, all the shares of Common Stock of Concord EFS, Inc. held
of record by the undersigned on March 10, 1997, at the Annual Meeting of
Shareholders to be held on May 15, 1997 or any adjournment thereof.
1. To elect directors.
___ FOR all nominees (except as marked to the contrary below)
___ WITHHOLD AUTHORITY for all nominees listed below
Dan M. Palmer Edward A. Labry III
Richard M. Harter Joyce Kelso
David C. Anderson Jerry D. Mooney
J. Richard Buchignani Paul L. Whittington
Richard P. Kiphart
(Instruction: To withhold authority to vote for any individual(s), write
the name(s) of such nominee(s) on the space provided below.)
_____________________________________________________________________
2. To approve the Amendment of the Certificate of Incorporation to
Increase Number of Authorized Shares of Common Stock.
____FOR ____AGAINST ____ABSTAIN
<PAGE>
(This is the back side of the proxy card.)
This proxy, when properly executed, will be voted in the manner
directed by the undersigned shareholder. If no direction is made, this
proxy will be voted FOR all nominees for director and FOR the action
described in Item No. 2. In their discretion, the Proxies are authorized
to vote upon such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Please sign exactly as the name appears. When shares are held by
joint tenants, both should sign.
Dated___________________________________
Signature_______________________________
Signature_______________________________
<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 31, 1997,
included in the 1996 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 31, 1997,
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 schedule included in this
Annual Report (Form 10-K) of Concord EFS, Inc.
/s/ Ernst & Young LLP
---------------------
Memphis Tennessee
March 26, 1997
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