SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission file number 0-13848
September 30, 1996
___________________________
CONCORD EFS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2462252
_______________________________ _____________________
(State or other jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
2525 Horizon Lake Drive, Suite 120, Memphis, Tennessee 38133
(Address of Principal Executive Offices)
(901) 371-8000
(Registrant's telephone number, including area code)
_________________
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes[X] No[ ]
The number of shares of the registrant's Common Stock,
$.33 1/3 par value, as of September 30, 1996 was 57,254,901.
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
INDEX
Page No.
---------
PART 1- Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 1
Condensed Consolidated Statements of Income
Three Months and Nine Months ended September 30,
1996 and September 30, 1995 2
Condensed Consolidated Statements of Cash Flows
Nine Months ended September 30, 1996 and
September 30, 1995 3
Notes to Condensed Consolidated Financial
Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 6
Signatures 7
Exhibit 11 - Computation of Earnings Per Share
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 December 31
1996 1995
ASSETS ------------ ------------
Current Assets
Cash and cash equivalents $ 67,663,225 $ 36,572,976
Securities available-for-sale 30,642,990 23,439,135
Accounts receivable, net 33,812,072 63,690,114
Inventories 3,421,075 4,765,304
Prepaid expenses and other assets 5,270,538 3,634,801
------------ ------------
TOTAL CURRENT ASSETS 140,809,900 132,102,330
SECURITIES HELD-TO-MATURITY 15,098,697 4,865,865
PROPERTY AND EQUIPMENT 69,996,844 57,749,905
Less accumulated depreciation and amortization 44,275,233 37,831,369
------------ ------------
NET PROPERTY AND EQUIPMENT 25,721,611 19,918,536
------------ ------------
TOTAL ASSETS $181,630,208 $156,886,731
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other liabilities $ 58,359,289 $ 60,966,543
Accrued liabilities 3,262,500 2,530,310
Current maturities of long-term debt 411,181 392,177
------------ ------------
TOTAL CURRENT LIABILITIES 62,032,970 63,889,030
LONG TERM DEBT, LESS CURRENT MATURITIES 667,522 978,327
DEFERRED INCOME TAXES 1,843,000 1,743,000
MINORITY INTEREST IN SUBSIDIARY 731,579
STOCKHOLDERS' EQUITY
Common Stock-$.33 1/3 per shares par value;
80,000,000 shares authorized; 57,254,901 issued
and outstanding(56,117,111 at December 31, 1995) 19,084,967 8,313,646
Other stockholders' equity 98,001,749 81,231,149
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 117,086,716 89,544,795
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $181,630,208 $156,886,731
============ ============
See Notes to Condensed Consolidated Financial Statements - Unaudited.
-1-
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
------------------------ --------------------------
1996 1995 1996 1995
----------- ----------- ------------ -----------
Revenues $44,051,002 $33,945,296 $118,803,414 $89,770,315
Cost of operations 31,748,234 24,234,616 84,785,707 64,248,613
Selling, general and
administrative expenses 2,144,985 2,754,537 8,103,224 7,826,647
----------- ----------- ------------ -----------
OPERATING INCOME 10,157,783 6,956,143 25,914,483 17,695,055
Other income (expense)
Interest income 884,712 558,479 2,200,110 1,559,799
Interest expense (19,966) (25,500) (72,254) (78,796)
----------- ----------- ------------ -----------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 11,022,529 7,489,122 28,042,339 19,176,058
Income taxes 3,874,000 2,675,000 9,963,000 6,866,000
----------- ----------- ------------ -----------
INCOME BEFORE MINORITY
INTEREST 7,148,529 4,814,122 18,079,339 12,310,058
Minority interest 26,467 70,482
----------- ----------- ------------ -----------
NET INCOME $ 7,148,529 $ 4,840,589 $18,079,339 $12,380,540
=========== =========== ============ ===========
Per share data:
Weighted average common
and common equivalent
shares outstanding 59,491,165 58,286,705 59,155,553 57,537,596
========== ========== ========== ==========
Earnings per share $0.12 $0.08 $0.31 $0.22
========== ========== ========== ==========
See Notes to Condensed Consolidated Financial Statements - Unaudited
-2-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months
Ended
September 30
----------------------------
1996 1995
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $58,504,120 $18,874,896
INVESTING ACTIVITIES:
Acquisition of property and equipment (12,246,939) (6,676,471)
Purchases of securities available-for-sale (7,252,991) (9,346,733)
Purchases of securities held-to-maturity (11,551,120)
Sales of securities available-for-sale 247,500
Maturities of securities held-to-maturity 345,247 777,993
Buyout of minority shareholders (665,253)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (31,371,056) (14,997,711)
FINANCING ACTIVITIES:
Proceeds from sale of common stock 4,248,986 2,735,702
Payments on notes payable (291,801) (273,959)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,957,185 2,461,743
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 31,090,249 6,338,928
Cash and cash equivalents at beginning
of period 36,572,976 23,030,329
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $67,663,225 $29,369,257
=========== ===========
For purposes of these statements, the Company considers all highly liquid
investments with a maturity of nine months or less when purchased to be cash
equivalents.
See Notes to Condensed Consolidated Financial Statements - Unaudited.
-3-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
September 30, 1996
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the three and nine month periods ended September 30, 1996
are not necessarily indicative of the results that may be expected
for the year ended December 31, 1996. For further information, refer
to the consolidated financial statements and footnotes thereto included
in the Registrant's annual report on Form 10-K for the year ended
December 31, 1995.
The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
Securities
Net unrealized loss on securities available-for-sale:
September 30 December 31
1996 1995
------------ -----------
Decrease in securities
available-for-sale $1,325,789 $303,316
Increase in deferred tax assets 450,000 103,000
Decrease in equity 875,789 200,316
Stockholders' Matters and Earnings Per Share
The Board of Directors approved three for two stock splits on
December 31, 1995 and June 18, 1996. Prior periods earnings per share
and related per share data have been restated to reflect the stock splits.
On October 23, 1996, the Company finalized a prospectus for the secondary
offering of 3,000,000 shares of common stock as filed with the Securities
and Exchange Commission under Form S-3. All shares, including 450,000
shares of common stock for overallotments, were issued and the proceeds to
the Company were $88,113,000 before estimated offering expenses of $365,000.
The use of the proceeds are to augment the equity capital of EFS National
Bank, for the acquisition of merchant processing portfolios and other
processing businesses, and for working capital and other general corporate
uses.
-4-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenue and net income for the third quarter ended September 30, 1996
increased 30% and 48% respectively, compared to the same period of the
prior year. Revenue and net income for the nine months ended September
30, 1996 increased 32% and 46% respectively, compared to the same
period of the prior year. The increase in revenue for both the quarter
and nine months ended September 30, 1996 was attributable to the addition
of new customers and additional volume from existing customers in Bank
Card Services and Trucking Services. These increases were partially
offset by reduced revenue from Check Services in both the quarter and
nine month periods. The Company owns and operates approximately 350 cash
dispensing machines (ATM's) at major truckstops across the country. In
addition to new trucking customers, ATM surcharge revenue, which began
in the second quarter of 1996, accounted for 47% of the increase in
Trucking Services revenue for the third quarter of 1996 and 40% of the
increase in Trucking Services revenue for the nine month period of 1996.
Net income as a percentage of revenue increased from 14.3% to 16.2%
for the third quarter of 1996, when compared to the prior year. The
majority of the change in margin was due to selling, general and admin-
istrative decreasing from 8.1% of revenues to 4.9% when compared to the
same period of the prior year. Beginning July 1, 1996 the Company began
purchasing merchant contracts from various independent sales organizations
(ISO's) to outsource a portion of the contracts it generated from in-house
telemarketing staff. The acquisition costs relating to the merchant
contracts were capitalized and are being amortized over the estimated
useful life of the contracts. In-house telemarketing expenses have
been reduced due to the outsourcing activity. Operating cost increases
for Card Services and Check Services processing offset the margin
increases from selling, general and administrative expenses as well
as margin increases attributable to surcharge revenue.
Net income as a percentage of revenue increased from 13.8% to 15.2% for the
nine months ended September 30, 1996, when compared to the prior year. The
change in the nine month period was due primarily to selling, general and
administrative expense decreases as a percentage of revenue.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $58.5 million for the nine months ended September
30, 1996 from operating activities and received approximately $4.2 million
from stock issued from exercises of options under the Company's Incentive
Stock Option Plan. From this, $18.8 million was invested in securities and
$12.2 million in capital additions. The capital additions were primarily for
new computer equipment. The disqualifying disposition of the options also
reduced corporate income taxes paid by approximately $5.9 million for the
nine months ended September 30, 1996.
With little debt, adequate available credit and strong cash generation, the
Company is in sound financial condition and expects to fund continued growth
from currently available resources. EFS National Bank, a wholly-owned
subsidiary of the Company, exceeds required regulatory capital ratios.
Subsequent to September 30, 1996, the Company received approximately $88
million from a secondary offering of 3,450,000 shares providing additional
capital resources for operating purposes as described on page 4.
-5-
<PAGE>
PART II
OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
11 - Computation of Earnings Per Share.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the third
quarter.
-6-
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
CONCORD EFS, INC.
Date: November 14, 1996 By: /s/ Dan M. Palmer
-----------------
Dan M. Palmer
Chief Executive Officer
Date: November 14, 1996 By: /s/ Thomas J. Dowling
---------------------
Thomas J. Dowling
Vice President and Controller
-7-
<PAGE>
EXHIBIT 11
Three Months Nine Months
Ended Ended
September 30 September 30
----------------------- --------------------
1996 1995 1996 1995
----------- ----------- ----------- ------------
For primary earnings per share:
Net income $ 7,148,529 $ 4,840,589 $18,079,339 $12,380,540
=========== =========== =========== ===========
Weighted average of common
shares outstanding 57,016,375 55,663,371 56,661,612 55,135,593
Weighted average of common
stock equivalents for stock
options by treasury stock
method 2,474,790 2,623,334 2,493,941 2,402,003
----------- ----------- ----------- -----------
Weighted average common and
common equivalent shares 59,491,165 58,286,705 59,155,553 57,537,596
=========== ========== =========== ==========
Per share amount $0.12 $0.08 $0.31 $0.22
=========== ========== =========== ==========
For fully diluted earnings per share:
Net income $7,148,529 $ 4,840,589 $18,079,339 $12,380,540
=========== =========== =========== ===========
Weighted average common and
common equivalent shares
for primary earnings
per share 59,491,165 58,286,705 59,155,553 57,537,596
Add shares representing
additional shares for
primary shares for stock
options based on period-end
market price 186,293 51,984 342,099
---------- ----------- ---------- ----------
Weighted average common and
common equivalent shares 59,491,165 58,472,998 59,207,537 57,879,695
========== ========== ========== ==========
Per share amount $0.12 $0.08 $0.31 $0.21
========== ========== ========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 67663 67663
<SECURITIES> 45742 45742
<RECEIVABLES> 34638 34638
<ALLOWANCES> 826 826
<INVENTORY> 3421 3421
<CURRENT-ASSETS> 140810 140810
<PP&E> 69997 69997
<DEPRECIATION> 44275 44275
<TOTAL-ASSETS> 181630 181630
<CURRENT-LIABILITIES> 62033 62033
<BONDS> 0 0
0 0
0 0
<COMMON> 19085 19085
<OTHER-SE> 98002 98002
<TOTAL-LIABILITY-AND-EQUITY> 181630 181630
<SALES> 44051 118803
<TOTAL-REVENUES> 44051 118803
<CGS> 31748 84786
<TOTAL-COSTS> 10158 25914
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 347 627
<INTEREST-EXPENSE> 20 72
<INCOME-PRETAX> 11023 28042
<INCOME-TAX> 3874 9963
<INCOME-CONTINUING> 7149 18077
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7149 18077
<EPS-PRIMARY> .12 .31
<EPS-DILUTED> .12 .31
</TABLE>
