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
June 30, 1997
___________________________
CONCORD EFS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2462252
_______________________________ _____________________
(State or other jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
2525 Horizon Lake Drive, Suite 120, Memphis, Tennessee 38133
(Address of Principal Executive Offices)
(901) 371-8000
(Registrant's telephone number, including area code)
_________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes[X] No[ ]
The number of shares of the registrant's Common Stock, $.33 1/3 par value, as
of June 30, 1997 was 61,251,767.
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART 1- Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Income for
the Three Months and Six Months ended June 30, 1997
and June 30, 1996 2
Condensed Consolidated Statements of Cash Flows
for the Six Months ended June 30, 1997 and
June 30, 1996 3
Notes to Condensed Consolidated Financial
Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 7
Signatures 8
Exhibit 11 - Computation of Earnings Per Share
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30 December 31
1997 1996
-------- -----------
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $104,691 $ 96,164
Securities available-for-sale 94,979 63,345
Accounts receivable, net 47,362 38,248
Inventories 6,027 4,353
Prepaid expenses and other 5,762 3,577
-------- --------
TOTAL CURRENT ASSETS 258,821 205,687
SECURITIES HELD-TO-MATURITY 54,744 56,714
OTHER ASSETS 8,249 3,375
PROPERTY AND EQUIPMENT 79,224 73,819
Less accumulated depreciation
and amortization 51,385 46,782
-------- --------
27,839 27,037
-------- --------
TOTAL ASSETS $349,653 $292,813
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other
liabilities $ 79,204 $ 71,814
Accrued liabilities 11,700 2,849
Current maturities of
long-term debt 431 418
-------- --------
TOTAL CURRENT LIABILITIES 91,335 75,081
LONG TERM DEBT, LESS
CURRENT MATURITIES 18,342 561
DEFERRED INCOME TAXES 2,212 2,023
STOCKHOLDERS' EQUITY:
Common Stock-par value $.33 1/3
per share; authorized 100,000,000
shares, issued 61,251,767 shares
at June 30, 1997 and 60,817,424
shares at December 31, 1996 20,417 20,272
Other stockholders' equity 217,347 194,876
-------- --------
TOTAL STOCKHOLDERS' EQUITY 237,764 215,148
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $349,653 $292,813
======== ========
See Notes to Condensed Consolidated Financial Statements - Unaudited.
-1-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Six Months
Ended Ended
June 30 June 30
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
(In thousands, except earnings per share)
Revenues $56,759 $40,857 $103,804 $74,752
Cost of operations 41,536 28,503 76,487 53,037
Selling, general and
administrative expenses 1,879 3,224 3,897 5,958
------- ------- ------- -------
OPERATING INCOME 13,344 9,130 23,420 15,757
Other income (expense):
Interest income 2,455 657 4,728 1,315
Interest expense (99) (25) (115) (53)
------- -------- ------- -------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 15,700 9,762 28,033 17,019
Income taxes 5,570 3,449 9,970 6,089
------- ------- ------- -------
INCOME BEFORE MINORITY
INTEREST 10,130 6,313 18,063 10,930
Minority interest (42)
------- ------- ------- -------
NET INCOME $10,130 $ 6,271 $18,063 $10,930
======= ======= ======= =======
Per share data:
Weighted average common
and common equivalent
shares outstanding 62,868 59,171 62,858 58,988
====== ====== ====== ======
Earnings per share $0.16 $0.11 $0.29 $0.19
====== ====== ====== ======
See Notes to Condensed Consolidated Financial Statements
- Unaudited
-2-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30
---------------------
1997 1996
-------- -------
(In thousands)
NET CASH PROVIDED BY OPERATING
ACTIVITIES $28,582 $10,421
INVESTING ACTIVITIES:
Acquisition of property and equipment (5,405) (8,714)
Purchases of securities available-for-sale (58,643) (6,463)
Purchases of securities held-to-maturity (8,915) (1,475)
Sale of securities available-for-sale 11,279
Maturities of securities available-for-sale 15,949
Maturities of securities held-to-maturity 10,884
Purchased merchant contracts (5,276) 198
-------- -------
NET CASH USED IN INVESTING ACTIVITIES (40,127) (16,454)
FINANCING ACTIVITIES:
Proceeds from notes payable 18,000
Proceeds from exercise of stock options 2,278 1,624
Payments on notes payable (206) (193)
-------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 20,072 1,431
-------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 8,527 (4,602)
Cash and cash equivalents at beginning
of period 96,164 36,573
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $104,691 $ 31,971
======== ========
For purposes of these statements, the Company considers all highly
liquid investments with an initial maturity of three months or less
to be cash equivalents.
See Notes to Condensed Consolidated Financial Statements - Unaudited.
-3-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulations S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six month period ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1997. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant's annual report on Form 10-K for
the year ended December 31, 1996.
The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
Securities
Net unrealized loss on securities available-for-sale:
June 30 December 31
1997 1996
---------- -----------
Decrease in securities
available-for-sale $538,073 $757,606
Increase in deferred tax assets 184,000 261,000
Decrease in equity 354,073 496,606
Stockholders' Matters and Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact of
statement 128 on the calculation of primary earnings per share and fully
diluted earnings per share for the second quarter and six months ended June
30, 1997, and June 30, 1996 is not expected to be material.
-4-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q may contain or incorporate by reference statements which may
constitute "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. Prospective investors are cautioned that
any such statements are not guarantees for future performance and involve
risks and uncertainties, and that actual results may differ materially
from those contemplated by such forward-looking statements. Important
factors currently known to management that could cause actual results to
differ materially from those in forward-looking statements include
significant fluctuations in interest rates, inflation, economic recession,
significant changes in the federal and state legal and regulatory
environment, and competition in the Company's markets. The Company
undertakes no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or
changes to future results over time.
RESULTS OF OPERATIONS
Quarter Ended June 30, 1997 Compared to Quarter Ended June 30, 1996:
Revenues increased 39% in the second quarter of 1997 when compared to the
same quarter of the prior year. Transaction processing revenue from Card
Services (76% of total revenues) increased 37% as new merchants were added
and usage at existing merchants increased. Trucking Services (20% of total
revenues) increased 87%, driven by surcharge revenue at cash dispensing
machines (ATM), ATM transaction fees, ATM processing fees and additional
trucking companies using the Company's fuel and cash advance services.
Check, EFT and Terminal Services (4% of total revenues) offset these
increases, declining 29%. The decrease was primarily attributable to
competitive repricing in Check Services and lower product sales in Terminal
Services.
Net income as a percentage of revenue increased in the second quarter of 1997
to 17.8% from 15.3% in the same quarter of the prior year. Three main
factors to the percentage change were: increased operating costs primarily
from interchange related expenses, offset by reduced selling, general and
administrative expenses and increased interest income. The following
summarizes the decrease in selling, general and administrative costs.
Historically, the Company has generated sales through senior management,
commissioned telemarketing activities and outside sales representatives;
however, in 1996 the Company reorganized its marketing activities to meet
future growth objectives by increasing direct marketing staff, downsizing the
telemarketing staff and entering into agreements with independent sales
organizations to purchase individual merchant contracts and merchant
portfolios. As the cost of merchant contracts and portfolio acquisitions are
capitalized and amortized over the average life of the contract, current second
quarter 1997 selling, general and administrative expenses decreased by
approximately $2.5 million when compared to the prior year.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996:
Revenues increased 39% for the six months ended June 30, 1997 when compared
to the same period of the prior year. Transaction processing revenue from
-5-
<PAGE>
RESULTS OF OPERATIONS (continued)
Card Services (76% of total revenues) increased 37% as new merchants were
added and usage at existing merchants increased. Trucking Services (19% of
total revenues) increased 85%, driven by surcharge revenue at cash dispensing
machines (ATM), ATM transaction fees, ATM processing fees and additional
trucking companies using the Company's fuel and cash advance services.
Check, EFT and Terminal Services (5% of total revenues) offset these
increases, declining 24%. The decrease was primarily attributable to
competitive repricing in Check Services and lower product sales in Terminal
Services.
Net income as a percentage of revenue increased for the six months ended June
30, 1997 to 17.4% from 14.6%. The percentage changes for the six months are
comparable to the three month period above and the discussion of changes for
the three month period is consistent with the six month period.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $28.6 million from operating activities for the six
months ended June 30, 1997. Investment securities purchases were $29.4
million, net of sales and maturities. Notes payable of $18.0 milion were
utilized to fund a portion of the security purchases. $5.4 million was spent
capital additions, primarily new computer equipment. The Company spent $5.3
million to purchase individual merchant contracts.
Significant changes in cash, accounts receivable and accounts payable result
from the day of the week the period end falls combined with increases in
settlement volume from one period to the next.
The Company has unused unsecured lines of credit of $10 million with
financial institutions. The Company also holds securities with an
approximate market value of $124 million that are available for operating
needs or as collateral to obtain short term financing if needed.
With little debt, adequate credit and strong cash generation, the Company is
in sound financial condition and expects to fund continued growth from
currently available resources. EFS National Bank, a wholly-owned subsidiary
of the Company, exceeds required regulatory capital requirements. The
Company's working capital ratio was approximately 2.8 to 1 at June 30, 1997.
-6-
<PAGE>
PART II
OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
11 - Computation of Earnings Per Share.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the second quarter.
-7-
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONCORD EFS, INC.
Date: August 14, 1997 By: /s/ Dan M. Palmer
---------------------------
Dan M. Palmer
Chief Executive Officer
Date: August 14, 1997 By: /s/ Thomas J. Dowling
---------------------------
Thomas J. Dowling
Vice President & Controller
-8-
<PAGE>
EXHIBIT 11
CONCORD EFS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Three Months Six Months
Ended Ended
June 30 June 30
---------------- ----------------
1997 1996 1997 1996
------ ------- ------ -------
(In thousands, except earnings per share)
For primary earnings per share:
Net income $10,130 $ 6,271 $18,063 $10,930
======= ======= ======= =======
Weighted average of common shares
outstanding
Weighted average common stock 61,110 56,600 60,966 56,484
equivalent shares for stock options
by treasury stock method 1,758 2,571 1,892 2,504
------- ------- ------- -------
Weighted average common and common
equivalent shares 62,868 59,171 62,858 58,988
======= ======= ======= =======
Per share amount $0.16 $0.11 $0.29 $0.19
======= ====== ======= ======
For fully diluted earnings per share:
Net income $10,130 $ 6,271 $18,063 $10,930
======= ======= ======= =======
Weighted average common and common
equivalent shares for primary
earnings per share 62,868 59,171 62,858 58,988
Add shares representing additional
shares for stock options based on
period-end market price 193 120 176 81
------- ------- ------- -------
Weighted average common and common
equivalent shares-fully diluted
basis 63,061 59,291 63,034 59,069
======= ======= ======= =======
Per share amount $0.16 $0.11 $0.29 $0.19
======= ======= ======= =======
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 104691 104691
<SECURITIES> 149723 149723
<RECEIVABLES> 48610 48610
<ALLOWANCES> 1248 1248
<INVENTORY> 6027 6027
<CURRENT-ASSETS> 258821 258821
<PP&E> 79224 79224
<DEPRECIATION> 51385 51385
<TOTAL-ASSETS> 349653 349653
<CURRENT-LIABILITIES> 91335 91335
<BONDS> 0 0
0 0
0 0
<COMMON> 20417 20417
<OTHER-SE> 217347 217347
<TOTAL-LIABILITY-AND-EQUITY> 349653 349653
<SALES> 56759 103804
<TOTAL-REVENUES> 56759 103804
<CGS> 41536 76487
<TOTAL-COSTS> 43415 80384
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 315 615
<INTEREST-EXPENSE> 99 115
<INCOME-PRETAX> 15700 28033
<INCOME-TAX> 5570 9970
<INCOME-CONTINUING> 10130 18063
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10130 18063
<EPS-PRIMARY> .16 .29
<EPS-DILUTED> .16 .29
</TABLE>
