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, 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 September 30, 1997 was 61,708,784.
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
INDEX
Page No.
---------
PART 1- Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Income for
the Three Months and Nine Months ended September
30, 1997 and September 30, 1996 2
Condensed Consolidated Statements of Cash Flows
for the Nine Months ended September 30, 1997
and September 30, 1996 3
Notes to Condensed Consolidated Financial
Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
Exhibit 11 - Computation of Earnings Per Share
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30 December 31
1997 1996
------------ -----------
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 73,179 $ 96,164
Securities available-for-sale 103,266 63,345
Accounts receivable, net 41,358 38,248
Inventories 4,894 4,353
Other assets 3,710 3,577
-------- --------
TOTAL CURRENT ASSETS 226,407 205,687
SECURITIES HELD-TO-MATURITY 55,138 56,714
OTHER ASSETS, NET 11,251 3,375
PROPERTY AND EQUIPMENT 83,485 73,819
Less accumulated depreciation
and amortization 54,079 46,782
-------- --------
NET PROPERTY AND EQUIPMENT 29,406 27,037
-------- --------
TOTAL ASSETS $322,202 $292,813
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other liabilities $ 37,234 $ 71,814
Accrued liabilities 7,943 2,849
Current maturities of long-term debt 438 418
Income taxes payable 297
-------- --------
TOTAL CURRENT LIABILITIES 45,912 75,081
LONG TERM DEBT, LESS CURRENT MATURITIES 18,230 561
DEFERRED INCOME TAXES 2,067 2,023
STOCKHOLDERS' EQUITY:
Common Stock-$.33 1/3 per share par
value; 100,000,000 shares authorized,
61,708,784 issued and outstanding at
September 30, 1997 and 60,817,424
shares at December 31, 1996 20,570 20,272
Other stockholders' equity 235,423 194,876
-------- --------
TOTAL STOCKHOLDERS' EQUITY 255,993 215,148
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $322,202 $292,813
======== ========
See Notes to Condensed Consolidated Financial Statements - Unaudited.
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<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Nine Months
Ended Ended
September 30 September 30
------------------ -------------------
1997 1996 1997 1996
------- -------- -------- --------
(In thousands, except earnings per share)
Revenue $64,716 $44,051 $168,520 $118,803
Cost of operations 47,811 31,748 124,299 84,786
Selling, general and
administrative expenses 2,215 2,145 6,111 8,103
------- ------- -------- --------
OPERATING INCOME 14,690 10,158 38,110 25,914
Other income (expense):
Interest income 3,295 885 8,023 2,200
Interest expense (299) (20) (413) (72)
------- ------- ------- --------
INCOME BEFORE INCOME TAXES 17,686 11,023 45,720 28,042
Income taxes 6,264 3,874 16,234 9,963
------- ------- ------- -------
NET INCOME $11,422 $ 7,149 $29,486 $18,079
======= ======= ======= =======
Per share data:
Weighted average common
and common equivalent
shares outstanding 63,615 59,491 63,110 59,156
====== ====== ====== ======
Earnings per share $0.18 $0.12 $0.47 $0.31
====== ====== ====== ======
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
--------------------
1997 1996
------- -------
(In thousands)
NET CASH PROVIDED BY OPERATING ACTIVITIES $10,284 $59,936
INVESTING ACTIVITIES:
Acquisition of property and equipment (9,666) (12,247)
Purchases of securities available-for-sale (98,444) (7,253)
Purchases of securities held-to-maturity (13,138) (11,551)
Sale of securities available-for-sale 40,722
Maturities of securities available-for-sale 18,512
Maturities of securities held-to-maturity 14,713 345
Purchased merchant contracts (9,033) (1,432)
Buyout of minority shareholders (665)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (56,334) (32,803)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 5,376 4,249
Proceeds from long-term debt 18,000
Payments on current maturities of long-term
debt (311) (292)
------- -------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 23,065 3,957
------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (22,985) 31,090
Cash and cash equivalents at beginning
of period 96,164 36,573
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $73,179 $67,663
======= =======
For purposes of these statements, the Company considers all highly
liquid investments with an initial maturity of three months or less
when purchased to be cash equivalents.
See Notes to Condensed Consolidated Financial Statements - Unaudited.
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<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 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 nine month period ended September 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:
September 30 December 31
1997 1996
----------- -----------
Decrease in securities
available-for-sale $46,261 $757,606
Increase in deferred tax assets 11,272 261,000
Decrease in equity 34,989 496,606
Recent Accounting Pronouncements
Earnings Per Share
In February 1997, the Financial Accounting Standards Board (FASB) 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 third quarter and nine months ended
September 30, 1997, and September 30, 1996 is not expected to be material.
-4-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 established standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Because this Statement addresses how supplemental
financial information is disclosed in annual and interim reports, the
adoption will have no material impact on the financial statements.
Segment Reporting
In June 1997, the FASB issued SFAS no. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for
the reporting of financial information from operating segments in annual and
interim financial statements. This Statement requires that financial
information be reported on the basis that it is reported internally for
evaluating segment performance and deciding how to allocate resources to
segments. Because this Statement addresses how supplemental financial
information is disclosed in annual and interim reports, the adoption will
have no material impact on the financial statements. SFAS No. 131 will
become effective in 1998.
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<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q may contain or incorporate by reference statements which may
constitute "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. Prospective investors are cautioned that
any such statements are not guarantees for future performance and involve
risks and uncertainties, and that actual results may differ materially
from those 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 September 30, 1997 Compared to Quarter Ended September 30,
1996:
Revenue increased 47% in the third quarter of 1997 when compared to the same
quarter of the prior year. Transaction processing revenue from Card Services
(77% of total revenue) increased 46% as new merchants were added and usage at
existing merchants increased. Trucking Services (17% of total revenue)
increased 63%, 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 and Terminal
Services (6% of total revenue) increased 20% as terminal sales increased due
to merchant additions and increasing EBT participation.
Net income as a percentage of revenue increased in the third quarter of 1997
to 17.7% from 16.2% in the same quarter of the prior year. Three main
factors to the percentage change were: increased operating costs primarily
from Card Service volume related expenses, offset by selling, general and
administrative expenses growth at a lower rate than revenue, and increased
interest income. Selling, general and administrative expenses increased only
3% when compared to the third quarter of the prior year. The Company
reorganized its marketing activities in the third quarter of the prior year
and selling, general and administrative expenses have been maintained at a
lower growth rate causing a corresponding increase to net income as a
percentage of revenue. Interest income increased as proceeds from the
Company's secondary offering in October 1996 and funds generated by
operations were invested in agency, mortgage-backed, treasury and municipal
securities.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996:
Revenue increased 42% for the nine months ended September 30, 1997 when
compared to the same period of the prior year. Transaction processing revenue
from Card Services (77% of total revenue) increased 41% as new merchants were
added and usage at existing merchants increased. Trucking Services (18% of
total revenue) increased 76%, 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 and Terminal Services (5% of total revenue) offset these increases,
declining 8%. The decrease was primarily attributable to competitive
repricing in Check Services.
-6-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
RESULTS OF OPERATIONS (continued)
Net income as a percentage of revenue increased for the nine months ended
September 30, 1997 to 17.5% from 15.2%. Three main factors to the percentage
change were: increased operating costs primarily from Card Service volume
related expenses, offset by reduced selling, general and administrative
expenses and increased interest income. The decrease in selling, general and
administrative costs resulted primarily from the Company's reorganization of
its marketing activities in the third quarter of 1996. Interest income
increased as proceeds from the Company's secondary offering in October 1996
and funds generated from operations were invested in agency, mortgage-backed,
treasury and municipal securities.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $10.3 million from operating activities for the nine
months ended September 30, 1997. Investment securities purchases were $37.6
million, net of sales and maturities. Notes payable of $18.0 million were
utilized to fund a portion of the security purchases. $9.7 million was spent
on capital additions, primarily new computer equipment. The Company spent
$9.0 million to purchase individual merchant contracts from independent sales
organizations.
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 $121 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.
-7-
<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.
-8-
<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, 1997 By: /s/ Dan M. Palmer
Dan M. Palmer
Chief Executive Officer
Date: November 14, 1997 By: /s/ Thomas J. Dowling
Thomas J. Dowling
Vice President & Controller
-9-
<PAGE>
EXHIBIT 11
CONCORD EFS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Three Months Nine Months
Ended Ended
September 30 September 30
---------------- ----------------
1997 1996 1997 1996
------- ------- ------- -------
(In thousands, except earnings per share)
For primary earnings per share:
Net income $11,422 $ 7,149 $29,486 $18,079
======= ======= ======= =======
Weighted average of common shares
outstanding 61,491 57,016 61,141 56,662
Weighted average common stock
equivalent shares for stock options
by treasury stock method 2,124 2,475 1,969 2,494
------- ------- ------- -------
Weighted average common and common
equivalent shares 63,615 59,491 63,110 59,156
======= ======= ======= =======
Per share amount $0.18 $0.12 $0.47 $0.31
======= ====== ======= ======
For fully diluted earnings per share:
Net income $11,422 $ 7,149 $29,486 $18,079
======= ======= ======= =======
Weighted average common and common
equivalent shares for primary
earnings per share 63,615 59,491 63,110 59,156
Add shares representing additional
shares for stock options based on
period-end market price 81 52
------- ------- ------- -------
Weighted average common and common
equivalent shares-fully diluted
basis 63,615 59,491 63,191 59,208
======= ======= ======= =======
Per share amount $0.18 $0.12 $0.47 $0.31
======= ======= ======= =======
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 73179 73179
<SECURITIES> 158404 158404
<RECEIVABLES> 42564 42564
<ALLOWANCES> 1206 1206
<INVENTORY> 4894 4894
<CURRENT-ASSETS> 226407 226407
<PP&E> 83485 83485
<DEPRECIATION> 54079 54079
<TOTAL-ASSETS> 322202 322202
<CURRENT-LIABILITIES> 45912 45912
<BONDS> 0 0
0 0
0 0
<COMMON> 20570 20570
<OTHER-SE> 235423 235423
<TOTAL-LIABILITY-AND-EQUITY> 322202 322202
<SALES> 64716 168520
<TOTAL-REVENUES> 64716 168520
<CGS> 47811 124299
<TOTAL-COSTS> 50026 130410
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 310 925
<INTEREST-EXPENSE> 299 413
<INCOME-PRETAX> 17686 45720
<INCOME-TAX> 6264 16234
<INCOME-CONTINUING> 11422 29486
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11422 29486
<EPS-PRIMARY> 0.18 0.47
<EPS-DILUTED> 0.18 0.47
</TABLE>
