SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission file number 0-13848
March 31, 1998
___________________________
CONCORD EFS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2462252
______________________________ _____________________
(State or other jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
2525 Horizon Lake Drive, Suite 120, Memphis, Tennessee 38133
(Address of Principal Executive Offices)
(901) 371-8000
(Registrant's telephone number, including area code)
_________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
The number of shares of the registrant's Common Stock, $33.1/3 par value, as of
March 31, 1998 was 62,069,760.
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CONCORD EFS, INC. AND SUBSIDIARIES
INDEX
Page No.
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PART 1- Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets March 31, 1998
and December 31, 1997 1
Condensed Consolidated Statements of Income Three
Months ended March 31, 1998 and March 31, 1997 2
Condensed Consolidated Statements of Cash Flows
Three Months ended March 31, 1998 and March 31, 1997 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
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CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31 December 31
1998 1997
--------- ---------
ASSETS (In thousands)
CURRENT ASSETS
Cash and cash equivalents $ 61,293 $ 58,518
Securities available-for-sale 159,051 140,199
Accounts receivable, net 65,568 52,970
Inventories 5,917 4,835
Prepaid expenses and other 4,498 5,079
-------- --------
TOTAL CURRENT ASSETS $296,327 261,601
SECURITIES HELD-TO-MATURITY 54,531 52,508
OTHER ASSETS 16,486 14,478
PROPERTY AND EQUIPMENT 95,483 89,302
Less accumulated depreciation
and amortization (59,653) (57,216)
-------- --------
35,830 32,086
-------- --------
TOTAL ASSETS $403,174 $360,673
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other
liabilities $ 46,188 $ 46,810
Accrued liabilities 9,871 10,439
Income taxes payable 4,892 990
Current maturities oflong-term debt 452 445
-------- --------
TOTAL CURRENT LIABILITIES $ 61,403 $ 58,684
LONG-TERM DEBT, LESS CURRENT MATURITY 54,275 28,329
DEFERRED INCOME TAXES 2,651 2,591
STOCKHOLDERS' EQUITY:
Common Stock-par value $.33 1/3
per share; authorized 100,000 shares,
issued and outstanding 62,070
shares at March 31, 1998 and 61,979
shares at December 31, 1997 20,690 20,660
Other stockholders' equity 264,155 250,409
-------- --------
TOTAL STOCKHOLDERS' EQUITY 284,845 271,069
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $403,174 $360,673
======== ========
See Notes to Condensed Consolidated Financial Statements - Unaudited.
-1-
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CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31
-----------------------
1998 1997
------- -------
(In thousands, except earnings per share)
Revenue $69,632 $47,045
Cost of operations 52,961 34,951
Selling, general and
administrative expenses 2,609 2,018
------- -------
OPERATING INCOME 14,062 10,076
Other income (expense):
Interest income 3,828 2,273
Interest expense (663) (16)
------- -------
INCOME BEFORE INCOME TAXES 17,227 12,333
Income taxes 5,860 4,400
------- -------
NET INCOME $11,367 $ 7,933
======= =======
Per share data:
Weighted average shares 61,997 60,821
====== ======
Basic earnings per share $0.18 $0.13
===== =====
Adjusted weighted average
shares and assumed
conversions 63,431 62,849
====== ======
Diluted earnings per share $0.18 $0.13
===== =====
See Notes to Condensed Consolidated Financial Statements - Unaudited.
-2-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31
---------------------
1998 1997
-------- --------
(In thousands)
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 8,908 $31,017
INVESTING ACTIVITIES:
Acquisition of property and equipment (6,181) (1,561)
Purchases of securities available-for-sale (43,795) (32,700)
Purchase of securities held-to-maturity (4,539) (8,915)
Sale of securities available-for-sale 12,667 2,996
Maturities of securities available-for-sale 8,851 15,521
Maturities of securities held-to-maturity 2,944 9,455
Merchants contracts purchased (2,936) (2,746)
------- --------
NET CASH USED IN INVESTING ACTIVITIES (32,989) (17,950)
FINANCING ACTIVITIES:
Proceeds from sale of common stock 903 87
Proceeds from notes payable 26,275
Payments on notes payable (322) (102)
------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 26,856 (15)
------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 2,775 13,052
Cash and cash equivalents at beginning
of period 58,518 96,164
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $61,293 $109,216
======= ========
For purposes of these statements, the Company considers all highly
liquid investments with a maturity of three 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)
MARCH 31, 1998
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. 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, 1997.
The balance sheet at December 31, 1997 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
Below is a summary of the net unrealized gains on securities available-for-sale,
in thousands:
March 31 December 31
1998 1997
---------- ----------
Increase in securities
available-for-sale $424 $ 161
Decrease in deferred taxes (189) (62)
Increase in equity 235 99
-4-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except earnings per share):
Three Months Ended
March 31
1998 1997
------- ------
Numerator:
Net income $11,367 $7,933
======= ======
Denominator:
Denominator for basic earnings per share,
weighted-average shares 61,997 60,821
Effect of dilutive securities, employee
stock options 1,434 2,028
------- ------
Denominator for diluted earnings per share
adjusted for weighted-average shares and
assumed conversions 63,431 62,849
======= ======
Basic earnings per share $0.18 $0.13
===== =====
Diluted earnings per share $0.18 $0.13
===== =====
Comprehensive Income
As of January 1, 1998, the Company adopted Financial Accounting Standards Board
(FASB) Statement 130, "Reporting Comprehensive Income". Statement 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income or stockholders' equity. Statement 130 requires unrealized
gains or losses on the Company's available-for-sale securities, which prior to
adoption were reported separately in stockholders' equity to be included in
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130.
During the first quarter of 1998 and 1997, total comprehensive income, in
thousands, amounted to $11,503 and $7,556, respectively.
-5-
<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
Revenue increased 48% in the first quarter of 1998 when compared to the same
quarter of the prior year. Transaction processing revenue from Card Services
(77% of total revenue) increased 50% as new merchants were added and usage at
existing merchants increased. Trucking Services (18% of total revenue) increased
40%, 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) increased 49% as terminal sales increased due to merchant
additions and increasing EBT participation.
Net income as a percentage of revenue decreased in the first quarter of 1998 to
16.3% from 16.9% in the same quarter of the prior year. The main factor in this
decrease was operating costs increased 52% in the first quarter of 1998 compared
to the same period of the prior year. A portion of the new merchants and
services contributing to the increased revenue discussed above were large volume
merchants. Due to competitive reasons, the Company offers lower rates to these
merchants and earns less per transaction. Additionally, the Company has expanded
its customer service and data processing staff to service its expanding merchant
base.
The decrease in net income as a percentage of revenue was offset by a 29%
increase in selling, general and administrative expenses, a 40% increase in net
interest income, and a lower effective tax rate due primarily to tax-exempt
interest income.
Liquidity and Capital Resources
In the first quarter of 1998, the Company generated $8.9 million from operating
activities, received $26.3 million in proceeds from notes payable, and received
$0.9 million from stock issued from exercises of options under the Company's
Incentive Stock Option Plan. From this $23.9 million was invested in securities,
net of sales and maturities, $2.9 million was spent to purchase merchant
contracts, and $6.2 million was disbursed on capital additions. The capital
additions were primarily new computer equipment.
-6-
<PAGE>
CONCORD EFS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources - continued
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 and EFS Federal Savings
Bank, wholly-owned subsidiaries of the Company, exceed required regulatory
capital ratios.
Recent Developments
Management expects the previously announced acquisition of Digital Merchant
Systems & Affiliated Companies (DMS) to be completed in the second quarter of
1998. DMS is one of the nation's largest and most successful Independent Sales
Organizations in the credit card processing industry. The intended merger of the
companies is expected to be completed in a pooling of interests transaction.
Based on information currently available, management believes the effect on
first quarter earnings will be immaterial when restated for the pooling of
interests.
-7-
<PAGE>
PART II
OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the first 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: May 14, 1998 By: /s/ Dan M. Palmer
---------------------------
Dan M. Palmer
Chairman of the Board and
Chief Executive Officer
Date: May 14, 1998 By: /s/ Thomas J. Dowling
---------------------------
Thomas J. Dowling
Vice President & Controller
-9-
<PAGE>
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<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
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<SECURITIES> 213582 133120
<RECEIVABLES> 67055 43573
<ALLOWANCES> 1487 1064
<INVENTORY> 5917 3768
<CURRENT-ASSETS> 296327 236436
<PP&E> 95483 75379
<DEPRECIATION> 59653 49015
<TOTAL-ASSETS> 403174 324845
<CURRENT-LIABILITIES> 61403 99488
<BONDS> 0 0
0 0
0 0
<COMMON> 20690 20278
<OTHER-SE> 264155 202529
<TOTAL-LIABILITY-AND-EQUITY> 403174 324845
<SALES> 69632 47045
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<CGS> 52961 34951
<TOTAL-COSTS> 55570 36969
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 174 300
<INTEREST-EXPENSE> 663 16
<INCOME-PRETAX> 17227 12333
<INCOME-TAX> 5860 4400
<INCOME-CONTINUING> 11367 7933
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11367 7933
<EPS-PRIMARY> 0.18 0.13
<EPS-DILUTED> 0.18 0.13
</TABLE>
