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 quarterly period ended Commission file number 0-13848
March 31, 2000
___________________________
CONCORD EFS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2462252
______________________________ _____________________
(State or other jurisdiction of (IRS 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, $0.33 1/3 par value, as
of May 11, 2000 was 212,300,040.
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART 1 - Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income for Three Months
ended March 31, 2000 and March 31, 1999 1
Condensed Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 2
Condensed Consolidated Statements of Cash Flows
Three Months ended March 31, 2000 and March 31, 1999 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II - Other Information
Item 2: Changes in Securities and Use of Proceeds 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31
-------------------------
2000 1999
--------- ---------
(in thousands, except per share data)
Revenue $257,768 $178,046
Cost of operations 193,263 126,535
Selling, general and
administrative expenses 12,524 12,805
Acquisition and restructuring charges 776 34,810
--------- ---------
OPERATING INCOME 51,205 3,896
Other income (expense):
Interest income 9,145 5,265
Interest expense (2,064) (3,533)
--------- ---------
INCOME BEFORE INCOME TAXES 58,286 5,628
Income taxes 20,697 6,969
--------- ---------
NET INCOME (LOSS) $ 37,589 $ (1,341)
========= =========
Pro forma provision for income taxes 260 519
--------- ---------
PRO FORMA NET INCOME (LOSS) $ 37,329 $ (1,860)
========= =========
HISTORICAL AND PRO FORMA PER SHARE DATA:
Basic earnings (loss) $ 0.18 $ (0.01)
========= =========
Diluted earnings (loss) $ 0.17 $ (0.01)
========= =========
Average basic shares outstanding 212,165 198,246
========= =========
Average diluted shares outstanding 217,498 205,850
========= =========
See notes to condensed consolidated financial statements.
-1-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31 December 31
2000 1999
------------- ------------
(in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 96,976 $ 121,001
Securities available for sale 487,263 456,209
Accounts receivable, net 180,504 192,263
Inventories 17,398 18,076
Prepaid expenses and other current assets 16,199 11,376
Deferred income taxes 8,742 9,108
------------ ------------
TOTAL CURRENT ASSETS 807,082 808,033
PROPERTY AND EQUIPMENT, net 176,548 167,829
GOODWILL, net 55,959 54,046
OTHER INTANGIBLE ASSETS, net 60,825 57,186
OTHER ASSETS 14,098 15,787
------------ ------------
TOTAL ASSETS $1,114,512 $1,102,881
============ ============
See notes to condensed consolidated financial statements.
-2-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31 December 31
2000 1999
------------- ------------
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other liabilities $ 91,137 $ 129,217
Deposits 101,947 100,475
Accrued liabilities 50,671 50,435
Income taxes payable 28,032 16,370
------------ ------------
TOTAL CURRENT LIABILITIES 271,787 296,497
------------ ------------
LONG-TERM DEBT 75,000 75,000
DEFERRED INCOME TAXES 15,798 16,566
OTHER LIABILITIES 7,167 9,669
------------ ------------
TOTAL LIABILITIES 369,752 397,732
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock 70,744 70,703
Other stockholders' equity 674,016 634,446
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 744,760 705,149
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,114,512 $1,102,881
============ ============
See notes to condensed consolidated financial statements.
-3-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31
-----------------------
2000 1999
---------- ----------
(In thousands)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 46,173 $ 25,264
INVESTING ACTIVITIES:
Acquisition of securities available for sale (69,538) (48,467)
Sale of securities available for sale 29,325 13,575
Maturities of securities available for sale 9,763 5,564
Acquisition of property and equipment (17,896) (11,654)
Loan participations purchased (15,072)
Merchants contracts purchased (6,661) (4,896)
Other, net (1,042) (2,769)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (71,121) (48,647)
FINANCING ACTIVITIES:
Net increase in deposits 1,472 18,564
Proceeds from sale of common stock 420 3,350
Proceeds from notes payable 6,000 7,000
Payments under credit agreement, net - (4,000)
Payments on notes payable (6,969) (6,366)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 923 18,548
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (24,025) (4,835)
Cash and cash equivalents
at beginning of period 121,001 82,890
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 96,976 $ 78,055
========== ==========
See notes to condensed consolidated financial statements.
-4-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
Note A - 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, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Concord EFS, Inc. and
Subsidiaries (Company) annual report on Form 10-K for the year ended December
31, 1999.
Restatement of Historical Financial Information
The historical financial information presented herein has been restated in
accordance with pooling of interests method of accounting for business
combinations. The financial information reflects the financial position,
operating results and cash flows of the respective companies as though the
companies were combined for all periods presented.
Certain amounts have been reclassified from prior period consolidated financial
statements to conform with the current year presentation.
Note B - Recent Acquisitions
On February 1, 2000, the Company acquired Card Payment Systems (CPS), a New
York-based reseller of payment processing services. The acquisition was
accounted for as a pooling of interests transaction in which Concord issued 6.2
million shares of its common stock. CPS provides card-based payment processing
services to independent sales organizations (ISOs), which in turn sell those
services to retailers.
CPS was an S-Corporation for tax purposes prior to its merger with Concord. As
such, the former owners of CPS were responsible for income taxes for the periods
prior to the merger rather than the Company. The results of operations include
pro forma income taxes that would have been required if CPS had been a
C-Corporation.
-5-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
MARCH 31, 2000
Note B - Recent Acquisitions - continued
The following table represents selected unaudited financial information, in
thousands, split between the Company and CPS:
Three months ended March 31
---------------------------
2000 1999
------------ ------------
(Unaudited) (Unaudited)
Pro forma revenue
Concord EFS, Inc. $253,721 $170,234
CPS (1) 4,047 7,812
---------- ----------
Combined $257,768 $178,046
========== ==========
Pro forma net income (loss)
Concord EFS, Inc. $ 36,939 $ (2,868)
CPS (1) 650 1,527
Pro forma provision
for CPS income taxes (2) 260 519
---------- ----------
Combined $ 37,329 $ (1,860)
========== ==========
Pro forma basic earnings
per share combined $0.18 ($0.01)
========== ==========
Pro forma diluted earnings
per share combined $0.17 ($0.01)
========== ==========
(1) The 2000 amounts reflect the results of operations from January 1, 2000
through January 31, 2000 (unaudited). The results of operations from February 1,
2000 to March 31, 2000 are included in Concord EFS, Inc. amounts.
(2) CPS terminated its S-Corporation election at the time of the merger with the
Company.
The Company completed the merger with Electronic Payment Services (EPS) on
February 26, 1999 by issuing 45.1 million shares of the Company's common stock
for all of the outstanding common stock of EPS. The acquisition was accounted
for using the pooling of interests method of accounting.
-6-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
MARCH 31, 2000
Note B - Recent Acquisitions - continued
On February 7, 2000 the Company announced completion of its acquisition of
Virtual Cyber Systems (VCS), an internet software development company. The
acquisition of VCS, for which the Company paid approximately $1.7 million in
common stock, was accounted for as a purchase transaction and is immaterial to
the Company's financial statements.
Note C - Comprehensive Income (Loss)
Total comprehensive income (loss) was $37,743 and ($2,220) for the three months
ended, March 31, 2000 and 1999, respectively.
Note D - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands, except per share data):
Three Months Ended March 31
---------------------------
2000 1999
---------- ----------
Numerator:
Net income (loss) $ 37,589 $ (1,341)
========== ==========
Denominator:
Denominator for basic earnings per
share, weighted-average shares 212,165 198,246
Effect of dilutive securities,
employee stock options 5,333 7,604
---------- ----------
Denominator for diluted earnings per
share adjusted for weighted-average
shares and assumed conversions 217,498 205,850
========== ==========
Basic earnings (loss) per share $0.18 ($0.01)
========== ==========
Diluted earnings (loss) per share $0.17 ($0.01)
========== ==========
-7-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
MARCH 31, 2000
Note D - Earnings Per Share - continued
Excluding acquisition costs and restructuring charges described in management's
discussion and analysis of financial condition and results of operations, basic
earnings per share for the three month periods ended March 31, 2000 and 1999
were $0.18 and $0.13, respectively, and diluted earnings per share for the three
month periods ended March 31, 2000 and 1999 were $0.18 and $0.12, respectively.
Earnings per share and related per share data have been restated to reflect all
stock splits.
-8-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
MARCH 31, 2000
Note E - Segment Information
The operating segments for the three months ended March 31, 2000 are the same as
for the prior year. However, the Company changed its internal reporting
mechanism to more closely match expenses with the revenues generated by each
subsidiary according to the segment allocations noted above. Accordingly, 1999
segment information has been adjusted to reflect the current method of
management reporting for all periods presented. Industry segment information, in
thousands, for the three months ended March 31, 2000 and 1999 is presented
below:
Merchant ATM
Services Services Other Total
---------- ---------- ---------- -----------
Three months ended
March 31, 2000
Revenue $184,111 $ 70,979 $ 2,678 $ 257,768
Cost of operations (147,401) (44,948) (914) (193,263)
Selling, general, &
administrative expenses (12,524) (12,524)
Acquisition &
restructuring charges (776) (776)
Taxes & interest, net (13,616) (13,616)
---------- ---------- ---------- -----------
Net income (loss) $ 35,934 $ 26,031 $ (24,376) $ 37,589
========== ========== ========== ===========
Assets by Segment $ 546,423 $ 334,622 $ 233,467 $1,114,512
========== ========== ========== ===========
Three months ended
March 31, 1999
Revenue $120,138 $ 52,449 $ 5,459 $ 178,046
Cost of operations (91,583) (31,713) (3,239) (126,535)
Selling, general, &
administrative expenses (12,805) (12,805)
Acquisition &
restructuring charges (34,810) (34,810)
Taxes & interest, net (5,237) (5,237)
---------- ---------- ---------- -----------
Net income (loss) $ 28,555 $ 20,736 $ (50,632) $ (1,341)
========== ========== ========== ===========
Assets by Segment $ 442,644 $ 283,277 $ 95,178 $ 821,099
========== ========== ========== ===========
-9-
<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" information, within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Act of
1934, as amended. Any such statements are not guarantees for future performance
and involve risks and uncertainties, and actual results may differ materially
from those contemplated by such forward-looking statements. Important factors
that could cause actual results to differ materially from those in
forward-looking statements include (i) the loss of key personnel or inability to
attract additional qualified personnel, (ii) changes in card association rules,
(iii) changes in card association fees, (iv) restrictions on surcharging or a
decline in the deployment of automated teller machines, (v) dependence on VISA
and MasterCard registrations, (vi) the credit risk of merchant customers, (vii)
susceptibility to fraud at the merchant level, (viii) receiving lower price
margins from higher volume merchants, (ix) increasing competition, (x) the
success of a new VISA debit card product, (xi) the loss of key customers, (xii)
continued consolidation in the banking and retail industries, (xiii) risks
related to acquisitions, (xiv) changes in rules and regulations governing
financial institutions, (xv) the inability to remain current with rapid
technological change, (xvi) dependence on third-party vendors, (xvii) the
imposition of additional state taxes, (xviii) volatility of the Company's common
stock price and (xix) changes in interest rates. 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.
Restatement of Historical Financial Information
The historical financial information presented herein has been restated in
accordance with pooling of interests method of accounting for business
combinations. The financial information reflects the financial position,
operating results and cash flows of the respective companies as though the
companies were combined for all periods presented.
Overview
The Company is a fully integrated leading provider of electronic transaction
authorization, processing, settlement and funds transfer services on a
nationwide basis. The Company focuses on marketing its services to supermarket
chains and multiple lane retailers, financial institutions, petroleum and
convenience stores, grocery stores, the trucking industry and other retailers.
The Company's primary activity is Merchant Services, in which it provides
integrated electronic transaction services for credit card, debit card and
electronic benefits transfer (EBT) card transactions. These transaction services
include data capture, authorization and settlement services for over 400,000
point-of-sale terminals. The Company also provides automated teller machine
(ATM) Services, consisting of owning and operating the MAC-branded electronic
funds transfer network and processing for approximately 39,000 ATMs nationwide,
of which it owns approximately 1,000.
-10-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Overview - continued
The substantial majority of the Company's revenue (71.4% in 2000 and 67.5% in
1999) is generated from fee income related to Merchant Services. These services
include:
- -- the processing of credit card transactions for all major credit card brands
including VISA, MasterCard, American Express, Discover and Diners Club;
- -- the processing of debit card transactions occurring at point of sale
terminals at our merchants' businesses; and
- -- the provision of electronic payment services to supermarket chains and
multiple lane retailers, financial institutions, petroleum and convenience
stores, grocery stores, trucking companies and other retailers.
Revenue from Merchant Services consists primarily of discount fees charged to
merchants, which are a percentage of the dollar amount of each credit card
transaction the Company processes, and may also include a flat fee per
transaction. The discount fee is negotiated with each merchant and typically
constitutes a bundled rate for the transaction authorization, processing,
settlement and funds transfer services we provide. This revenue and fees from
other transactions are recognized at the time the merchants' transactions are
processed.
ATM Services revenue consists of processing fees for third party ATMs and
terminals, and other access, switching and card processing fees, and fee income
and other surcharges charged for proprietary ATMs. ATM Services revenue is
recognized at the time of the transaction.
The remaining balance of the Company's revenue is derived principally from check
verification and authorization services and sales of point-of-sale terminals.
Cost of operations includes all costs directly attributable to the provision of
services to the Company's customers. The most significant component of cost of
operations includes interchange and assessment fees, which are amounts charged
by the credit and debit card associations. Interchange and assessment fees are
billed primarily as a percentage of dollar volume processed and, to a lesser
extent, as a per-transaction fee. Cost of operations also includes
telecommunications costs, occupancy costs, depreciation, the cost of equipment
leased and sold, operating salaries and wages, amortization of merchant
contracts and other intangibles, the cost of operating the Company's MAC network
and other miscellaneous merchant supplies and services expenses.
The Company's selling, general and administrative expenses include salaries and
wages and other general administrative expenses (including certain amortization
costs).
-11-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Results of Operations
Revenue increased 44.8% to $257.8 million in the first quarter of 2000 from
$178.0 million in the first quarter of 1999. Of 2000 revenue, Merchant Services,
ATM Services and Other Services accounted for 71.4%, 27.6% and 1.0%,
respectively of revenue. Revenue from merchant card services, increased 53.2%,
due primarily to increased transactional volumes. Increased volumes resulted
from adding new merchants, increasing acceptance of electronic payment cards and
the cross-selling of settlement processing to several EPS higher volume
merchants. ATM Services revenue increased 35.3%. Increased transactional volumes
and in-house processing of the EPS off-line debit product were the primary
factors for the increase. Other revenues decreased 50.9% due primarily to lower
terminal sales.
Net income as a percentage of revenue was 14.6% in the first quarter of 2000 as
opposed to a net loss of 0.8%. The primary factor in the change was the
acquisition expenses and restructuring charges incurred in the first quarter of
1999 in connection with the acquisition of EPS. Further impacting this
comparison was related to certain nondeductible acquisition costs and a tax
component write-off of $1.3 million for impaired state tax net operating losses.
These items were incurred in the first quarter of 1999 and was also related to
the acquisition of EPS. Excluding the pre-tax charges and tax component
write-off, the tax rate decreased to 35.2% in the first quarter of 2000 compared
to 36.8% in the same period of the prior year.
Excluding the pre-tax charges and tax component write-off, net income as a
percentage of revenue improved to 14.9% in the first quarter of 2000 compared to
14.4% in the same period of the prior year. The margin improvement was the
result of a combination of factors. Improvements, as a percentage of revenue,
were made in selling, general and administrative expenses, net interest income
and income taxes. These improvements were offset by an increase in the cost of
operations as a percentage of revenue.
Cost of operations increased in the first quarter of 2000 to 75.0% of revenue
compared to 71.1% in the same period of the prior year. The increase in cost of
operations, as a percentage of revenue, was primarily due to lower margin
revenue which was principally from larger, higher volume merchants who command
and deserve lower transactional pricing. This lower margin revenue was primarily
from the cross-selling of settlement processing to several higher volume EPS
merchants and from bringing our off-line debit product in-house. The new lower
margin revenue was partially offset by other operating costs such as payroll,
depreciation and amortization and other certain operating costs, decreasing as a
percentage of revenue.
Selling, general and administrative expenses decreased from $12.8 million in the
first quarter of 1999 to $12.5 million in the first quarter of 2000, a decrease
of $0.3 million. These expenses were down slightly as higher salaries and wages
-12-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Results of Operations - continued
were offset by lower legal and other expenses. As a result, selling, general and
administrative expenses were 4.9% of revenue in the first quarter of 2000 versus
7.2% in the first quarter of 1999.
Acquisition expenses and restructuring charges decreased to $0.8 million in the
first quarter of 2000 compared to $34.8 million in the same period of the prior
year. The current year expenses were primarily advisory, legal and accounting
fees incurred in the acquisition of CPS. As of March 31, 2000, approximately
$0.1 million of these expenses were accrued but unpaid. The acquisition and
restructuring charges for the first quarter of 1999 were a result of the
Company's merger with EPS. As explained in detail in the annual report section
of the Company's Form 10-K for the year ended December 31, 1999, the pre-tax
expenses and charges were for acquisition expenses, communication conversion
costs, asset write-offs, off-line debit conversion and severance and other.
The following table brings forward from December 31, 1999 the remaining reserve
balance, in millions, from the EPS acquisition expenses and charges:
Balance at Balance at
Cash or December 31 March 31
Description Non-cash 1999 Activity 2000
- ------------------ -------- ----------- -------- -----------
Communication
conversion costs Cash $11.3 $4.4 $6.9
Severance and
other Cash 1.4 0.9 0.5
----- ---- ----
$12.7 $5.3 $7.4
===== ==== ====
Net interest income improved as a percentage of total revenue to 2.7% in the
first quarter of 2000 compared to 1.0% in the same period of the prior year. A
principal source of additional interest income each year is the investment of
available cash flow from operations in securities available for sale. Also
approximately $61.7 million from the June 1999 offering of the Company's common
stock was invested in securities available for sale. Increased transaction
settlement volumes contributed to interest earned from overnight and short-term
investments. These factors increased interest income by 74% in the first quarter
of 2000 over the same period of the prior year. Total long and short-term debt
was reduced approximately $146 million in June 1999 from the proceeds of the
June 1999 common stock offering. As a result, interest expense decreased 42% in
the first quarter of 2000 over the same period of the prior year. The
combination of these factors increased net interest income as a percentage of
revenue.
-13-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources
In the three months ended March 31 2000, the Company generated $46.2 million
from operating activities. The Company also received $6.0 million in proceeds
from Federal Home Loan Bank (FHLB) advances and $0.4 million from stock issued
for exercises of options under the Company's stock option plan. Deposits
increased $1.5 million. From cash provided from operating and financing
activities, $30.5 million was invested in securities, net of sales and
maturities, $17.9 million was disbursed on capital additions, and $6.7 million
was spent to purchase merchant contracts. Long-term debt was reduced by $7.0
million. The capital additions were primarily for communications equipment,
point-of-sale terminals, new computer equipment and capitalized software.
The Company believes that available credit and cash generated from operations
are adequate to meet the Company's capital needs. EFS National Bank and EFS
Federal Savings Bank, wholly-owned subsidiaries of the Company, exceed required
regulatory capital ratios.
Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes to our disclosures on quantitative and
qualitative disclosures about market risk since December 31, 1999. For
additional information, refer to Exhibit 13 - Annual Report to Stockholders in
our Form 10-K for the year ended December 31, 1999.
-14-
<PAGE>
CONCORD EFS, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds
On February 1, 2000, the Company issued 6,225,000 shares of its common stock in
connection with the Company's acquisition of all of the outstanding common stock
Card Payment Systems, Inc.(CPS). In the acquisition, CPS merged as a wholly
owned subsidiary of the Company, and the shares of common stock of CPS
outstanding at the time of the merger were converted into shares of common stock
of the Company.
On February 7, 2000, the Company issued 84,889 shares of its common stock in
connection with the Company's purchase of all of the outstanding common stock
Virtual Cyber Systems, Inc.(VCS). In the acquisition, VCS merged as a wholly
owned subsidiary of the Company, and the shares of common stock of VCS
outstanding at the time of the merger were converted into shares of common stock
of the Company.
The 6,225,000 shares issued to the 2 shareholders of CPS who held all of the
outstanding shares of CPS common stock at the time of the merger and the 84,889
shares issued to the shareholder of VCS who held all of the outstanding shares
of VCS common stock at the time of the merger were issued without registration
under the Securities Act of 1933 in reliance on the exemption under Section 4(2)
of that Act. The Company believes that each of these shareholders was either an
accredited investor or had such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of the
investment in shares of the Company; was afforded access to material information
about the Company, understood that the shares of the Company acquired in the
merger were "restricted securities" and agreed not to transfer those shares
except pursuant to an effective registration statement under the Securities Act
of 1933 or an exemption from registration under that act.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
none
-15-
<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 12, 2000 By: /s/ Dan M. Palmer
---------------------------
Dan M. Palmer
Chairman of the Board and
Chief Executive Officer
Date: May 12, 2000 By: /s/ Edward T. Haslam
---------------------------
Edward T. Haslam
Chief Financial Officer
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 96,976 78,055
<SECURITIES> 487,263 315,776
<RECEIVABLES> 183,587 127,935
<ALLOWANCES> 3,083 2,760
<INVENTORY> 17,398 11,324
<CURRENT-ASSETS> 807,082 549,818
<PP&E> 321,405 311,255
<DEPRECIATION> 144,857 157,246
<TOTAL-ASSETS> 1,114,512 821,099
<CURRENT-LIABILITIES> 271,787 259,582
<BONDS> 0 0
0 0
0 0
<COMMON> 70,744 44,852
<OTHER-SE> 674,016 318,405
<TOTAL-LIABILITY-AND-EQUITY> 1,114,512 821,099
<SALES> 257,768 178,046
<TOTAL-REVENUES> 257,768 178,046
<CGS> 193,263 126,535
<TOTAL-COSTS> 206,563 174,150
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 678 1,312
<INTEREST-EXPENSE> 2,064 3,533
<INCOME-PRETAX> 58,286 5,628
<INCOME-TAX> 20,697 6,969
<INCOME-CONTINUING> 37,589 (1,341)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 37,589 (1,341)
<EPS-BASIC> 0.18 (0.01)
<EPS-DILUTED> 0.17 (0.01)
</TABLE>
