-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rhvs7sydTQY9D70BnQ2xbn+/fDb6R1ojM5Pd6m7I3Fc8dbnXxXqBkyUdY6ay5G2X LQHFVhnhhlIeNUhTsD/29Q== 0000740112-98-000007.txt : 19980518 0000740112-98-000007.hdr.sgml : 19980518 ACCESSION NUMBER: 0000740112-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONCORD EFS INC CENTRAL INDEX KEY: 0000740112 STANDARD INDUSTRIAL CLASSIFICATION: FUNCTIONS RELATED TO DEPOSITORY BANKING, NEC [6099] IRS NUMBER: 042462252 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13848 FILM NUMBER: 98622417 BUSINESS ADDRESS: STREET 1: 2525 HORIZON LAKE DR STE 120 CITY: MEMPHIS STATE: TN ZIP: 38133 BUSINESS PHONE: 9013718000 MAIL ADDRESS: STREET 1: 2525 HORIZON LAKE DRIVE STREET 2: SUITE 120 CITY: MEMPHIS STATE: TN ZIP: 38133 FORMER COMPANY: FORMER CONFORMED NAME: CONCORD COMPUTING CORP DATE OF NAME CHANGE: 19920515 10-Q 1 FORM 10-Q 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. CONCORD EFS, INC. AND SUBSIDIARIES INDEX Page No. -------- 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 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- 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- 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- 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- 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- 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- 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- 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- 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- EX-27 2 FINANCIAL DATA SCHEDULE
5 1000 3-MOS 3-MOS DEC-31-1998 DEC-31-1997 MAR-31-1998 MAR-31-1997 61293 109216 213582 133120 67055 43573 1487 1064 5917 3768 296327 236436 95483 75379 59653 49015 403174 324845 61403 99488 0 0 0 0 0 0 20690 20278 264155 202529 403174 324845 69632 47045 69632 47045 52961 34951 55570 36969 0 0 174 300 663 16 17227 12333 5860 4400 11367 7933 0 0 0 0 0 0 11367 7933 0.18 0.13 0.18 0.13
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