-----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, J14oVONUMlRcyX6HFX/bb9JVps/hjSJCtLUqvQ/KaoJTqNvdOm1Lnvjdlb6vLKSi DPfSvZuAq9eBg5qZDs8xsw== 0000740112-96-000004.txt : 19960423 0000740112-96-000004.hdr.sgml : 19960423 ACCESSION NUMBER: 0000740112-96-000004 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960422 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-13848 FILM NUMBER: 96549069 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-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 Commission file number 2-89213 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 or organization) Identification Number) 2525 Horizon Lake Drive, Suite 120, Memphis, Tennessee 38133 (Address of principal executive offices) (Zip code) Registrant's Telephone Number, Including Area Code: (901) 371-8000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $33.1/3 Par Value 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 has required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Disclosure of delinquent filings pursuant to Item 405 of Regulation S-K will be contained in the registrant's proxy statement for its 1995 annual meeting of shareholders, which statement is incorporated by reference in Part III of this Form 10-K. Yes No X The aggregate market value of the voting stock held by non-affiliates of the registrant on March 1, 1996 was $1,057,284,620. The number of shares of the registrant's Common Stock outstanding as of March 1, 1996, was 37,760,156. DOCUMENTS INCORPORATED BY REFERENCE PART II Portions of this Registrant's 1995 Annual Report to Shareholders are incorporated by reference into Items 5, 6, 7 and 8. PART III Portions of the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held May 2, 1996 are incorporated by reference into Items 10, 11, 12 and 13. CONCORD EFS, INC. FORM 10-K ANNUAL REPORT TABLE OF CONTENTS Item No. - -------- PART I Page 1. Business ---- Description of Business 2 Data Processing and Field Service Support 2 Marketing and Customers 3 Competition 3 Supervision and Regulation 3 Employees 4 2. Properties 5 3. Legal Proceedings 5 4. Submission of Matters to a Vote of Security Holders 5 PART II 5. Market for Registrant's Common Stock and Related Stockholder Matters 5 6. Selected Financial Data 5 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 8. Financial Statements and Supplementary Data 6 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures 7 PART III 10. Directors and Executive Officers of the Registrant 7 11. Executive Compensation 7 12. Security Ownership of Certain Beneficial Owners and Management 7 13. Certain Relationships and Related Transactions 7 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 7 Index to Exhibits 7 Signatures 9 PART I Item 1. Business Concord EFS, Inc. and its subsidiaries (the Company) provide electronic transaction processing, authorization and settlement services and ATM processing and ATM driving services to retailers, grocery stores, financial institutions and trucking companies nationwide. The related electronic terminal equipment used in transaction processing is sold and/or maintained by the Company . On February 20, 1992, Concord Computing Corporation changed its name to Concord EFS,Inc.(the Parent) and became a holding company.Subsequently, Concord Computing Corporation (Concord) incorporated as a Delaware corporation and acquired the operational assets and liabilities of the Parent. Concord is a wholly owned subsidiary of the Parent. The Parent was originally incorporated as a Massachusetts company on January 23, 1970 and has operated continuously since that time. During 1990, the Parent reincorporated in Delaware. The Parent became a one- bank holding company on December 1, 1992, in connection with the formation of EFS National Bank (EFSNB) described below. The Parent acquired a 100% interest in EFS, Inc. (EFS), a Delaware corporation, on March 15, 1985. EFS National Bank (formerly EFS, Inc.) (EFSNB), sells credit, debit, and electronic benefits transfer (EBT) card authorization, data capture and settlement services to retailers and grocery stores. It also sells cash card and cash forwarding services to trucking companies through agreements with a network of truck stops. On December 1, 1992, EFSNB was formed. Simultaneous to its formation, the Bank issued 1,000,000 outstanding shares of common stock to the Parent in exchange for all of the outstanding shares of common stock of EFS, Inc., a wholly owned subsidiary of the Parent. EFS, Inc. was subsequently dissolved. EFSNB's formation occurred so the Company could provide a full spectrum of electronic transaction processing and settlement services to its customers. Previously, EFS had to contract settlement services and sponsorship into bankcard associations with unrelated financial institutions. As a bank, EFSNB can provide its existing services in a more efficient and cost effective manner as well as new services such as debit card processing to retailers, convenience stores and supermarkets and banking services to trucking companies and truck drivers. The services of EFSNB do not consist of material amounts of traditional banking activities (i.e., consumer and commercial loans, demand and time deposits, real estate, etc.). Therefore, the Company did not change to the reporting format and related disclosures normally required for bank holding companies. Concord Computing Corporation's (Concord) primary activity is check authorization and POS terminal driving, servicing and maintenance for grocery store chains. It also owns and operates cash dispensing machines (ATMs) at truck stops and grocery stores nationwide. Additionally, Concord provides certain processing services for its affiliated companies. The Parent acquired a majority interest in Network EFT, Inc.(NEFTI ), a Delaware corporation located in Chicago, Illinois, on June 14, 1981. NEFTI sells electronic funds transfer services to financial institutions in grocery stores. Depositors of financial institutions may make deposits and withdrawals and perform electronic banking -1- transactions at these terminals. The Parent sold a 37% interest in NEFTI to a customer in April of 1983. The Parent currently retains a 57% interest in NEFTI. The Parent incorporated a wholly-owned Tennessee subsidiary, Concord Equipment Sales, Inc. (formerly VMT, Inc.) on September 5, 1991. Concord Equipment Sales, Inc. purchases from manufacturers point-of- sale (POS) terminal products and communications equipment for use by the Company's customers in connection with the Company's transaction processing services. Concord Computing Corporation incorporated a wholly-owned Delaware subsidiary, Concord Retail Services, Inc. (CRS). CRS provides POS terminal driving, servicing and maintenance to the Company's customers in the northeast United States. Description of Business The Company operates exclusively in the payment services industry. The primary components of the services are: Bank Card Services consist of credit, debit, and EBT card authorization, data capture and settlement services provided to retail and grocery store merchants. Trucking Services consist of cash card, cash forwarding services, ATM operations and banking services for trucking companies and truck drivers. Check Services consist of check authorization services sold to retail and grocery store merchants. In addition, the Company provides Electronic Funds Transfer (EFT) services and sells electronic terminal equipment to customers who are users of the services. All of these services are sold directly to the end-user on a nationwide basis. The following table is a listing of revenues by service type for the three years ended December 31: 1995 1994 1993 -------- ------- ------- (in thousands) Bank Card Services $ 92,223 $66,959 $47,482 Trucking Services 16,687 12,853 12,022 Check Services 12,168 9,954 9,279 EFT and Terminal Services 6,684 6,447 6,660 -------- ------- ------- $127,762 $96,213 $75,443 ======== ======= ======= As transaction service revenues are similar in nature, total operating expenses are not directly attributable to any individual revenue type. Data Processing and Field Service Support The Company maintains a data processing facility in Elk Grove,Illinois, primarily for the Company's Check Services and EFT Services, and a data processing facility in Memphis, Tennessee for Trucking Services and Bank Card Services. These facilities utilize fully redundant computers -2- which provide the high levels of availability and the transaction speed necessary for processing large numbers of financial transactions. Backup power is available to provide service in the event of power failure at a computer center. The Company maintains dedicated telephone networks, packet switching networks and In-Watts networks connecting data processing centers to retail stores where transaction and electronic funds transfer terminals are located. The Company also provides field support and repair services for POS terminal installations. The Company maintains field support and repair facilities in Elk Grove, Illinois, Aurora, Colorado and West Chester, Pennsylvania. Marketing and Customers The Company markets its services and products on a nationwide basis directly to retail merchant companies, electronic funds transfer networks, financial institutions and trucking companies through sales offices located in suburbs of Chicago and Memphis. The Company's executive officers participate in the Company's marketing efforts. The Company's principal services are designed and programed by the Company, and, in general, utilize commonly available system hardware and components and are not dependent upon scarce materials, patents or trademarks for continued viability. Competition The Company competes with a large number of suppliers of services and products, many of which are large companies with substantially greater financial and marketing resources than those of the Company. The Company's competition includes other providers of data processing and switching services including several banks and/or bank holding companies, electronic funds transfer networks and equipment vendors. The markets for the services and products which are offered by the Company are highly fragmented, and no supplier has a dominant share of the market for Check Services, EFT Services, Terminal Products or Bank Card Services. One supplier, ComData Network, a wholly-owned sub- sidiary of Ceridian Corporation, has a dominant share of the Trucking Services market. Another competitor, First Data Corporation, has a large share of the Bank Card Services market. The Company competes in its markets in terms of price, quality, speed and flexibility in customizing systems to meet the particular needs of customers. The Company believes that it is one of the few integrated suppliers of both services and hardware for use in transaction services at retail locations. Supervision and Regulation Concord EFS, Inc. and its subsidiaries are subject to a number of federal and state laws. As a bank holding company, the Parent is subject to regulation under the Bank Holding Company Act of 1956, as amended (the "Act") which is administered by the Federal Reserve Board (the "Board"). Under the Act, the Company is generally prohibited from directly engaging in any activities other than banking, managing or controlling banks, and bank-related activities. Also, the Act prohibits a bank holding company, with certain exceptions, from acquiring, directly or indirectly, ownership or control of 5% or more of the voting shares of any company which is not a bank or bank holding company. The primary exception to this prohibition involves activities which the Board determines are closely related to banking. A bank is -3- also generally prohibited from engaging in certain tie-in arrangements with its bank holding company or affiliates with respect to the lease or sale of property, furnishing of services, or the extension of credit. The Act contains certain restrictions concerning future mergers with other bank holding companies and banks. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) contains certain merger restrictions with Savings and Loan Associations. Under the Act, a bank holding company is required to file with the Board an annual report and such additional information which the Board may require. The Board may examine the Company's and each of its subsidiaries' records, including a review of capital adequacy in relation to guidelines issued by the Board. If the level of capital is deemed to be inadequate, the board may restrict the future expansion and operations of the Company. The Board possesses cease and desist powers over a bank holding company if its actions or actions of any of its subsidiaries represent unsafe or unsound practices or violations of law. Federal law also regulates transactions among the Company and its affiliates, including the amount of a banking affiliate's loan to, or investments in non-bank affiliates and the amount of advances to third parties collateralized by securities of an affiliate. In addition, various requirements and restrictions under federal and state laws regulate the operations of the Company's banking affiliates, requiring the maintenance of reserves against deposits, limiting the nature of loans and the interest that may be charged thereon, restricting investments and other activities. The Company's bank affiliates are also limited in the amount of dividends that they may declare. Prior regulatory approval must be obtained before declaring any dividends if the amount of capital, surplus and retained earnings is below certain statutory limits. As a national bank, EFSNB operates under the rules and regulations of the Comptroller of the Currency and is also a member of the Federal Reserve System, subject to provisions of the Federal Reserve Act. The FDIC insures the domestic deposits of all the Banks. Periodic audits and regularly scheduled reports of financial information are required by all regulatory agencies. Federal laws also regulate certain transactions among EFSNB and its affiliates, including Concord EFS,Inc. The Company's EFT Services sold to financial institutions are regulated by certain State and Federal banking laws. Material changes in federal or state regulation could increase the cost to the Company of providing EFT Services, change the competitive environment or otherwise adversely affect the Company. The Company is not aware of any such change which is pending. Employees As of December 31, 1995, the Company employed 474 full and part-time personnel, including 51 data processing and technical employees, 257 in operations, and 166 in sales and administration. Many of the Company's employees are highly skilled, and the Company believes its future success will depend in a large part on its ability to attract and retain such employees. The Company does not have employment contracts with any of its personnel. None of the Company's employees are represented by a labor union and the Company has experienced no work stoppages. The Company considers its employee relations to be -4- excellent. Item 2. PROPERTIES The following table sets forth certain information concerning the principal facilities of the Company, all of which are leased: APPROXIMATE AREA IN LEASE LOCATION SQUARE FEET PRIMARY USES EXPIRATION . Memphis, TN 34,125 Corporate Offices July 31, 1997 & EFSNB Operations Elk Grove, IL 18,300 Data Processing, May 31, 1996 Field Service, NEFTI and Concord Operations Aurora, Co 2,800 Field Service month to month West Chester, Pennsylvania 1,300 Field Service month to month The Company believes all facilities are adequate. Item 3. LEGAL PROCEEDINGS The Company is a party to various routine lawsuits arising out of the conduct of its business, none of which are expected to have a material adverse effect upon the Company. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of stockholders in the fourth quarter of fiscal 1995. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS This information is included under the caption "Market Value For the Registrant's Common Stock and Related Stockholders Matters" on page 5 of the Company's Annual Report (the "Annual Report"), and is herein incorporated by reference. Item 6. SELECTED FINANCIAL DATA This information is included under the caption "Selected Consolidated Financial Data" on page 1 of the Annual Report and is herein incorporated by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This information is included under the captions "Management's Discus- sion and Analysis of Financial Condition and Results of Operations" on pages 3, 4 and 5 of the Annual Report and is herein incorporated by reference. -5- Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The report of independent auditors and consolidated financial state- ments set forth below are included on pages 6 - 16 of the Annual Report, and are incorporated herein by reference. Report of Independent Auditors. Consolidated Balance Sheets as of December 31, 1995 and 1994. Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994, and 1993. Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994, and 1993. Notes to Consolidated Financial Statements as of December 31, 1995. Quarterly results of operations for the years ended December 31, 1995 and 1994 on page 5 of the Annual Report are incorporated herein by reference. Schedule II, Valuation and Qualifying Accounts, is listed below. All schedules for which provision is made in the applicable accounting regulations of the Securities & Exchange Commission are not required under the related instructions and, therefore, have been omitted. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT CONCORD EFS, INC. Balance Charged to Balance Beginning Costs and * End of Period Expenses Deductions of Period --------- ---------- ---------- --------- Year ended December 31, 1995 Allowance for uncollectible accounts $750,206 $500,000 $490,771 $759,435 ======== ======== ======== ======== Year ended December 31, 1994 Allowance for uncollectible accounts $605,247 $480,000 $355,041 $750,206 ======== ======== ======== ======== Year ended December 31, 1993 Allowance for uncollectible accounts $891,210 $525,000 $810,963 $605,247 ======== ======== ======== ======== * Uncollectible accounts written off, net of recoveries. -6- Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See Item 13 below. Item 11. EXECUTIVE COMPENSATION See Item 13 below. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See Item 13 below. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information with respect to Items 10, 11, 12, and 13 is included in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 2, 1996 under the captions "Election of Directors", "Executive Compensation", "Stock Options", Beneficial Ownership of Common Stock", and "Certain Transactions" and is herein incorporated by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) -- The response to this portion of Item 14 is submitted as a separate section of this report. (3) Listing of Exhibits Exhibit Numbers 2 Agreement and Plan of Merger dated January 12, 1990 by and between Concord Computing Corporation, a Massachusetts corporation , and Concord Computing Corporation, a Delaware corporation * 3(A) Certificate of Incorporation of Concord Computing Corporation, a Delaware corporation * 3(B) Bylaws of Concord Computing Corporation, a Delaware corporation * 3(C) Certificate of Merger of Concord Computing Corporation, a Massachusetts corporation, with and into Concord Computing Corporation, a Delaware corporation, filed with the Secretary of State of Delaware March 22, 1990 * 3(D) Articles of Merger of Concord Computing Corporation, a Massachusetts corporation, with and into Concord Computing Corporation, a Delaware corporation, filed with the Secretary of State of Massachusetts March 22, 1990 * 10 1993 Incentive Stock Option Plan (incorporated by reference from exhibit to the Registrant's Proxy Statement for the Annual Meeting of Shareholders held on May 12, 1993.) 11 Statement Re: Computation of Per-share Earnings. -7- 13 Annual Report 22 List of Subsidiaries Jurisdiction of Company Organization Ownership Concord Computing Corp. Delaware 100% EFS National Bank National Bank Charter 100% Network EFT, Inc. Delaware 57% Concord Equipment Sales Tennessee 100% 23 Consent of Independent Auditors 27 Financial Data Schedule * Incorporated by reference from exhibits to the Registrant's Amendment No. 1 to Form 10-Q for quarter ended March 31, 1990. (b) Reports on Form 8-K -- No reports on Form 8-K were filed during the quarter ended December 31, 1995. (c) Exhibits -- The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules -- The response to this portion of Item 14 is submitted as a separate section of this report. ************************************************************************* For the purposes of complying with the amendments to the rules governing the Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 No's. 33-60871. -8- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has fully caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Concord EFS, Inc. By:/s/ Dan M. Palmer Dan M. Palmer Chief Executive Officer Date: March 29, 1996 /s/ Thomas J. Dowling Thomas J. Dowling Vice President and Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date - ---------------------------------------------------------------------- /s/ Dan M. Palmer Chairman of the Board and CEO March 29, 1996 Dan M. Palmer of the Company and EFS National Bank /s/ Edward A. Labry President of the Company and March 29, 1996 Edward A. Labry III EFS National Bank /s/ Richard M. Harter Director and Secretary of March 29, 1996 Richard M. Harter the Company /s/ David C. Anderson Director of the Company March 29, 1996 David C. Anderson /s/J. Richard Buchignani Director of the Company and March 29, 1996 J. Richard Buchignani EFS National Bank /s/ Joyce Kelso Director of the Company and March 29, 1996 Joyce Kelso EFS National Bank /s/ Jerry D. Mooney Director of the Company March 29, 1996 Jerry D. Mooney /s/Paul L. Whittington Director of the Company March 29, 1996 Paul L. Whittington -9- EX-11 2 COMPUTATION OF PER-SHARE EARNINGS EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER-SHARE EARNINGS * CONCORD EFS, INC. Year Ended December 31 1995 1994 1993 ----------- ----------- ----------- For primary earnings per share: Weighted average of common shares outstanding net of treasury shares 36,896,309 36,212,164 35,928,549 Weighted average common stock equivalent for stock options by treasury stock method 1,676,074 1,053,330 1,188,654 ---------- ---------- ---------- Weighted average common and common equivalent shares 38,572,383 37,265,494 37,117,203 ========== ========== ========== Net income $18,315,353 $12,713,370 $9,862,910 =========== =========== ========== Per-share amount $0.47 $0.34 $0.27 ===== ===== ===== For fully diluted earnings per share: Weighted average common and common equivalent shares for primary earning per share 38,572,383 37,265,494 37,117,203 Add shares representing additional shares for stock options based on period-end market price 208,170 524,287 ---------- ---------- ---------- Weighted average common and common equivalent shares-fully diluted basis 38,780,553 37,789,781 37,117,203 ========== ========== ========== Net income $18,315,353 $12,713,370 $9,862,910 =========== =========== ========== Per-share amount $0.47 $0.34 $0.27 ===== ===== ===== * Earnings per share and related per share data have been restated to reflect stock splits issued through January 18, 1996. EX-13 3 ANNUAL REPORT SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere herein. Fiscal Year End * 1995 1994 1993 1992 1991 (in thousands except per share data) INCOME STATEMENT DATA: Revenues $127,762 $96,213 $75,443 $65,562 $48,144 Cost of Operations 90,579 69,840 53,188 46,024 31,137 Selling, General and Administrative Expenses 10,913 8,312 7,861 5,969 5,572 OPERATING INCOME 26,270 18,061 14,394 13,569 11,435 Interest, Net 2,116 1,588 825 503 661 INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 28,386 19,649 15,219 14,072 12,096 Income Taxes 10,146 6,979 5,357 5,011 4,717 INCOME BEFORE MINORITY INTEREST 18,240 12,670 9,862 9,061 7,379 Minority Interest 75 43 1 (87) (106) NET INCOME $ 18,315 $12,713 $ 9,863 $ 8,974 $ 7,273 ======== ======= ======= ======= ======= Weighted Average Common and Common Equivalent Shares Outstanding ** 38,572 37,265 37,117 36,779 36,664 ====== ====== ====== ====== ====== Earnings Per Share ** $0.47 $0.34 $0.27 $0.24 $0.20 ===== ===== ===== ===== ===== BALANCE SHEET DATA: Working Capital $68,213 $45,717 $34,655 $26,240 $16,318 Total Assets 156,887 99,462 71,033 56,316 44,562 Long Term Debt,Less Current Maturities 978 1,371 55 Total Stockholders' Equity 89,545 61,935 50,251 39,573 26,289 Percentage of Percentage Revenue Change Year FY95 FY94 End Over Over INCOME STATEMENT DATA: 1995 1994 1993 FY94 FY93 Revenues 100.0% 100.0% 100.0% 32.8% 27.5% Cost of Operations 70.9 72.6 70.5 29.7 31.3 Selling, General and Administrative Expenses 8.6 8.6 10.4 31.3 5.7 OPERATING INCOME 20.5 18.8 19.1 45.4 25.5 Interest, Net 1.7 1.7 1.1 33.2 92.5 INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 22.2 20.5 20.2 44.5 29.1 Income Taxes 7.9 7.3 7.1 45.4 30.3 INCOME BEFORE MINORITY INTREST 14.3 13.2 13.1 44.0 28.5 Minority Interest 0.0 0.0 0.0 74.4 N/A NET INCOME 14.3 13.2 13.1 44.1 28.9 ==== ==== ==== * Fiscal year 1991 ended September 30. Fiscal years 1995, 1994, 1993 and 1992 ended December 31. ** Earnings per share and related per share data have been restated to reflect stock splits issued through January 18, 1996. -1- Dear Shareholders: We are excited about the Company's strong financial results for 1995 and the prospects for future years. Revenues are up 33%, Net Income is up 44% and Earnings Per Share is up 38%. These results are ahead of management's overall stated goals of 25% growth. The antitrust lawsuit again a major competitor that was filed in early 1993 was resolved at midyear. Under the terms of the settlement agreement, the details cannot be disclosed, however, there is no material financial impact on the Company. The new services introduced in 1994, checking accounts and processing services for cash dispensing machines (ATMs), were near breakeven at year end. Although a small percentage of revenues at year end, these services continue to grow at a rapid rate. With the coming rule changes by the networks allowing surcharging at ATMs nationwide, the Company's ATM network should be highly profitable in 1996. Additionally, we are pursuing other opportunities outside the trucking industry for new checking accounts. The Company's principal source of revenue, Bankcard Services, has shown average growth of 40%+ over the last several years. The Company has emphasized growth in the small merchant and grocery markets. Small merchants have been the backbone of the Company's growth for the last ten years and we continue to emphasize this market nationwide. The recent strategy for pushing merchant acquisition in the grocery market has been to capitalize on (1) the strong growth in usage of bankcards to purchase groceries, (2) the high recent growth in debit card usage and (3) the new government requirement for usage of Electronic Benefits Transfer (EBT) cards at grocery stores. EBT programs will eventually require the use of plastic debit cards in all states. This requires grocers to have electronic POS (point of sale) devices Therefore, the Company's benefit from grocery market merchants is two phased: (1) adding them as high volume merchants for traditional bankcardservices, with a continuing strong year over year growth in usage, and (2) increasing fee income by adding bank debit card and government EBT debit card volume to the basic bankcard business. This growth strategy continues to be very successful. Additionally, near the end of the year the Company added a new Check Services product. This product uses a national database, which tracks bounced checks, closed accounts, etc., to authorize checks for merchants at a much lower fee than traditional check guarantee programs and still allow merchants to achieve a very low percentage of check losses. The Company's Trucking Services also has shown double digit growth in 1995. This growth was due in large measure to the new offering of checking accounts and/or ATM cards to drivers and the aforementioned placement of ATMs at over 300 major truckstops nationwide. Considering all the positive developments in 1995 and our plans for growth, we believe 1996 will be another year of strong financial performance for the Company. On behalf of all our employees, thank you again for your commitment and support throughout the year. Very truly yours, /s/ Dan M. Palmer /s/ Ed Labry Dan M. Palmer Edward A. Labry III Chairman of the Board President Chief Executive Officer -2- IN MEMORIAM At mid-year Don Rutherford, a board member for over 20 years, passed away suddenly due to a stroke. Don was an ardent supporter of the Company, its management, and employees. He was the oldest board member and his years of business experience made him a very knowledgeable counsel to Vic Tyler, Chairman Emeritus, and myself. Don will be missed greatly, not only because of his wise counsel and mediation abilities when tempers flared, but because of his great sense of humor. In his memory we all thank him again for an excellent job. /s/ Dan M. Palmer Dan M. Palmer Chairman of the Board Chief Executive Officer CONCORD EFS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Calendar 1995 Compared to Calendar 1994 Net income increased 44% in 1995 over 1994 due to increased revenues from transaction processing and decreases in telephone and maintenance operating costs. Transaction processing included Bank Card Services, up 38% through the addition of grocery and retail merchants as well as volume increases in credit card usage; Trucking Services, up 30% due to growth in ATM revenues and increases in trucking customers; and Check Services, up 22% on the addition of new merchants and higher debit card revenues. Continued telemarketing efforts combined with merchant association endorsements were responsible for the new customers. Net income improved in 1995 to 14.3% from 13.2% as operational costs grew at a slower rate than transaction revenue. Savings of approximately $2.3 million in telephone and maintenance expenses were recognized.. The Company does not currently anticipate significant changes in margins in the future. The Company resolved its antitrust lawsuit against Deluxe Data Systems, Inc. (Deluxe) in July 1995. The lawsuit, initiated in January 1993, alleged that Deluxe was monopolizing electronic benefits transfer business in the state of Maryland. The terms of the settlement had no material financial statement impact in the current year. Calendar 1994 Compared to Calendar 1993 Net income increased 29% in 1994 over 1993 due to increased revenues in Bank Card Services, Trucking Services and Check Services. Bank Card Services revenues increased 41%, while Trucking Services and Check Services revenues increased 7%. The increase in these revenues was due to additional volume from existing customers and the addition of new customers. Continuing telemarketing efforts were responsible for the new customers. Profit margins remained consistent with the prior year as operational costs related to service volume growth and new services were offset by increased interest income from investment management. Calendar 1993 Compared to Calendar 1992 Net income increased 10% in 1993 over 1992 due to increased revenues in Bank Card Services and Trucking Services. Bank Card Services revenues increased 35% while Trucking Services increased 14%. The increase in these revenues was due to additional volume from existing customers and the addition of new customers. Continuing telemarketing efforts were responsible for the new customers. Revenues increased only 15% due to unusually high terminal product sales in the prior year. Excluding terminal product sales, revenues increased 23% over the prior year. Current year net income as a percentage of revenue decreased due to three factors: (1) additional legal fees for the Deluxe antitrust lawsuit, in which the Company is a plaintiff, (2) decreased margins from Bank Card Services as a result of adding supermarkets, a lower margin business, to the Company's customer base, and (3) higher margins on terminal product sales in the prior year. Increased interest income from investment management offset the decrease in operating income as a percentage of revenue. -3- CONCORD EFS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Company consistently generates significant resources from operating activities. Over the past three years operating activities generated $28.3, $19.9 and $ 12.6 million, respectively. During fiscal 1995, the Company invested $10.4 million in securities, net, and $8.1 million on capital additions. Capital additions were primarily for new computer equipment and cash dispensing machines (ATMs). Operating cash funded these purchases. Significant changes in accounts receivable and accounts payable result from the day of the week the calendar year end falls combined with the increases in settlement volume from one year to the next. Stock issued from the Company's Incentive Stock Option Plan provided $4.1 million in additional capital in 1995. The disqualifying disposition of the options also reduced corporate income taxes paid by $4.1 million. Management cannot estimate the timing or amount of future cash flows from exercise of options, however, this will continue to be a source of funds to the Company. The Company has unused unsecured lines of credit of $10 million with financial institutions. The Company holds securities with a market value of approximately $20.9 million that are available for operating needs or as collateral to obtain short term financing if needed. With 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, a wholly-owned subsidiary of the Company, exceeds required capital ratios. The Company's working capital ratio exceeded 2 to 1 at December 31, 1995 and 1994. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived to be Disposed Of", which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt Statement 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. In October 1995, the FASB issued Statement No. 123, "Accounting for Stock- based Compensation," which provides an alternative to APB Opinion No. 25 in accounting for stock-based compensation issued to employees. The statement allows for a fair value based method of accounting for employee stock options and similar equity instruments. However, for companies that continue to account for stock-based compensation arrangements under Opinion No. 25, FAS No. 123 requires disclosure of the pro forma effect on net income and earnings per share of its fair value based accounting for those arrangements. These disclosure requirements are effective for fiscal years beginning after December 15, 1995. The Company expects to continue to account for stock options under APB Opinion No. 25. -4- CONCORD EFS, INC. AND SUBSIDIARIES EFFECTS OF INFLATION The Company's assets are primarily monetary, consisting of cash, assets convertible into cash, securities owned and receivables. Because of their liquidity, these assets are not significantly affected by inflation. Management believes that replacement costs of equipment, furniture and leasehold improvements will not materially affect operations. However, the rate of inflation affects the Company's expenses, such as those for employee compensation and communications, which may not be readily recoverable in the price of services offered by the Company. RECENT QUARTERLY RESULTS The following table presents an unaudited summary of quarterly results for the quarters of the calendar years 1995 and 1994. Earnings per share have been restated to reflect stock splits issued through January 18, 1996. March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- 1995 (in thousands except per share data) Revenues $25,928 $29,897 $33,945 $37,992 Operating Income 4,920 5,918 6,956 8,575 Net Income 3,459 4,080 4,841 5,935 Earnings Per Share $0.09 $0.11 $0.12 $0.15 1994 Revenues $19,639 $22,126 $25,195 $29,253 Operating Income 3,442 3,981 4,626 6,012 Net Income 2,435 2,833 3,289 4,156 Earnings Per Share $0.07 $0.08 $0.09 $0.11 MARKET VALUE FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS The Company's Common Stock trades on the Nasdaq National Market tier of the Nasdaq Stock Market (NASDAQ) under the symbol "CEFT". The following table sets forth the range of high and low bid quotations per share of the Company's Common Stock through December 31, 1995, as reported by NASDAQ. Quotes have been restated to reflect stock splits issued through January 18, 1996. HIGH LOW FISCAL YEAR ENDED DECEMBER 31, 1995: First Quarter ................ $12.78 $ 9.78 Second Quarter................ 17.83 12.00 Third Quarter................. 21.33 16.00 Fourth Quarter................ 30.00 16.67 FISCAL YEAR ENDED DECEMBER 31, 1994: First Quarter ................ $ 7.50 $ 6.22 Second Quarter................ 7.61 5.84 Third Quarter................. 8.59 6.28 Fourth Quarter................ 11.33 8.22 As of March 1, 1996, there were 274 stockholders of record or through nominee or streetname accounts with brokers. The Company has never paid cash dividends. It is the present policy of the Company's Board of Directors to retain earnings to finance expansion of the Company's operations, and the Company does not expect to pay dividends in the foreseeable future. -5- CONCORD EFS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31 1995 1994 ASSETS ------------ ----------- CURRENT ASSETS Cash and cash equivalents $ 36,572,976 $23,030,329 Securities available-for-sale(amortized cost of $23,742,451 in 1995 and $13,995,836 in 1994) 23,439,135 12,113,593 Accounts receivable, less allowance of $759,435 in 1995 and $705,206 in 1994 63,690,114 33,763,804 Inventories 4,765,304 2,907,661 Prepaid expenses 2,899,604 2,908,968 Deferred income taxes 407,000 902,000 Refundable income taxes 328,197 ------------ ----------- TOTAL CURRENT ASSETS 132,102,330 75,626,355 SECURITIES HELD-TO-MATURITY (Fair value of $4,736,000 in 1995 and $3,538,156 in 1994) 4,865,865 4,196,454 PROPERTY AND EQUIPMENT 57,749,905 49,789,902 Less accumulated depreciation and amortization 37,831,369 30,150,571 ------------ ----------- 19,918,536 19,639,331 ------------ ----------- TOTAL ASSETS $156,886,731 $99,462,140 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and other liabilities $ 60,966,543 $30,508,847 Accrued liabilities 2,530,310 3,228,829 Current maturities of long-term debt 392,177 368,198 ------------ ----------- TOTAL CURRENT LIABILITIES 63,889,030 34,105,874 LONG-TERM DEBT, LESS CURRENT MATURITIES 978,327 1,370,504 DEFERRED INCOME TAXES 1,743,000 1,244,000 MINORITY INTEREST IN SUBSIDIARY 731,579 806,891 STOCKHOLDERS' EQUITY Common Stock, $.33 1/3 par value; authorized 40,000,000 shares, issued and outstanding 24,940,938 shares in 1995 and 16,105,434 shares in 1994. 8,313,646 5,368,478 Additional paid-in capital 10,491,454 5,183,978 Retained earnings 70,940,011 52,624,658 Unrealized losses on securities, net of taxes (200,316) (1,242,243) ------------ ----------- TOTAL STOCKHOLDERS' EQUITY 89,544,795 61,934,871 ------------ ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $156,886,731 $99,462,140 ============ =========== See notes to consolidated financial statements. -6- CONCORD EFS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31 1995 1994 1993 ------------ ----------- ----------- Revenues $127,762,333 $96,212,958 $75,443,939 Cost of operations 90,579,212 69,839,671 53,188,474 Selling, general and administrative expenses 10,913,426 8,312,187 7,861,299 ------------ ----------- ----------- OPERATING INCOME 26,269,695 18,061,100 14,394,166 Other income (expense): Interest income 2,219,412 1,688,252 825,018 Interest expense (103,075) (99,605) ------------ ----------- ----------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 28,386,041 19,649,747 15,219,184 Income taxes 10,146,000 6,979,000 5,357,000 ------------ ----------- ----------- INCOME BEFORE MINORITY INTEREST 18,240,041 12,670,747 9,862,184 Minority interest 75,312 42,623 726 ------------ ----------- ----------- NET INCOME $ 18,315,353 $12,713,370 $ 9,862,910 ============ =========== =========== Per share data: Weighted average common and common equivalent shares outstanding 38,572,383 37,265,494 37,117,203 ========== ========== ========== Earnings per share $0.47 $0.34 $0.27 ===== ===== ===== See notes to consolidated financial statements. -7- CONCORD EFS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Unrealized Common Stock Addn'l Gains Stock $.33 1/3 Paid-In Retained Treasury (Losses)on Shares par Capital Earnings Stock Securities Total ------ -------- ------- -------- -------- ---------- ------ (In thousands) BALANCE AT JANUARY 1, 1993 11,067 $3,689 $6,926 $30,048 ($1,090) $ $39,573 Exercise of stock options 69 23 412 436 Tax benefit of disqualifying dispositions of incentive stock option shares 379 379 Net income 9,863 9,863 ------ ------ ------- ------- ------ ------ ------ BALANCE AT DECEMBER 31, 1993 11,136 3,712 7,718 39,911 (1,090) 50,251 Exercise of stock options 51 17 163 180 Tax benefit of disqualifying dispositions of incentive stock option shares 33 33 Cancellation of treasury stock (450) (150) (940) 1,090 3 for 2 stock split 5,368 1,789 (1,789) Unrealized losses on securities, net of tax (1,242) (1,242) Net income 12,713 12,713 ------ ------ ------- ------- ------ ------ ------- BALANCE AT DECEMBER 31, 1994 16,105 5,368 5,184 52,625 (1,242) 61,935 Exercise of stock options 632 211 3,915 4,126 Tax benefit of disqualifying dispositions of incentive stock option shares 4,127 4,127 3 for 2 stock split 8,203 2,735 (2,735) Unrealized gains on securities, net of tax 1,042 1,042 Net income 18,315 18,315 ------ ------ ------- ------- ------ ------ ------- BALANCE AT DECEMBER 31, 1995 24,940 $8,314 $10,491 $70,940 $ ($ 200) $89,545 ====== ====== ======= ======= ====== ====== ======= See notes to consolidated financial statements. -8- CONCORD EFS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31 1995 1994 1993 ------- ------- ------- OPERATING ACTIVITIES (In thousands) Net income $18,315 $12,713 $9,863 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,796 7,424 5,797 Provision for losses on accounts receivable 500 480 525 Loss on disposal of property and equipment 21 Minority interest (75) (43) (1) Deferred income taxes 457 (12) 195 Changes in operating assets and liabilities: Accounts receivable (30,426)(15,742) (4,682) Inventories (1,858) 442 (2,810) Other current assets 9 (590) (1,078) Accounts payable and other liabilities 30,458 13,667 3,282 Accrued liabilities 3,100 1,522 1,477 ------- ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 28,276 19,861 12,589 INVESTING ACTIVITIES Acquisition of property and equipment (8,075) (9,450) (8,135) Securities held-to-maturity: Acquisition of securities (2,360) Proceeds from maturity of securities 1,047 769 Securities available-for-sale: Acquisition of securities (11,347) (6,870) Proceeds from sales of securities 248 4,168 Proceeds from maturity of securities 1,997 167 Investment Securities: Acquisition of securities (27,319) Proceeds from sales of securities 16,579 ------- ------- ------- NET CASH USED IN INVESTING ACTIVITIES (18,491)(11,216)(18,875) FINANCING ACTIVITIES Proceeds from exercise of stock options 4,126 180 435 Proceeds from note payable 2,000 Payments on note payable (368) (261) ------- ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 3,758 1,919 435 ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,543 10,564 (5,851) Cash and cash equivalents at beginning of period 23,030 12,466 18,317 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $36,573 $23,030 $12,466 ======= ======= ======= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 104 $ 90 $ ======= ======= ======= Income taxes $ 6,472 $ 6,861 $ 4,400 ======= ======= ======= See notes to consolidated financial statements. -9- CONCORD EFS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE A - SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of Concord EFS, Inc. (Parent); its wholly-owned subsidiaries, Concord Computing Corporation (Concord), EFS National Bank (EFSNB), Concord Retail Services, Inc. and Concord Equipment Sales, Inc. (formerly VMT, Inc.); and its majority-owned subsidiary, Network EFT, Inc. (NEFTI) (collectively, the Company). All material intercompany balances and transactions have been eliminated in consolidation. Operations: The Company provides transaction processing, authorization and settlement services, throughout the United States. The primary components of these services are Bank Card, Trucking and Check Services. The Company requires certain Trucking Services customers to provide letters of credit, surety bonds or cash deposits as collateral for outstanding accounts receivable. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Securities Held-to-Maturity and Available-for-Sale: In accordance with Financial Accounting Statement (FAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," (which was adopted by the Company January 1, 1994) securities available-for-sale are carried at market. The amortized cost of debt securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Unrealized gains or losses on these securities are included in stockholders' equity net of tax. Securities which the Company intends to hold until maturity are stated at cost adjusted for amortization of premiums and accretion of discounts. The adjusted cost of the specific securities sold is used to compute gains or losses on the sale of securities. Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. Property and Equipment: Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Use of Estimates: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Income Taxes: The Company and its wholly-owned subsidiaries file a consolidated Federal tax return. Each subsidiary provides for income taxes on a separate-return basis and remits to or receives from the Company amounts currently payable or receivable. NEFTI files its own Federal tax return. Income taxes have been provided using the liability method in accordance with FAS No. 109, "Accounting for Income Taxes". Revenue Recognition: Credit card and other transaction processing activities are recorded when the service is provided, gross of interchange and network fees charged to the Company, which are recorded as a cost of operations when the transactions have been settled. -10- CONCORD EFS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE A - SIGNIFICANT ACCOUNTING POLICIES - Continued Revenue Recognition: Credit card and other transaction processing activities are recorded when the service is provided, gross of interchange and network fees charged to the Company, which are recorded as a cost of operations when the transactions have been settled. Revenues from service contracts and product sales are recognized when the service is provided or the equipment is shipped. Service contracts and related sales include all revenues under system service contracts, including revenues from sales of terminal hardware when the contract included such sales. Earnings Per Share: Earnings per share are calculated using the weighted average number of common and common equivalent shares outstanding. Common equivalent shares result from the assumed exercise of common stock options using the "treasury stock" method. Earnings per share and related per share data have been restated to reflect stock splits issued through January 18, 1996. Stock-based Compensation: The Company grants options for a fixed number of shares to employees with an exercise price equal to the fair value at the date of the grant. These stock option grants are accounted for in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and accordingly, recognizes no compensation expense for the stock option grants. In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation," which provides an alternative to APB Opinion No. 25 in accounting for stock-based compensation issued to employees. The statement allows for a fair value based method of accounting for employee stock options and similar equity instruments. However, for companies that continue to account for stock-based compensation arrangements under Opinion No. 25, FAS No. 123 requires disclosure of the pro forma effect on net income and earnings per share of its fair value based accounting for those arrangements. These disclosure requirements are effective for fiscal years beginning after December 15, 1995. The Company expects to continue to account for stock options under APB Opinion No. 25. NOTE B - SECURITIES The following is a summary of securities available-for-sale and securities held-to-maturity. Securities Available-for-Sale Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value December 31, 1995 ----------- ---------- ---------- ----------- Mortgage-backed securities $22,636,651 $ 47,849 ($ 351,150) $22,333,350 State obligations 500,000 (15) 490,985 ----------- ---------- --------- ----------- Total debt securities 23,136,651 47,849 ( 351,165 22,833,335 Equity securities 605,800 605,800 ----------- ---------- --------- ----------- $23,742,451 $ 47,849 ($ 351,165) $23,439,135 =========== ========== ========= =========== December 31, 1994 Mortgage-backed securities $13,142,478 $ ($1,846,085) $11,296,393 State obligations 247,558 (36,158) 211,400 ----------- ---------- ---------- ----------- Total debt securities 13,390,036 ( 1,882,243) 11,507,793 Equity securities 605,800 605,800 ----------- ---------- ---------- ----------- $13,995,836 $ ($1,882,243) $12,113,593 =========== ========== ========== =========== -11- CONCORD EFS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE B - SECURITIES - Continued Securities Held-to-Maturity Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value December 31, 1995 ---------- ---------- ---------- ---------- Mortgage-backed securities $4,865,866 $ ($ 129,266) $4,746,600 ========== ========== ========== ========== December 31, 1994 Mortgage-backed securities $4,196,454 $ ($ 658,298) $ 3,538,156 ========== ========== ========== =========== At December 31, 1995, the state obligations listed above mature on July 1, 2005. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. There were no gains or losses on securities sold during the three years ended December 31, 1995. NOTE C - INVENTORIES At December 31, inventories consists of: 1995 1994 ---------- ---------- Point of sale equipment $4,559,574 $2,565,507 Repair parts 205,730 342,154 ---------- ---------- $4,765,304 $2,907,661 ========== ========== NOTE D - PROPERTY AND EQUIPMENT At December 31, property and equipment consists of: 1995 1994 ----------- ----------- Computer facilities $46,734,106 $42,319,578 Plant equipment 8,189,984 5,002,181 Office furniture and equipment 2,459,033 2,119,498 Leasehold improvements 366,782 348,645 ----------- ----------- $57,749,905 $49,789,902 =========== =========== Maintenance and repair expense amounted to $906,537, $1,408,206, and $961,981 for the years ended December 31, 1995, 1994, and 1993, respectively. NOTE E - LONG-TERM DEBT AND LEASES At December 31, long-term debt consists of: 1995 1994 ---------- ---------- Note payable to bank $1,370,504 $1,738,702 Less current maturities 392,177 368,198 ---------- ---------- $ 978,327 $1,370,504 ========== ========== The note payable to bank is payable through March 1, 1999 in monthly installments of $38,969 including interest at 6.25% and is secured by cash dispensing machines (ATMs) with a net book value of $1,542,269 at December 31, 1995 and $1,822,682 at December 31, 1994. -12- CONCORD EFS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE E - LONG-TERM DEBT AND LEASES - Continued The Company rents office facilities under agreements classified as operating leases which expire in various years through 2000 and generally contain renewal options. Rental expense for operating leases amounted to $416,510, $391,188, and $496,607, for the years ended December 31, 1995, 1994, and 1993, respectively. Future maturities of notes payable and minimum lease payments for operating leases with initial or remaining terms in excess of one year are as follows: Note Operating Payable Leases ---------- ---------- Year ending December 31: 1996 $ 392,177 $ 429,241 1997 417,718 302,635 1998 444,922 314,472 1999 115,687 314,472 2000 183,442 ---------- ---------- Total future payments $1,370,504 $1,544,262 ========== ========== At December 31, 1995 the Company had available $10 million in unsecured lines of credit with other financial institutions. The lines of credit are con- tractual in nature, require no compensating balances or fees, expire at various dates through May 1997 and are subject to renewal at the discretion of the institutions. No borrowing occurred in 1995 under these lines of credit. NOTE F - INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets at December 31, were: 1995 1994 Deferred tax liabilities: ---------- ---------- Property and equipment $1,677,000 $1,342,000 Other, net 66,000 (98,000) ---------- ---------- Total deferred tax liabilities $1,743,000 $1,244,000 ---------- ---------- Deferred tax assets: Securities available-for-sale $ 103,000 $ 640,000 Bad debt allowance 288,000 283,000 Inventory 16,000 Prepaid insurance (21,000) ---------- ---------- Total deferred tax assets 407,000 902,000 ---------- ---------- Net deferred tax liabilities $1,336,000 $ 342,000 ========== ========== -13- CONCORD EFS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE F - INCOME TAXES - Continued The components of the provision (benefit) for income taxes for the three years ended December 31: 1995 1994 1993 Current ----------- ---------- ---------- - Federal $ 9,463,000 $6,742,000 $4,887,000 - State 226,000 249,000 285,000 ----------- ---------- ---------- 9,689,000 6,991,000 5,162,000 ----------- ---------- ---------- Deferred - Federal 421,000 (22,000) 189,000 - State 36,000 10,000 6,000 ----------- ---------- ---------- 457,000 (12,000) 195,000 ----------- ---------- ---------- $10,146,000 $6,979,000 $5,357,000 =========== ========== ========== The reconciliation of income taxes computed at the U. S. federal statutory tax rate of 35% in 1995 and 1994 and 34% in 1993 to income tax expense for the three years ended December 31 were: 1995 1994 1993 ----------- ---------- ---------- Tax at statutory rate $ 9,935,000 $6,892,000 $5,175,000 State income taxes, net of federal benefit 170,000 172,000 192,000 Other, net 41,000 (85,000) (10,000) ----------- ---------- ---------- $10,146,000 $6,979,000 $5,357,000 =========== ========== ========== Income tax benefits resulting from the disqualifying dispositions of certain employee incentive stock option shares were credited to additional paid-in capital because no compensation expense was charged to income for financial reporting purposes related to the exercise of such options. NOTE G - STOCKHOLDERS' EQUITY The Company has an Incentive Stock Option Plan allowing for the grant of up to 6,075,000 shares of Common Stock for the benefit of the Company's key employees. Options are granted at not less than 100% of the market value on the date of the grant (110% in the case of a holder of more than 10% of the outstanding shares) and are generally become exercisable within four years of the date of the grant. Information pertaining to the Incentive Stock Option Plan is summarized below: Number of Shares Price Aggregate Options Under Option Per Share Price Exercisable Balance at ---------------- ------------ ----------- ----------- January 1, 1994 2,854,411 $0.54--$7.85 $13,582,362 1,481,207 Options granted 637,875 $7.70 =========== ========= Options exercised (167,123) $0.54--$6.15 Options terminated (4,388) $1.58--$7.85 Balance at --------- December 31, 1994 3,320,775 $0.54--$7.85 $18,288,621 1,845,198 Options granted 661,125 $10.78-$15.50 =========== ========= Options exercised (1,174,236) $0.54-$ 7.85 Options terminated (20,960) $7.70-$13.33 Balance at --------- December 31, 1995 2,786,704 $1.19-$15.50 $22,877,512 1,290,231 ========= =========== ========= -14- CONCORD EFS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE G - STOCKHOLDERS' EQUITY -Continued On June 19, 1995, options to purchase 30,000 shares at $15.50 per share were granted. On April 18, 1995, options to purchase 619,875 shares at $13.33 per share were granted. On January 4, 1995, options to purchase 11,250 shares at $10.78 per share were granted. On August 18, 1994, options to purchase 637,875 shares at $7.70 per share were granted. On December 15, 1995, the Board of Directors approved a three for two stock split. Stockholders of record as of January 8, 1996 received additional shares on January 18, 1996. The Board of Directors met on April 27, 1995 and approved a three for two stock split. Stockholders of record as of May 8, 1995 received additional shares on May 22, 1995. The Board of Directors approved a three for two stock split on August 18, 1994. Stockholders of record as of September 6, 1994 received additional shares on September 16, 1994. Earnings per share, related per share data, stock options and stock option prices have been restated to reflect stock splits declared through January 18, 1996. NOTE H - MAJOR CUSTOMER In the years ended December 31, 1995, 1994, and December 31, 1993, one customer, which holds a 37% ownership interest in NEFTI accounted for 4%, 4%, and 5% respectively, of revenues. Contract terms with this customer are no less favorable to the Company than terms available to other customers. NOTE I - COMMITMENTS AND CONTINGENCIES The Company is a party to various claims and litigation in the normal course of business, none of which is expected to have a material effect on the consolidated financial statements. NOTE J - DEBT AND DIVIDEND RESTRICTIONS In accordance with federal banking laws, certain restrictions exist regarding the ability of the banking subsidiary to transfer funds to the Parent in the form of cash dividends, loans or advances. The approval of certain regulatory authorities is required to pay dividends in excess of earnings retained in the current year plus retained net earnings for the preceding two years. As of December 31, 1995, $35,007,856 of undistributed earnings of the EFSNB, included in consolidated retained earnings, was available for distribution to the Parent as dividends without prior regulatory approval. Under Federal Reserve regulations, the banking subsidiary is also limited as to the amount it may loan to affiliates, including the Parent, unless such loans are collateralized by specific obligations. At December 31, 1995, the maximum amount available for transfer from the EFSNB to the Parent in the form of loans approximated 6.3% of consolidated net assets. NOTE K - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. These fair values are provided for disclosure purposes only, and do not impact carrying values of financial statement amounts. Cash and Cash Equivalents. The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values. Securities (Including Mortgage-backed Securities). Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. -15- CONCORD EFS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE K - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Long-term Borrowings. The fair values of the Company's long-term borrowings are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. December 31, 1995 Carrying Amount Fair Value --------------- ------------ Financial assets: Cash and cash equivalents $36,572,976 $36,572,976 Available-for-sale securities 23,742,451 23,439,135 Held-to-maturity securities 4,865,865 4,736,600 Financial liabilities: Current maturities of long-term debt 392,177 361,454 Long-term debt, less current maturities 978,327 901,683 -16- CORPORATE DIRECTORY SEC Form 10-K Board of Directors Copies of the Company's Annual Report on (and their principal occupation) Form 10-K as filed with The Securities and Exchange Commission may be Dan M. Palmer obtained without charge upon request to: Chairman and Chief Executive Officer Concord EFS, Inc. and Investor Relations EFS National Bank Concord EFS, Inc. 2525 Horizon Lake Drive, Victor M. Tyler Suite 120 Chairman Emeritus, Concord EFS, Inc. Memphis, Tennessee 38133 David C. Anderson * Market for Common Stock Retired Executive Vice President and CFO, Burlington Northern, Inc. NASDAQ National Market Ticker Symbol: CEFT J. Richard Buchignani, Esq. * Partner, Wyatt, Tarrant & Combs Annual Meeting Richard M. Harter, Esq. * Partner, Bingham, Dana & Gould May 2, 1996 Joyce Kelso Transfer Agent & Registrar Retired Senior Vice President, Concord EFS, Inc. and EFS National State Street Bank and Trust Company Bank Boston, Massachusetts Edward A. Labry III President, Concord EFS, Inc. Corporate Counsel and EFS National Bank Bingham Dana & Gould Jerry D. Mooney * Boston, Massachusetts President and CEO ServiceMaster Diversified Health Auditors Services, Inc. Ernst & Young LLP Paul L. Whittington * Memphis, Tennessee Retired Partner Ernst & Young LLP Corporate Offices * Audit Committee Member 2525 Horizon Lake Drive Suite 120 Memphis, Tennessee 38133 (901) 371-8000 EXECUTIVE MANAGEMENT GROUP Dan M. Palmer, Chairman, CEO and William E. Lucado, Senior Vice President President, Concord EFS, Inc. and Compliance Officer, Concord EFS, Inc. EFS National Bank and EFS National Bank Edward A. Labry III, President, J. Anthony Greaves, President, Concord Concord EFS, Inc. and Computing Corporation EFS National Bank Thomas J. Dowling, Vice President & Vicki Birdsong, Executive Vice President Controller, Concord EFS, Inc. and Concord Computing Corporation EFS National Bank EX-20 4 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS CONCORD EFS, INC. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held on May 2, 1996 To the Shareholders of Concord EFS, Inc. Notice is hereby given that the Annual Meeting of Shareholders of Concord EFS, Inc. ("Concord" or the "Company") will be held at Colonial Country Club, 2736 Countrywood Parkway, Memphis Tennessee on May 2, 1996 beginning at 9:30 a.m. local time, for the following purposes: 1. To elect directors to serve for the ensuing year; 2. To approve the Amendment to the Certificate of Incorporation to increase the number of authorized shares of Common Stock; 3. To approve Amendment of 1993 Incentive Stock Option Plan to change the formula grants to directors; 4. To transact such other business as may properly come before the annual meeting and any adjournments thereof. The Board of Directors has fixed the close of business on March 1, 1996 as the record date for determination of the shareholders entitled to notice of and to vote at the Annual Meeting. The By-Laws of the Company require that the holders of a majority of all stock issued, outstanding and entitled to vote be present in person or represented by proxy at the meeting in order to constitute a quorum. By Order of the Board of Directors Richard M. Harter Secretary March 29, 1996 WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE SIGN AND RETURN THE ENCLOSED PROXY. No postage is required if mailed in the United States. CONCORD EFS, INC. PROXY STATEMENT March 29, 1996 This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of Concord EFS, Inc. ("Concord" or the "Company") of proxies for use at the Annual Meeting of Shareholders to be held on May 2, 1996 and any adjournments thereof. Shares as to which proxies have been executed will be voted as specified in the proxies. A proxy may be revoked at any time by notice in writing received by the Secretary of the Company before it is voted. BENEFICIAL OWNERSHIP OF COMMON STOCK The Company's only issued and outstanding class of voting securities is its Common Stock, par value $.33 1/3 per share. Each shareholder of record on March 1, 1996 is entitled to one vote for each share registered in such shareholders's name. As of that date, the Company's Common Stock was held by approximately 274 shareholders of records or through nominee or street name accounts with brokers. The following table sets forth, as of March 1, 1996, the ownership of the Company's Common Stock by each person who is known by the Company to own beneficially more than 5% of the Company's outstanding Common Stock, by each director who owns shares and by all directors and officers of the Company as a group. Percent of Shares Outstanding Beneficial Owner (1) Owned Shares (2) - --------------------------- ------- ----------- Dan M. Palmer (3) 611,719 1.6% Edward A. Labry III (4) 243,282 0.6% Joyce Kelso 399 0.0% Richard M. Harter 47,625 0.1% Jerry D. Mooney 6,300 0.0% David C. Anderson 3,375 0.0% J. Richard Buchignani 3,405 0.0% Paul Whittington 2,250 0.0% All officers, directors and nominees as a group (8 persons) (5) 918,355 2.4% -1- (1) The address of each beneficial owner is the same as the Company's. (2) Percentage ownership is based on 37,760,165 shares issued and outstanding, plus the number of shares subject to options exercisable within 60 days from the record date by the person or the aggregation of persons for which such percentage ownership is being determined. (3) Shares owned include 409,219 shares covered by unexercised stock options. (4) Shares owned include 141,914 shares covered by unexercised stock options. (5) Shares owned include 551,133 shares covered by unexercised stock options. ELECTION OF DIRECTORS Eight directors are to be elected to hold office until the next annual meeting of shareholders and until their successors are elected and qualified. Unless a proxy is executed to withhold authority for the election of any or all of the directors, then the persons named in the proxy will vote the shares represented by the proxy for the election of the following eight nominees. If the proxy indicates that the shareholder wishes to withhold a vote from one or more nominees for director, such instruction will be followed by the persons named in the proxy. All eight of the nominees are now members of the Board of Directors. The Board of Directors has no reason to believe that any of the nominees will be unable to serve. In the event that any nominee should not be available, the persons named in the proxies will vote for the others and may vote for a substitute for such nominee. An affirmative vote of a majority of the Company's Common Stock represented in person or by proxy at the meeting is necessary for the election of the individuals named below. Recommended Vote The Board of Directors recommends that you vote "FOR" the election of these eight individuals as directors. The following table lists the name of each proposed nominee; his/her age; his/her business experience during at least the past five years, including principal offices with the Company or a subsidiary of the Company; and the year since which he/she has served as a director of the Company. There are no family relationships among the nominees. Office With the Company, Business Nominees and Ages Experience and Year First Elected Director ----------------- ------------------------------------------ Dan M. Palmer (53) Mr. Palmer became Chairman of the Board in February 1991. Mr. Palmer has been Chief Executive Officer of the Company since August 1989, and a Director of the Company since May 1987. Mr. Palmer has been the Chief Executive Officer of EFS National Bank (formerly EFS, Inc.) since its inception in 1982. He joined Union Planters National Bank in June 1982 and founded the EFS operations within the bank. He continued as President and Chief Executive Officer of EFS when it was acquired by Concord in March 1985. -2- Joyce Kelso (54) Mrs. Kelso has been a Director since May 1991, and Vice President in charge of Customer Service since EFS began operations. In August 1990, she was elected Senior Vice President of the Company. As of January 1, 1995,Mrs. Kelso is semi-retired. Edward A. Labry III (33) Mr. Labry joined EFS in 1984. He was made Director of Marketing in March 1987 and Vice President of Sales in February 1988. In August 1990, he was elected to Chief Marketing Officer of the Company. In February 1991, he was elected Senior Vice President of the Company, President of the Company in October 1994, and President of EFS National Bank in December 1994. Richard M. Harter (59) Mr. Harter has been the Company's Secretary and a Director since the Company's formation, and he has been the Secretary of NEFTI since its acquisition by the Company in 1981. He is a partner of Bingham, Dana and Gould LLP,legal counsel to the Company and NEFTI. Jerry D. Mooney (43) Mr. Mooney has been a Director of the Company since August 1992. He is President and CEO of ServiceMaster Diversified Health Services,Inc. formerly VHA Long Term Care since 1981. David C. Anderson (53) Mr. Anderson has been a Director of the Company since August 1992. He retired as Executive Vice President and Chief Financial Officer of Burlington Northern, Inc. in Fort Worth, Texas, October 1995. Prior to that, Mr. Anderson was with Federal Express in Memphis for seven years as Senior Vice President and Chief Financial Officer. J. Richard Buchignani (47) Mr. Buchignani has been a Director of the Company since August 1992. He is a partner in the Memphis office of the law firm of Wyatt, Tarrant and Comb, who also serves as local counsel to the Company. Mr. Buchignani has been affiliated with the law firm since 1995 when most of the members of his firm of eighteen years joined Wyatt, Tarrant and Combs. Paul L. Whittington (60) Mr. Whittington has been a Director since May 1993. He was Managing Partner of the Memphis, Tennessee and Jackson, Mississippi offices of Ernst & Young LLP from 1988 until his retirement in 1991. -3- Compensation of Directors The Company currently pays an annual fee of $8,000 plus $2,000 for each meeting attended to each non-employee Director of the Company. There are normally four meetings per year. In addition, non employee directors are granted options to purchase Company common stock. See page 8. Directors are reimbursed for expenses incurred in attending meetings of the Board of Directors. Three of the eight nominees are employees of the Company and are not separately compensated for serving as directors. Executive Compensation The following summary compensation table is intended to provide a comprehensive overview of the Company's executive pay practices. It includes the cash compensation paid or accrued by the Company and its subsidiaries for services in all capacities during the fiscal year ended December 31, 1995, to or on behalf of each of the Company's named executives. Named executives include the Chief Executive Officer and the President of the Company. Summary Compensation Table Annual Compensation Long-Term Compensation Name and Principal Salary Bonus Position Year ($) ($) Options Awarded* - -------- ---- ------- ------- ---------------------- Dan M. Palmer 1995 363,738 80,000 135,000 Chairman of the Board & 1994 342,335 70,000 118,125 Chief Executive Officer 1993 302,104 60,000 101,250 of the Company and EFS National Bank Edward A. Labry III 1995 279,315 100,000 112,500 President of the Company 1994 255,912 50,000 101,250 and EFS National Bank 1993 153,835 70,000 84,375 * Options awarded have been restated to reflect stock splits issued through January 18, 1996. -4- STOCK OPTIONS The following tables present the following types of information for options granted to the Company's named executives under the Company's 1993 Incentive Stock Option Plan. Table I - options granted and the potential realizable value of such options, and Table II - options exercised in the latest fiscal year and the number of unexercised options held. Table I Options Granted in 1995 Individual Grants ----------------------------------------------- Options Granted to Exercise Options Employees in price Expiration Name Granted 1995 ($/Share) Date - ---- ------- ------------ --------- ---------- Dan M. Palmer 135,000 20.4% $13.33 4/18/2005 Edward A. Labry 112,500 17.0% $13.33 4/18/2005 Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term Name 5% ($) 10% ($) - ---- --------- --------- Dan M. Palmer 1,131,277 2,867,569 Edward A. Labry 942,731 2,389,641 Table II Options Exercised in 1995 and 1995 Year End Option Values Value of Number of Unexercised Shares Acquired Value ($ Unexercised In-the-money Name on Exercise (#) Realized(1) Options (#) Options($)(2) - ---- --------------- ---------- ----------- ------------ Dan M. Palmer 182,025 4,601,211 577,969(E) 13,600,084(E) 299,531(U) 5,401,166(U) Edward A. Labry 83,531 1,428,007 215,157(E) 4,507,438(E) 251,718(U) 4,544,124(U) (1) Values are calculated by subtracting the exercise price from the fair market value of the stock as of the exercise date. (2) Values are calculated by subtracting the exercise price from the fair market value of the stock on December 31, 1995. (E) = Exercisable at December 31, 1995 (U) = Unexercisable at December 31, 1995 -5- Committees; Attendance The Board of Directors held five meetings during the fiscal year ended December 31, 1995. Each of the directors attended at least 75% of the total number of meetings of the Board. The Audit Committee, consisting of Messrs. Anderson, Buchignani, Harter, Mooney, Rutherford and Whittington met twice during the fiscal year ended December 31, 1995. The Audit Committee reviewed the results of the audit conducted by outside auditors and management's response to the management letter prepared by outside auditors. The Board of Directors has no Nominating Committee. The Board of Directors has a Compensation Committee consisting of directors who are not employees of the Company or any of its affiliates and have never been employees of the Company or any of its affiliates. It is the policy of the Compensation Committee to establish base salaries, award bonuses and grant stock options to such executives and in such amounts as will assure the continued availability to the Company of the services of the executives and will recognize the contributions made by the executives to the success of the Company's business and the growth over time in the market capitalization of the Company. To achieve these goals, the Committee establishes base salaries at levels which it believes to be below the mid- point for comparable executives in companies of comparable size and scope. The Committee then awards cash bonuses reflecting individual performance during the year for which the awards are made. For executives other than the Chief Executive Officer, the Committee receives bonus award recom- mendations from the Chief Executive Officer. The Committee grants stock options to senior and middle management executives of the Company and its affiliates at levels which it believes to be slightly higher than average for comparable companies in order to give the executives significant incentive to improve the business of the Company and its market capitalization. Section 162(m) of the Internal Revenue Code limits the tax deduction to $1 million for compensation paid to certain executives of public companies. The Committee has considered these new requirements and believes that the Company's 1993 Incentive Stock Option Plan meets the requirements that it be "performance based", and therefore, exempt from the limitations on deductibility. Historically, the combined salaries and bonuses of the Company's executive officers have been well under the $1 million limit. The Committee's present intention is to comply with Section 162(m) unless the Committee feels that required changes would not be in the best interest of the Company or its shareholders. The Chief Executive Officer's base salary, cash bonus and option grants are established by the Committee based upon its members' own experience in their companies and in other companies which they serve as directors or advisors. For 1995, the compensation, bonus and options for the Chief Executive Officer were believed by the Committee to be, in the aggregate, lower than the aggregate value of such arrangements for chief executive officers of comparable companies. David C. Anderson J. Richard Buchignani Richard M. Harter Jerry D. Mooney Paul L. Whittington -6- Below is a performance table which compares the Company's cumulative total shareholder return during the previous five years with NASDAQ stock market, and NASDAQ financial stocks (the Company's peer group). NASDAQ Concord NASDAQ Financial Date EFS,Inc. Stock Market Stocks - -------- --------- ------------ --------- 9/30/90 100.00 100.00 100.00 9/30/91 373.26 157.33 152.95 12/31/92 411.63 205.15 238.69 12/31/93 308.79 235.50 277.42 12/31/94 523.26 230.20 278.07 12/31/95 1,326.45 325.30 405.13 -7- AMEND CERTIFICATE OF INCORPORATION TO INCREASE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK The Company's authorized capital stock consists of 40,000,000 shares of Common Stock, $.33 1/3 par value. The Board of Directors finds advisable that the Company's Certificate of Incorporation be amended to increase the number of authorized shares of Common Stock to 80,000,000 shares, $.33 1/3 par value. The holders of Common Stock are not entitled to preemptive rights to purchase Common Stock of the Company. The authorized shares of Common Stock can be issued without shareholder approval upon such terms and in consideration of such amounts as the Board of Directors determines is in the best interest of the Company. Aside from regular recurring grants of options under the Corporation's stock option plan, the Board presently has no plans to issue any of the authorized shares of Common Stock. Recommended Vote An affirmative vote of a majority of the Company's outstanding Common Stock is necessary to adopt the amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of Common Stock to 80,000,000 shares. The Board of Directors recommends that you vote "FOR" the proposal. APPROVE AMENDMENT OF 1993 INCENTIVE STOCK OPTION PLAN TO CHANGE THE FORMULA GRANTS TO DIRECTORS The Company's 1993 Incentive Stock Option Plan provides formula grants of stock options to non-employee directors. Prior to amendment, the Plan provided than an option would be automatically granted each year to each non-employee director for the number of shares calculated by dividing $10,000 by the fair market value of the stock on the date of the annual Meeting. The Compensation Committee of the Board of Directors has recently amended the Plan to provide that the annual formula grant would be for 2,000 shares, a fixed number of shares, at the fair market value on the date of the annual Meeting. The Compensation Committee believes that this change in the formula grant arrangements makes the Plan easier to administer and is consistent with stock option arrangements made for non-employee directors of comparable companies. Recommended Vote An affirmative vote of a majority of the Company's Common Stock voting on the issue is necessary to approve the amendment to the Company's 1993 Incentive Stock Option Plan. The board of Directors recommends that you for "FOR" the proposal. -8- OTHER MATTERS The Board of Directors knows of no matters which are likely to be presented for action at the Annual Meeting other than the proposals specifically set forth in the Notice and referred to herein. If any other matter properly comes before the Annual Meeting for action, it is intended that the persons named in the accompanying proxy and acting thereunder will vote or refrain from voting in accordance with their best judgement pursuant to the discretionary authority conferred by the proxy. If, in a proxy submitted on behalf of a shareholder by a person acting solely in a representative capacity, the proxy is marked clearly to indicate that the shares represented thereby are not being voted with respect to one or more proposals, then such proxies will not be counted as present at the meeting with respect to such proposals, and such "non-votes" will have no effect on the voting on such proposals. Proxies submitted with abstentions as to one or more proposals will be counted as present for purposes of establishing a quorum for such proposals, and such abstentions will have the affect of a vote against such proposals. CERTAIN TRANSACTIONS Bingham, Dana & Gould LLP serves as legal counsel to the Company. Richard M. Harter, Secretary and Director of the Company, is a partner of that firm. Wyatt, Tarrant and Combs also serves as legal counsel to the Company. J. Richard Buchignani, Director of the Company, is a partner of that firm. INFORMATION CONCERNING AUDITORS Representatives of Ernst & Young LLP are expected to be at the Annual Meeting and will have an opportunity to make a statement if they desire to do so. Such representatives are also expected to be available to respond to appropriate questions. SHAREHOLDERS PROPOSALS Shareholder proposals to be submitted for vote at the 1997 Annual Meeting must be delivered to the Company on or before December 8, 1996. EXPENSES OF SOLICITATION Solicitations of proxies by mail is expected to commence on March 29, 1996, and the cost thereof will be borne by the Company. Copies of solicitation materials will also be furnished to brokerage firms, fiduciaries and custodians to forward to their principals, and the Company will reimburse them for their reasonable expenses. By Order of the Board of Directors Richard M. Harter Secretary -9- ANNUAL REPORT ON FORM 10-K The Company will deliver without charge to each of its shareholders, upon their written request, a copy of the Company's most recent annual report on Form 10-K and any information contained in any subsequent reports filed with The Securities and Exchange Commission. Request for such information should be directed to Investor Relations, Concord EFS, Inc., 2525 Horizon Lake Drive, Suite 120, Memphis, Tennessee 38133. -10- EX-99 5 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Concord EFS, Inc. of our report dated January 26, 1996, included in the 1995 Annual Report to Shareholders of Concord EFS, Inc. Our audit also included the financial statement schedule of Concord EFS, Inc. listed in Item 8. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-60871) pertaining to the Concord EFS, Inc. 1993 Incentive Stock Option Plan of our report dated January 26, 1996 with respect to the consolidated financial statements incorporated herein by reference and our report included in the preceding paragraph with respect to the financial statement schedules included in this Annual report (Form 10-K) of Concord EFS, Inc. /s/ Ernst & Young LLP Memphis Tennessee March 28, 1996 EX-27 6
5 YEAR YEAR YEAR DEC-31-1995 DEC-31-1994 DEC-31-1993 DEC-31-1995 DEC-31-1994 DEC-31-1993 36572976 23030329 0 28305000 16310047 0 64449549 34469010 0 759435 705206 0 4765304 2907661 0 132102330 75626355 0 57749905 49789902 0 37831369 30150571 0 156886731 99462140 0 63889030 34105874 0 0 0 0 8313646 5368478 0 0 0 0 0 0 0 81231149 56566393 0 156886731 99462140 0 127762333 96212958 75443939 127762333 96212958 75443939 90079212 69359671 52663474 100992638 77671858 60524773 0 0 0 500000 480000 525000 103075 99605 0 28386041 19649747 15219184 10146000 6979000 5357000 18315353 12713370 9862910 0 0 0 0 0 0 0 0 0 18315353 12713370 9862910 .47 .34 .27 .47 .34 .27
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