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

x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

OR

¨     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                    

Commission File Number 001-31527

CONCORD EFS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	04-2462252
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer 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

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   ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  

Yes   x     No ¨

The number of shares of the registrant’s common stock outstanding as of April 30, 2003 was 486,595,518.

CONCORD EFS, INC.

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

PART I—Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002	1
Consolidated Statements of Income for Three Months Ended March 31, 2003 and March 31, 2002	2
Consolidated Statements of Cash Flows for Three Months Ended March 31, 2003 and March 31, 2002	3
Notes to Consolidated Financial Statements	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3. Quantitative and Qualitative Disclosures About Market Risk	32
Item 4. Controls and Procedures	33
PART II—Other Information
Item 1. Legal Proceedings	34
Item 6. Exhibits and Reports on Form 8-K	37
Signatures	39
Certifications	40

PART I—Financial Information

Item 1. Financial Statements (Unaudited)

CONCORD EFS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2003		December 31, 2002
	(in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	861,128	$	471,825
Securities available for sale		983,295		985,400
Accounts receivable, net		129,666		129,983
Settlement receivables, net		41,538		24,958
Inventories		22,857		19,983
Prepaid expenses and other current assets		39,378		48,633
Deferred income taxes		7,000		5,569
TOTAL CURRENT ASSETS		2,084,862		1,686,351
Securities available for sale		136,327		139,092
Property and equipment, net		346,647		338,558
Goodwill, net		265,040		265,460
Other intangible assets, net		53,106		57,073
Other assets, net		41,997		41,906
TOTAL ASSETS	$	2,927,979	$	2,528,440
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and other liabilities	$	43,248	$	25,252
Settlement payables		466,233		165,349
Deposits		67,033		78,133
Accrued liabilities		61,628		53,617
Income taxes payable		40,847		16,527
Current maturities of long-term debt		44,110		58,940
TOTAL CURRENT LIABILITIES		723,099		397,818
Long-term debt		136,327		139,092
Deferred income taxes		65,594		62,343
Other liabilities		6,244		7,962
TOTAL LIABILITIES		931,264		607,215
Commitments and contingent liabilities		—		—
Minority interest in subsidiary		5,336		5,063
STOCKHOLDERS’ EQUITY
Common stock, $0.33 1/3 par value; authorized 1,500,000 shares, issued and outstanding 486,483 at March 31, 2003 and 486,461 at December 31, 2002		162,161		162,154
Additional paid-in capital		986,567		986,416
Retained earnings		834,322		756,605
Accumulated other comprehensive income		8,329		10,987
TOTAL STOCKHOLDERS’ EQUITY		1,991,379		1,916,162
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,927,979	$	2,528,440

See Notes to Consolidated Financial Statements.

1

CONCORD EFS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three months ended March 31,
	2003			2002
	(in thousands, except per share data)
Revenue	$	519,859		$	421,681
Cost of operations		377,461			281,919
Selling, general and administrative expenses		31,826			24,782
Merger, acquisition, restructuring and write-off charges		2,387			47,500
OPERATING INCOME		108,185			67,480
Other income and expense:
Investment income		14,710			19,572
Interest expense		2,369			3,106
Other income (expense), net		(541	)		526
INCOME BEFORE TAXES AND MINORITY INTEREST		119,985			84,472
Income taxes		41,995			29,988
INCOME BEFORE MINORITY INTEREST		77,990			54,484
Minority interest in net income of subsidiary		273			275
NET INCOME	$	77,717		$	54,209
PER SHARE DATA:
Basic earnings per share	$	0.16		$	0.11
Diluted earnings per share	$	0.16		$	0.10
AVERAGE SHARES OUTSTANDING:
Basic shares		486,466			508,699
Diluted shares		495,158			530,272

See Notes to Consolidated Financial Statements.

2

CONCORD EFS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three months ended March 31,
	2003			2002
	(in thousands)
OPERATING ACTIVITIES
Net income	$	77,717		$	54,209
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Minority interest in subsidiary		273			275
Provision for (recovery of) losses on accounts receivable and loans		352			(220	)
Depreciation and amortization		25,877			18,534
Deferred income taxes		3,252			4,736
Net realized gain on sales of securities available for sale		(159	)		(526	)
Restructuring charges		—			30,465
Changes in operating assets and liabilities:
Settlement receivables and payables, net		284,304			(297,109	)
Accounts receivable		(35	)		(12,273	)
Inventories		(2,874	)		(445	)
Prepaid expenses and other assets		6,718			(8,777	)
Accounts payable and other liabilities		49,054			28,776
Other, net		1,641			1,166
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		446,120			(181,189	)
INVESTING ACTIVITIES
Acquisition of securities available for sale		(189,417	)		(232,020	)
Proceeds from sales of securities available for sale		102,078			205,155
Proceeds from maturity of securities available for sale		86,637			47,499
Purchases of loans		—			(15,828	)
Proceeds from sales of loans		844			—
Other net change in loans		1,612			18,952
Acquisition of property and equipment		(29,763	)		(36,981	)
Purchase of merchant contracts		(246	)		(182	)
Business acquisitions, net		—			(15,509	)
Other investing activity		—			(6,499	)
NET CASH USED IN INVESTING ACTIVITIES		(28,255	)		(35,413	)
FINANCING ACTIVITIES
Net increase (decrease) in deposits		(11,100	)		14,251
Proceeds from borrowings		16,700			—
Payments on borrowings		(34,295	)		(161	)
Proceeds from exercise of stock options		133			15,938
Payments on leases payable		—			(59	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(28,562	)		29,969
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		389,303			(186,633	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		471,825			682,906
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	861,128		$	496,273

See Notes to Consolidated Financial Statements.

3

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note A—Significant Accounting Policies

Basis of Presentation:  The accompanying unaudited 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 Regulation 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 months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the Concord EFS, Inc. and Subsidiaries (Concord) annual report on Form 10-K filed March 27, 2003 for the year ended December 31, 2002.

Nature of Operations:  Concord, a leading electronic transaction processor, provides the technology and network systems that make payments and other financial transactions faster, more efficient, and more secure than paper-based alternatives. As a vertically integrated service provider, Concord acquires, routes, authorizes, captures, and settles virtually all types of electronic payment and deposit access transactions for financial institutions and merchants nationwide. Concord’s primary activities consist of Network Services, which provides automated teller machine (ATM) processing, debit card processing, deposit risk management, and coast-to-coast debit network access principally for financial institutions, and Payment Services, which provides point of sale (POS) processing, settlement, and related services, with specialized systems focusing on supermarkets, major retailers, gas stations, convenience stores, restaurants, and trucking companies.

Principles of Consolidation:  The consolidated financial statements include the accounts of Concord and its subsidiaries after elimination of all material intercompany balances and transactions.

Business Combinations:  Transactions accounted for under the purchase method of accounting reflect the net assets of the acquired company at fair value on the date of acquisition, and the excess of the purchase price over fair value of the assets is recorded as goodwill. The results of operations of the purchased company are included in the consolidated results since the date of acquisition. Stock issued in a purchase transaction is valued at the average closing price of Concord’s stock for a period of a few days surrounding the announcement date of the purchase in accordance with EITF 99-12.

4

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note A—Significant Accounting Policies, continued

Use of Estimates:  The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States 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.

Revenue Recognition:  Revenue from credit card and other transaction processing activities is recorded when the service is provided. Network Services revenue is recorded gross of network fees and net of interchange fees. Payment Services revenue is recorded gross of network and interchange fees. For both Network Services and Payment Services network fees represent amounts charged to Concord by the card associations and debit networks and billed to its clients. In accordance with EITF 01-14, as discussed below, Concord recognizes these amounts as both a component of revenue and expense in its financial statements. Network Services interchange fees represent amounts paid to Concord from the card associations as the card issuer processor and subsequently paid by Concord to the card issuer. In accordance with EITF 02-16, as discussed below, Network Services revenue excludes this interchange fee. In contrast, Payment Services interchange fees are collected from Concord’s merchant clients, not the card association or network vendor, and as a result is reported as both a component of revenue and expense. Payment Services interchange fees amounted to $231.3 million and $159.9 million for the three months ended March 31, 2003 and 2002, respectively.

In January 2003 the FASB’s Emerging Issues Task Force reached a consensus on Issue 02-16, “Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor” (EITF 02-16). EITF 02-16 provides guidance on how a customer should account for cash consideration received from a vendor. The transition provisions apply prospectively to arrangements entered into or modified subsequent to December 31, 2002 and would require all amounts received from vendors to be accounted for as a reduction of the cost of the products or services purchased unless certain criteria are met. Concord elected to early adopt the provisions of EITF 02-16 in the fourth quarter of 2002.

The application of EITF 02-16 resulted in a change in presentation of interchange fees received by Concord from card associations relating to signature debit card transactions processed by its Network Services segment. The interchange fee received reimburses Concord for similar amounts paid to signature debit card issuing financial institutions processed by its Network Services segment. These amounts received are now presented as a reduction of segment cost of operations, which offset the amounts paid. Prior to the adoption of EITF 02-16, interchange received on signature debit card transactions was included in segment revenue. The adoption of EITF 02-16 had no effect on reported operating income, net income or cash flows for any quarterly periods presented.

5

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note A—Significant Accounting Policies, continued

In January 2002 the EITF reached a consensus on Issue 01-14, “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred” (EITF 01-14). EITF 01-14 concluded that reimbursements received for out-of-pocket expenses incurred should be characterized as revenue in the income statement. Concord adopted EITF 01-14 effective January 1, 2002. The adoption of EITF 01-14 had no material effect on Concord, as substantially all reimbursements governed by EITF 01-14 were previously reported in revenue. These expenses (primarily certain telecommunications expenses and network fees) are billed to the customer separately or as part of a bundled rate including other Concord services.

Revenue from service contracts and product sales is recognized when the service is provided or the equipment is shipped. Service contracts and related sales include all revenue under system service contracts, including revenue from sales of terminal hardware when the contract includes such sales.

Revenue from most Payment Services customers is collected daily from settlement funds due to Concord’s merchants or through an automated debit to the customer’s account in the next month. Transaction revenue from Network Services customers is recorded as a receivable at month end and collected through a debit to the customer’s account during the next month. In addition, Concord records an account receivable when revenue is recognized from sales of POS equipment to Payment Services customers.

Accounts and Settlement Receivables:  Concord may incur losses from cardholder disputes in the case of merchant insolvency or bankruptcy for the full amount of the cardholder transaction. Based on historical losses, Concord believes its allowance for doubtful accounts is adequate. The allowance for doubtful accounts is established as losses are estimated to have occurred through a provision for bad debts charged to earnings. Losses are charged against the allowance when management confirms that a receivable balance is uncollectible. Subsequent recoveries, if any, are credited to the allowance.

Cash Equivalents:  Concord considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist primarily of federal funds sold through Concord’s financial institution subsidiary and money market funds that invest in commercial paper, repurchase agreements, and instruments of domestic and foreign banks and other financial institutions.

6

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note A—Significant Accounting Policies, continued

Securities Available for Sale:  Management determines the appropriate classification of debt securities at the time of purchase and evaluates such designation as of each balance sheet date. Securities available for sale are stated at fair value, with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive income in stockholders’ equity.

The amortized cost of debt securities 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. Such amortization, interest, and dividends are included in investment income. The cost of securities sold is based on the specific identification method.

Inventories:  Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories consist primarily of POS terminals. Concord periodically reviews its inventories for obsolescence and slow-moving items.

Property and Equipment:  Property and equipment are stated at cost. Costs associated with internally developed software are capitalized once technological feasibility of the software has been established. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

Goodwill and Other Intangible Assets:  Goodwill and other intangible assets are stated at cost. Concord adopted Statement of Financial Accounting Standards 142, “Goodwill and Other Intangible Assets,” effective January 1, 2002. SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives and requires that these assets be reviewed for impairment at least annually. Intangible assets with finite useful lives will continue to be amortized over their estimated useful lives. Prior to the adoption of SFAS 142, amortization was computed using the straight-line method over an estimated useful life of 10 to 25 years for goodwill. The amortization of intangibles other than purchased merchant contracts, such as customer lists and trade names, is computed using the straight-line method over an estimated useful life of 5 to 15 years.

Individual purchased merchant contracts are written off if the merchant has terminated its processing relationship. The remaining contracts are amortized using the straight-line method over nine years.

Other Assets:  Other assets, net of accumulated amortization, include $32.4 million as of March 31, 2003 and $29.9 million as of December 31, 2002 for capitalized payments made to customers, which are amortized over the life of the customer contract and are recoverable on a pro-rata basis upon early termination. These payments generally defray customer costs to convert to Concord’s systems.

7

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note A—Significant Accounting Policies, continued

Impairment of Long-Lived Assets:  In accordance with Statement of Financial Accounting Standards 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective January 1, 2002, and its predecessor SFAS 121 prior thereto, long-lived assets are reviewed for impairment on an annual basis and whenever events indicate that their carrying amount may not be recoverable. In such reviews, estimated undiscounted future cash flows associated with these assets or operations are compared with their carrying value to determine if a write-down to fair value, normally measured by discounting estimated future cash flows, is required.

Income Taxes:  Concord accounts for income taxes using the liability method.

Stock-Based Compensation:  Concord grants options to employees and directors for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of the grant. These stock option grants are accounted for in accordance with Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees;” accordingly, Concord recognizes no compensation expense for the stock option grants.

The following table presents information regarding Concord’s use of the intrinsic value method under APB 25 of accounting for stock-based compensation and states pro forma net income and earnings per share, as required by SFAS 123, “Accounting for Stock-Based Compensation,” as if Concord had accounted for its stock options under the fair value method of that statement for the three months ended March 31 (in thousands, except per share data):

	2003		2002
Net income as reported	$	77,717	$	54,209
Basic earnings per share as reported		$0.16		$0.11
Diluted earnings per share as reported		$0.16		$0.10
Stock-based compensation cost, net of tax, included in the determination of net income as reported		—		—
Stock-based compensation cost, net of tax, that would have been included in the determination of net income if the fair value method had been applied to all stock option grants	$	10,289	$	8,488
Pro forma net income	$	67,428	$	45,721
Pro forma basic earnings per share		$0.14		$0.09
Pro forma diluted earnings per share		$0.14		$0.09

8

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note A—Significant Accounting Policies, continued

Recent Pronouncements:  In July 2002 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue 94-3. The principal difference between SFAS 146 and Issue 94-3 relates to SFAS 146’s requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity’s commitment to an exit plan. The FASB concluded in SFAS 146 that an entity’s commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Therefore, SFAS 146 eliminates the definition and requirements for recognition of exit costs in Issue 94-3. SFAS 146 also establishes that fair value is the objective for initial measurement of the liability. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this statement may affect the timing of the recognition of exit costs, if any, in future periods.

In October 2002 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 147, “Acquisitions of Certain Financial Institutions.” SFAS 147 addresses the financial accounting and reporting for the acquisition of all or part of a financial institution and is effective for any such activities initiated after October 1, 2002. The adoption of this statement is not anticipated to have a material effect on Concord’s financial statements.

In November 2002 the Financial Accounting Standards Board issued FASB Interpretation 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 elaborates on the disclosures that must be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002, and its recognition requirements are applicable for guarantees issued or modified after December 31, 2002. The adoption of this interpretation did not have a material effect on Concord’s financial statements.

9

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note A—Significant Accounting Policies, continued

In December 2002 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to SFAS 123’s fair value method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB 28, “Interim Financial Reporting,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While SFAS 148 does not amend SFAS 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS 123 or the intrinsic value method of APB 25. Concord intends to continue to account for stock options under the provisions of APB 25.

In January 2003 the Financial Accounting Standards Board issued FASB Interpretation 46, “Consolidation of Variable Interest Entities.” In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003 regardless of when the variable interest entity was established. Concord is currently evaluating the consolidation provisions of FIN 46.

Reclassification:  Certain 2002 amounts have been reclassified to conform to the 2003 presentation.

10

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note B—Business Combinations and Merger, Acquisition, Restructuring and Write-Off Charges

On April 1, 2003 First Data Corporation (First Data) and Concord entered into a definitive agreement to merge in an all-stock transaction. Upon completion of the transaction, the combined company is expected to have approximately $10 billion in annual revenues with more than 31,000 employees worldwide.

First Data will exchange 0.40 First Data common shares for every Concord common share. Upon completion of the transaction, based on the current shares outstanding, Concord stockholders are expected to own approximately 21% of the outstanding shares of First Data. The transaction is subject to approval by stockholders of Concord and First Data, various regulatory approvals and other customary closing conditions.

Professional fees of $2.8 million related to the First Data merger were recorded during the first quarter of 2003 and are included in merger, acquisition, restructuring and write-off charges.

On May 17, 2002 Concord acquired Core Data Resources, Inc. (n/k/a Concord Processing, LP), an electronic transaction processor. Core Data’s ATM processing services are designed specifically for retailers and independent sales organizations and complement Concord’s existing ATM driving and monitoring services. The acquisition, for which Concord issued approximately 2.0 million shares of its common stock valued at $64.9 million, was accounted for as a purchase transaction and is immaterial to Concord’s results of operations. The allocation of the purchase price was based on a valuation study completed in the fourth quarter of 2002.

On March 1, 2002 Concord acquired The Logix Companies, LLC, an electronic transaction processor. Logix technology supplies new features to Concord’s check conversion and risk management services, and the Logix ATM driving business primarily serves independent sales organizations. The acquisition, for which Concord issued approximately 0.9 million shares of its common stock valued at $28.8 million and paid approximately $6.3 million in cash, was accounted for as a purchase transaction and is immaterial to Concord’s results of operations. The allocation of the purchase price was based on a valuation study completed in the fourth quarter of 2002.

On January 1, 2002 Concord acquired H & F Services, Inc., an independent sales organization, for $8.9 million in cash. Prior to the acquisition, Concord had purchased merchant contracts from H & F Services. The acquisition was intended to establish control over this sales channel with product, pricing, compensation, and productivity initiatives. The acquisition was accounted for as a purchase transaction and is immaterial to Concord’s financial statements. The H & F Services stock purchase agreement contains deferred purchase price payments through 2007 subject to the terms and conditions contained therein. As of March 31, 2003, the deferred payments amounted to $3.1 million.

11

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note B—Business Combinations and Merger, Acquisition, Restructuring and Write-Off Charges, continued

During the second quarter of 2002, management approved a plan in conjunction with the Core Data acquisition and continued consolidation initiatives to improve overall operating efficiencies. Merger, acquisition, restructuring and write-off charges relating to the second quarter 2002 plan were $28.3 million. The charge consisted of $16.8 million for contract terminations, $3.4 million for exiting a non-strategic business, $1.0 million for closing and consolidating certain facilities, and $0.7 million for compensation and severance. In addition, the charge included stock compensation charges of $4.8 million related to the modification of stock options of terminated employees and asset impairment charges of $1.6 million recorded as an adjustment to the write-off of non-performing purchased merchant contracts. In connection with the plan, Concord expects to eliminate 24 positions, 11 of which were eliminated as of March 31, 2003. Compensation and severance costs paid and charged against the restructuring charge accrual were $0.2 million through March 31, 2003. As of March 31, 2003, $1.8 million of the charges were accrued but unpaid. Concord expects to complete the plan by June 30, 2003.

The following table presents a summary of current year activity through March 31, 2003 related to the second quarter 2002 restructuring charge accrual (in thousands):

Balance, December 31, 2002	$	3,876
Cash outlays		(2,076	)
Balance, March 31, 2003	$	1,800

The following table presents a summary of the remaining components related to the second quarter 2002 restructuring charge accrual (in thousands):

Non-strategic business closures	$	250
Facility closings and consolidations		666
Contract terminations		340
Compensation and severance		544
Balance, March 31, 2003	$	1,800

During the first quarter of 2002, management approved a corporate consolidation plan initiated to continue improvements in overall operating efficiency and integrate recent acquisitions. Merger, acquisition, restructuring and write-off charges relating to the first quarter 2002 plan were $46.2 million. The charge consisted of $7.2 million for closing and consolidating certain facilities, $5.5 million for compensation and severance, and $3.1 million for exiting non-strategic businesses. In addition, asset impairment charges of $22.5 million were incurred for the write-off of non-

12

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note B—Business Combinations and Merger, Acquisition, Restructuring and Write-Off Charges, continued

performing purchased merchant contracts identified in the first quarter of 2002 and $7.9 million was incurred for the write-off of capitalized software and computer and communications equipment no longer in use. In connection with the plan, Concord eliminated approximately 165 positions as of March 31, 2003. Compensation and severance costs paid and charged against the restructuring charge accrual were $5.0 million through March 31, 2003. As of March 31, 2003, $5.0 million of the charges were accrued but unpaid. Concord substantially completed the consolidation plan by March 31, 2003.

The following table presents a summary of current year activity through March 31, 2003 related to the first quarter 2002 restructuring charge accrual (in thousands):

Balance, December 31, 2002	$	6,852
Changes in estimate		(441	)
Cash outlays		(1,459	)
Balance, March 31, 2003	$	4,952

The following table presents a summary of the remaining components related to the first quarter 2002 restructuring charge accrual (in thousands):

Facility closings and consolidations (lease obligations)	$	4,231
Compensation and severance		502
Non-strategic business closures		219
Balance, March 31, 2003	$	4,952

Note C—Goodwill and Other Intangible Assets

The following table presents changes to unamortized goodwill by Concord’s reporting units (in thousands):

	Network Services		Payment Services			Total
Balance, December 31, 2002	$	193,943	$	71,517		$	265,460
Purchase price adjustment		—		(420	)		(420	)
Balance, March 31, 2003	$	193,943	$	71,097		$	265,040

The purchase price adjustment represents the reversal of estimated accrued liabilities in connection with the acquisition of H & F Services.

13

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note D—Comprehensive Income

Total comprehensive income was $75.1 million and $49.4 million for the three months ended March 31, 2003 and 2002, respectively. Comprehensive income includes net income and the change in the unrealized gain or loss on securities available for sale arising during the period.

Note E—Commitments and Contingencies

Concord has entered into operating lease agreements for facilities in Wilmington, Delaware, Marietta, Georgia, and Memphis, Tennessee that qualify for operating lease accounting treatment under Statement of Financial Accounting Standards 13, “Accounting For Leases,” and, as such, the related assets and obligations are not recorded on Concord’s balance sheet. None of the minimum lease payments under these leases is material to Concord. The following table summarizes certain aspects of these leases:

Property Location	Lease Expiration	Renewal Option at Expiration	Value Guaranteed at Expiration	Total Cost Financed
Wilmington, DE	May 2005	Two five-year terms	$12.3 million	$15.0 million
Marietta, GA	Nov. 2005	Two five-year terms	$17.0 million	$20.0 million
Memphis, TN	July 2009	One five-year term	$45.9 million	$55.0 million

For each of the leases, the renewal (including economic terms of the lease during the renewal term) is subject to the consent of the lessor and lenders. In addition to the renewal option, Concord also has the option of purchasing the related property for the lease balance or remarketing the property for the lessor at the end of the initial and any renewal term of each lease. In each case, Concord has guaranteed the value realizable from the sale of the property at the end of the lease term as indicated in the table above. Should Concord elect to market the property for the lessor at the end of the lease term, Concord would be responsible for the difference in the sale proceeds and the value guaranteed above. Based on current market conditions, Concord does not expect to be required to make payments under these residual value guarantees.

The Memphis agreement is for the financing, construction, and leasing of a new corporate headquarters. Construction is expected to be completed in the fourth quarter of 2003, at which time the rent payments will begin and will be expensed in Concord’s statements of income.

Concord has a number of significant customer contracts in its Network Services segment that by their terms terminate on December 31, 2004. Concord is actively pursuing the renewal of these customer contracts; however, there is no assurance that they will be renewed. If some or all of these contracts are renewed, there may be material expenditures associated with the renewals.

14

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note E—Commitments and Contingencies, continued

Concord and certain of its current and former directors and officers have been named as defendants in a purported securities fraud class action lawsuit and two stockholder derivative actions which were filed in September 2002 in the United States District Court for the Western District of Tennessee and in the Circuit Court for the Thirtieth Judicial District at Memphis. The lawsuits raise allegations relating to Concord’s financial performance between March 2001 and September 2002, changes in the price of Concord’s common stock during that time, alleged failures to disclose material facts, and alleged insider trading and breaches of fiduciary duties by certain officers and certain directors. On April 21, 2003 the plaintiffs in the Tennessee state court derivative action filed a consolidated complaint which adds allegations that the defendants arranged the proposed merger with First Data at a below market price in return for indemnification against alleged prior wrong doing and for other benefits to them personally. The lawsuits seek unspecified compensatory and punitive damages, attorneys’ fees, and other relief. In addition, the Tennessee state court derivative action seeks an injunction against the proposed merger. Although these matters are in the preliminary stages, Concord believes that the claims against it and its directors and officers are without merit and intends to vigorously defend against all claims. Any losses incurred by Concord in connection with this litigation may be covered in part by Concord’s directors’ and officers’ liability insurance.

On or about April 2, 2003 a purported class action complaint was filed in the Chancery Court for Shelby County, Tennessee. The defendants are Concord, certain of its current and former officers and directors, and First Data. The complaint contains allegations regarding the individual defendants’ alleged insider trading and alleged violations of securities and other laws and alleges that this alleged misconduct reduced the consideration offered to Concord’s shareholders in the proposed merger between Concord and First Data. The complaint seeks class certification, attorneys’ fees, expert fees, costs and other relief the court deems just and proper. The complaint seeks an order enjoining consummation of the merger, rescinding the merger if it is consummated and setting it aside or awarding rescissory damages to members of the putative class, and directing the defendants to account to the putative class members for unspecified damages. Although this matter is in the very preliminary stages, Concord believes that the claims are without merit and intends to vigorously contest these claims.

On or about April 3 and 4, 2003 two purported class action complaints were filed in the Circuit Court of Tennessee for the Thirtieth Judicial District at Memphis. The defendants in these actions are certain of Concord’s current and former officers and directors. The complaints generally allege breaches of the defendants’ duty of loyalty and due care in connection with the defendants’ alleged attempt to sell Concord without maximizing the value to shareholders in order to advance the defendants’ alleged individual interests in obtaining indemnification agreements related to the securities and other derivative litigation discussed above. The complaints seek class certification, injunctive relief directing the defendants’ conduct in

15

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note E—Commitments and Contingencies, continued

connection with an alleged sale or auction of Concord, reasonable attorneys’ fees, experts’ fees and other costs and relief the court deems just and proper. These complaints have recently been consolidated into one action and transferred to the division of the Shelby County Circuit Court in which the Tennessee consolidated state-court derivative action is pending. Although these matters are in the very preliminary stages, Concord believes that the claims against its officers and directors are without merit and intends to vigorously contest these claims.

In June 2002 EFS National Bank, Concord, and John Doe Corporations were named as defendants in a purported class action lawsuit filed in the United States District Court for the Western District of Tennessee. The plaintiffs allege that Concord changed fees and charges without providing the requisite notice, charged merchants for transactions that never occurred, and failed to route payments in accordance with the plaintiffs’ instructions. The plaintiffs allege fraud, breach of contract, conversion, and causes of action under the Tennessee Consumer Protection Act and the Racketeer Influenced and Corrupt Organizations Act (RICO). The class plaintiffs seek to certify consists of all merchant customers of EFS National Bank, Concord, or John Doe Corporations, who were subject to charges that were not fully disclosed on their statements, charges for transactions which the merchant never undertook, and/or charges in excess of the amount agreed upon in their contracts. The lawsuit seeks unspecified compensatory and punitive damages, attorneys’ fees, and other relief. Concord has moved to dismiss all claims, but the court has not yet ruled on the motion. Although this matter is in the preliminary stages, Concord believes that the claims against it are without merit and intends to vigorously defend against all claims.

In September 2002 Concord was named as a defendant in a purported class action lawsuit filed in New Jersey state court. The plaintiff alleges that Concord wrongfully allowed and facilitated surcharges on electronic benefits transfer (EBT) withdrawals at ATMs within its network. The plaintiff’s four original claims were for violation of N.J.S.A. 44:10-75(c) (which concerns New Jersey’s EBT program), violation of New Jersey’s Consumer Fraud Act, negligence, and breach of contract (as an alleged third-party beneficiary). The plaintiff seeks certification of a class consisting of all New Jersey public assistance recipients participating in the New Jersey EBT program who, since March 24, 1997, withdrew their cash benefits from ATMs serviced and processed by Concord and incurred a surcharge per EBT withdrawal. The lawsuit seeks unspecified compensatory and punitive damages, attorneys’ fees, and injunctive and other relief. Concord moved to dismiss all four claims. At a hearing on March 7, 2003, the court found that the claim for violation of N.J.S.A. 44:10-75(c) should be dismissed with prejudice and that the claims for violation of New Jersey’s Consumer Fraud Act and for breach of contract should be dismissed without prejudice, but the court denied Concord’s motion to dismiss as to the negligence claim. On April 6, 2003 an Amended Complaint was filed alleging violation of New Jersey’s Consumer Fraud Act and negligence and seeking unspecified compensatory and punitive damages, attorneys’ fees, and injunctive and other relief. Although this matter is in the

16

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note E—Commitments and Contingencies, continued

preliminary stages, Concord believes that the claims against it are without merit and intends to vigorously defend against all claims.

In October 1996 Commonwealth Savings Bank (Commonwealth) filed a lawsuit against CoreStates Financial Corp. (CoreStates) in the Court of Common Pleas of Chester County, Pennsylvania. On August 6, 1997 Commonwealth added MONEY ACCESS SERVICE INC. (MASI), a Concord subsidiary, as a defendant therein, alleging that MASI is liable to Commonwealth for an amount in excess of $3.6 million based on claims arising out of alleged errors in the conversion of certain Meridian Bank branches to the MAC network and MASI processing at the time the branches were acquired by Commonwealth from CoreStates and CoreStates’ affiliates. Discovery is complete. The court has struck various reports and portions of reports submitted by Commonwealth’s damages experts. At a deposition in March 2000, Commonwealth’s expert testified to a damages calculation of $4.2 million. On November 15, 2002 CoreStates and MASI filed motions for partial summary judgment on all but a small part of Commonwealth’s remaining claim, which were denied on April 15, 2003. No trial date has been set. Concord believes that the claims against it are without merit and intends to continue to vigorously defend against all claims.

Concord is also a party to various routine lawsuits arising out of the conduct of its business, none of which is expected to have a material adverse effect upon Concord’s financial condition or results of operations.

Note F—Stockholders’ Equity

On August 5, 2002 Concord announced that its Board of Directors approved the repurchase of up to $250.0 million of its common stock. Under the repurchase plan, Concord may buy back shares of its outstanding stock from time to time either on the open market or through privately negotiated transactions. On November 7, 2002 Concord announced that its Board of Directors approved the repurchase of an additional $150.0 million of its common stock and on November 21, 2002 an additional $100.0 million was approved. The Board’s approvals bring the total potential repurchase to $500.0 million. As of March 31, 2003, a total of 26.9 million shares at an aggregate cost of $393.5 million had been purchased and retired pursuant to the repurchase plan. All repurchases have been made in the open market without the use of any derivative instruments. Concord immediately retires its common stock when purchased. Upon retirement, Concord reduces retained earnings for the excess of purchase price over par value.

17

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note G—Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31 (in thousands, except per share data):

	2003		2002
Numerator:
Net income	$	77,717	$	54,209
Denominator:
Denominator for basic earnings per share, weighted-average shares		486,466		508,699
Effect of dilutive stock options		8,692		21,573
Denominator for diluted earnings per share, weighted-average shares and assumed conversions		495,158		530,272
Basic earnings per share	$	0.16	$	0.11
Diluted earnings per share	$	0.16	$	0.10

The number of anti-dilutive stock options not included above were 18,815,844 shares and 6,538,000 shares for the three months ended March 31, 2003 and 2002, respectively.

Note H—Operations by Business Segment

Concord has two reportable segments: Network Services and Payment Services.

Network Services revenue consists of access and switching fees for network access, processing fees for driving and monitoring ATMs, and processing fees for managing debit card records, plus network fees charged to Concord by other networks and billed to its customers.

Revenue from Payment Services includes discount fees charged to merchants, which are a percentage of the dollar amount of each credit card or signature debit card transaction Concord processes, as well as a flat fee per transaction. These discount and flat fees constitute a bundled rate for the transaction authorization, processing, settlement, and funds transfer services Concord provides, plus the interchange fees charged to Concord by the card associations. Payment Services revenue also includes fees for debit card and EBT card transactions, check verification and authorization services, and sales of POS terminals from inventory. Debit card and EBT card transactions are similar to credit card transactions in that the bundled fee Concord charges to a merchant includes the transaction authorization, processing, settlement, and funds transfer services Concord provides, plus the interchange and network fees charged to Concord by the debit networks.

18

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note H—Operations by Business Segment, continued

Concord evaluates performance and allocates resources based on profit or loss from operations. Items classified as “Other” include amounts not identifiable with the two reported segments described above. The accounting policies of the reportable segments are the same as those described in “Note A—Significant Accounting Policies.”

Concord’s reportable segments are business units that are managed separately because they offer distinct products for different end users. No single customer of Concord accounts for a material portion of Concord’s revenue.

As previously disclosed, Concord had expected to organize a new segment during the 2003 fiscal year. The new Risk Management Services segment would provide software, information, and analysis to financial institutions, retailers, government service providers, and other businesses to assist in fraud prevention and reduction. In part as a result of Concord’s recently announced agreement and plan of merger with First Data, it has not yet determined if, or when, Concord will organize a Risk Management Services segment.

19

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note H—Operations by Business Segment, continued

Business segment information for the three months ended March 31, 2003 and 2002 is presented as follows (in thousands):

	Network Services		Payment Services		Other			Total
2003
Revenue	$	155,046	$	364,813	$	—		$	519,859
Cost of operations		65,566		311,895		—			377,461
Selling, general and administrative expenses		—		—		31,826			31,826
Merger, acquisition, restructuring and write-off charges		1,444		943		—			2,387
Investment income		—		—		14,710			14,710
Interest expense		—		—		2,369			2,369
Other income (expense), net		—		—		(541	)		(541	)
Income taxes		—		—		41,995			41,995
Minority interest in subsidiary		—		—		273			273
Net income (loss)	$	88,036	$	51,975	$	(62,294	)	$	77,717
	Network Services		Payment Services		Other			Total
2002
Revenue	$	145,195	$	276,486	$	—		$	421,681
Cost of operations		54,477		227,442		—			281,919
Selling, general and administrative expenses		—		—		24,782			24,782
Merger, acquisition, restructuring and write-off charges		11,778		35,722		—			47,500
Investment income		—		—		19,572			19,572
Interest expense		—		—		3,106			3,106
Other income (expense), net		—		—		526			526
Income taxes		—		—		29,988			29,988
Minority interest in subsidiary		—		—		275			275
Net income (loss)	$	78,940	$	13,322	$	(38,053	)	$	54,209

20

CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion together with our consolidated financial statements and the notes to those financial statements, which are included in this report. This report may contain or incorporate by reference forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements reflect management’s expectations, estimates, and assumptions, based on information available at the time of the statement or, with respect to any document incorporated by reference, available at the time that such document was prepared. Forward-looking statements include, but are not limited to, statements regarding future events, plans, goals, objectives, and expectations. The words “anticipate,” “ believe,” “estimate,” “expect,” “plan,” “intent,” “likely,” “will,” “should,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors, including those set forth below, which may cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by those statements.

Important factors that could cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by those statements include, but are not limited to: (i) the failure to successfully execute our corporate consolidation plans, (ii) the loss of key personnel or inability to attract additional qualified personnel, (iii) the loss of key customers or renewal of customer contracts on less favorable terms, (iv) increasing competition and its effect on our margins, (v) changes in card association rules and practices, (vi) the inability to remain current with rapid technological change, (vii) risks related to acquisitions, (viii) the imposition of additional state taxes, (ix) continued consolidation in the banking and retail industries, (x) business cycles and the credit risk of our merchant customers, (xi) the outcome of litigation involving VISA and MasterCard, (xii) utility and system interruptions or processing errors, (xiii) information theft, (xiv) susceptibility to merchant fraud and credit and fraud risk of entities we sponsor into networks, (xv) changes in card association fees or products, (xvi) automated teller machine market saturation or restrictions on surcharging, (xvii) rules and regulations governing financial institutions and other networks and changes in such rules and regulations, (xviii) the timing and extent of changes in interest rates, (xix) volatility of the price of our common stock, (xx) litigation risks, and (xxi) the timing and completion of the planned merger with First Data Corporation and the consequences of such merger are subject to uncertainty.

Important factors upon which the forward-looking statements presented in this report are premised with respect to the planned merger with First Data include, but are not limited to: (a) receipt of regulatory and shareholder approvals without unexpected delays or conditions, (b) timely implementation and execution of merger integration plans, (c) the ability to implement

21

CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

comprehensive plans for asset rationalization, (d) the successful integration of the IT systems and elimination of duplicative overhead and IT costs without unexpected costs or delays, (e) retention of customers and critical employees, (f) successfully offering First Data/Concord’s comprehensive product offering to the combined customer base, (g) continued growth at rates approximating recent levels for card-based payment transactions and other electronic processing services, (h) no unanticipated changes in laws, regulations, credit card association rules or other industry standards affecting First Data/Concord’s combined businesses which require significant product redevelopment efforts, reduce the market for or value of its products or render products obsolete, (i) no unanticipated developments relating to previously disclosed lawsuits or similar matters, (j) successful management of any impact from slowing economic conditions or consumer spending, (k) no catastrophic events that could impact First Data/Concord’s or its major customers’ operating facilities, communication systems and technology or that have a material negative impact on current economic conditions or levels of consumer spending, (l) no material breach of security of any of First Data/Concord’s combined systems, and (m) successfully managing the potential both for patent protection and patent liability in the context of the rapidly developing legal framework for expansive software patent protection. In addition, the ability of a combined First Data/Concord to achieve expected revenues, accretion and synergy savings also will be affected by the effects of competition (in particular the response to the proposed transaction in the marketplace), and the effects of general economic and other factors beyond the control of First Data and Concord.

We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time. See the cautionary statements included as Exhibit 99.4 to this quarterly report on Form 10-Q for a more detailed discussion of certain of the factors that could cause our actual results to differ materially from those included in the forward-looking statements.

Overview

Concord EFS, Inc. (Concord), a leading electronic transaction processor, provides the technology and network systems that make payments and other financial transactions faster, more efficient, and more secure than paper-based alternatives. As a vertically integrated service provider, we acquire, route, authorize, capture, and settle virtually all types of electronic payment and deposit access transactions for financial institutions and merchants nationwide.

On April 1, 2003 First Data Corporation (First Data) and Concord entered into a definitive agreement to merge in an all-stock transaction. Upon completion of the transaction, the combined company is expected to have approximately $10 billion in annual revenues with more than 31,000 employees worldwide.

22

CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

First Data will exchange 0.40 First Data common shares for every Concord common share. Upon completion of the transaction, based on the current shares outstanding, Concord stockholders are expected to own approximately 21% of the outstanding shares of First Data. The transaction is subject to approval by stockholders of Concord and First Data, various regulatory approvals and other customary closing conditions.

We organize our business into segments based upon the different products and services that we offer to the different industries we serve. Our reportable business segments include Network Services, which provides automated teller machine (ATM) processing, debit card processing, deposit risk management, and coast-to-coast debit network access principally for financial institutions, and Payment Services, which provides point of sale (POS) processing, settlement, and related services, with specialized systems focusing on supermarkets, major retailers, gas stations, convenience stores, restaurants, and trucking companies.

Network Services

Network Services provides the systems and processing that allow financial institutions to offer their customers access to their deposit accounts at ATMs and POS locations. Our network access services include transaction switching and settlement, plus related support services to our customers. We operate the network switch for the combined STAR_sm, MAC_®, and Cash Station^® debit networks that connects over 1.2 million ATMs and POS locations that accept debit cards issued by our member financial institutions. In addition, we provide ATM processing and monitoring, transaction routing and authorization via credit card associations and debit networks, deposit risk management, and card management, authorization, and fraud protection for PIN-secured debit and signature debit cards.

We have a number of significant customer contracts in our Network Services segment that by their terms terminate on December 31, 2004. We are actively pursuing the renewal of these customer contracts; however, there is no assurance that they will be renewed. If some or all of these contracts are not renewed or are renewed on less favorable terms than the current terms, there may be an adverse effect on our business, operating results, and financial condition. In addition, the loss of several of these large customers could have an additional adverse effect on our business, operating results, and financial condition due to the interdependency of participants in the STAR network. The loss of a significant number of STAR-branded cards, ATMs, or POS terminals could cause other financial institutions or merchants to evaluate their contractual participation in the STAR network.

23

CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Payment Services

Payment Services provides the systems and processing that allow retail clients to accept virtually any type of electronic payment, including all card types—credit, debit, electronic benefits transfer (EBT), prepaid, and proprietary cards—as well as a variety of check-based options. We provide POS processing, settlement, and related services, with specialized systems focusing on supermarkets, major retailers, gas stations, convenience stores, restaurants, and trucking companies. Our services are generally turn-key, providing merchants with POS terminal equipment, transaction routing and authorization, settlement, funds movement, and sponsorship into all credit card associations (such as VISA and MasterCard) and debit networks (such as STAR, Pulse, and NYCE).

As previously disclosed, we had expected to organize a new segment during the 2003 fiscal year. Our new Risk Management Services segment would provide software, information, and analysis to financial institutions, retailers, government service providers, and other businesses to assist in fraud prevention and reduction. In part as a result of our recently announced agreement and plan of merger with First Data, we have not yet determined if, or when, we will organize a Risk Management Services segment.

Consolidation Plans

In the second quarter of 2002 we initiated a consolidation plan and continued our consolidation initiatives to improve overall operating efficiencies. This plan includes contract terminations, exiting a non-strategic business, closing and consolidating certain facilities, and eliminating 24 positions. We incurred charges of $28.3 million related to this plan. We expect to complete this plan by June 30, 2003.

In the first quarter of 2002 we initiated a consolidation plan to continue improvements in overall operating efficiency and integrate recent acquisitions. This plan includes closing and consolidating certain facilities, exiting several non-strategic businesses, and eliminating approximately 165 positions. We incurred charges of $46.2 million related to this consolidation plan. The consolidation activities that were initiated in the first quarter of 2002 were substantially completed by March 31, 2003.

Components of Revenue and Expenses

Network Services and Payment Services are our two reportable business segments. These business units are managed separately because they offer distinct products for different end users. All of our revenue is generated and all of our assets are located in the United States, and no single customer of ours accounts for a material portion of our revenue. The majority of our revenue is tied to contracts with initial terms of between three and five years.

24

CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

A principal component of our revenue is derived from Network Services (29.8% and 34.4% in the three months ended March 31, 2003 and 2002, respectively). Network Services revenue consists of access and switching fees for network access, processing fees for driving and monitoring ATMs, and processing fees for managing debit card records, plus network fees charged to us by other networks and billed to our customers. We recognize this revenue at the time of the transaction.

The majority of our revenue (70.2% and 65.6% in the three months ended March 31, 2003 and 2002, respectively) is derived from transaction fees and other income related to Payment Services. Revenue from Payment Services includes discount fees charged to merchants, which are a percentage of the dollar amount of each credit card or signature debit card transaction we process, as well as a flat fee per transaction. These discount and flat fees constitute a bundled rate for the transaction authorization, processing, settlement, and funds transfer services we provide, plus the interchange fees charged to us by the card associations. The fee structure for smaller merchants includes the flat fee per transaction and a discount rate generally greater than the card association interchange rate. The fee structure for larger merchants includes the flat fee per transaction and a discount rate generally equal to the card association interchange rate. One result of having revenue partially based on a percentage of the transaction dollar amount is that lower ticket size causes a reduction in revenue. However, net income is not always correspondingly affected because transactions with large merchants, where the discount rate is generally equal to the card association interchange rate, have a direct dollar for dollar decrease in revenue and cost of operations.

Payment Services revenue also includes fees for debit card and EBT card transactions, check verification and authorization services, and sales of POS terminals from inventory. Debit card and EBT transactions are similar to credit card transactions in that the bundled fee we charge to a merchant includes the transaction authorization, processing, settlement, and funds transfer services we provide, plus the interchange and network fees charged to us by the debit networks. We recognize this revenue at the time of the transaction.

The following table lists revenue by segment for the three months ended March 31 (in millions):

	2003		2002
Network Services	$	155.1	$	145.2
Payment Services		364.8		276.5
Total	$	519.9	$	421.7

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CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table provides the impact of interchange fees on our reported revenue for the three months ended March 31 (in millions):

	Network Services		Payment Services		Total
2003
Revenue per the income statement	$	155.1	$	364.8	$	519.9
Interchange fees included in revenue		—		231.3		231.3
Revenue, net of interchange fees	$	155.1	$	133.5	$	288.6
2002
Revenue per the income statement	$	145.2	$	276.5	$	421.7
Interchange fees included in revenue		—		159.9		159.9
Revenue, net of interchange fees	$	145.2	$	116.6	$	261.8

Cost of operations includes all costs directly attributable to our providing services to our customers. In Payment Services the most significant component of cost of operations is interchange fees, which amounted to $231.3 million and $159.9 million in the three months ended March 31, 2003 and 2002, respectively. In most instances, the interchange fee is a percentage of the transaction amount and is charged to us by the credit card associations and debit networks. Cost of operations in both Network Services and Payment Services also includes telecommunications costs, personnel costs, occupancy costs, depreciation, and the cost of equipment leased and sold.

The following table lists cost of operations by segment for the three months ended March 31 (in millions):

	2003		2002
Network Services	$	65.6	$	54.5
Payment Services		311.9		227.4
Total	$	377.5	$	281.9

Our selling, general and administrative expenses include certain salaries, sales commissions, and other general administrative expenses, including legal fees, accounting fees, advertising, and marketing expenses. These costs are not allocated to the reportable segments.

Information regarding our business segments is included under the caption “Note H—Operations by Business Segment” in the notes to our consolidated financial statements and is incorporated herein by reference.

26

CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

The following table shows the percentage of revenue represented by certain items on our consolidated statements of income for the three months ended March 31:

	2003		2002
Revenue	100.0	%	100.0	%
Cost of operations	72.6		66.9
Selling, general and administrative expenses	6.1		5.9
Merger, acquisition, restructuring and write-off charges	0.5		11.2
Operating income	20.8		16.0
Net investment income	2.4		3.9
Other income (expense), net	(0.1	)	0.1
Income before taxes	23.1		20.0
Income taxes	8.1		7.1
Net income	15.0	%	12.9	%

First Quarter 2003 Compared to 2002

Revenue increased 23.3% to $519.9 million in the first quarter of 2003 from $421.7 million in the same period of 2002. In the first quarter of 2003 Network Services accounted for 29.8% of revenue, and Payment Services accounted for 70.2%. Network Services revenue increased 6.8% over the same period in 2002. Discounting the impact of our 2002 acquisitions, this increase was primarily attributable to a 12.7% increase in transaction volumes that was partially offset by favorable buyout and other fees in the first quarter of 2002 and continued price compression. The increased transaction volumes from new and existing network and processing customers resulted primarily from a 22.2% increase in STAR network POS transactions. Revenue from Payment Services increased 31.9% over the same period in 2002, due primarily to interchange price increases and a 31.2% increase in transaction volumes. Interchange fees in the first quarter of 2003 increased 44.7% or $71.4 million. Payment Services revenue, net of interchange fees, increased 14.5% or $16.9 million during this period due primarily to transaction growth from the addition of large lower margin merchants and the expansion of relationships with existing lower margin merchants. Payment Service revenue, net of interchange fees, is an alternative GAAP revenue recognition method that Concord believes is useful to investors because it enables comparison with certain industry peers. The transaction volume increase is the weighted average of a 29.7% increase in PIN-debit card transactions, a 28.4% increase in EBT card transactions, a 29.1% increase in credit card and signature debit transactions, and a 100% increase in other card transactions at new and existing merchants.

27

CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cost of operations increased in the first quarter of 2003 to 72.6% of revenue compared to 66.9% in the same period in 2002. This percentage increase was primarily due to increased transaction volumes in both Network Services and Payment Services and increased interchange fees in Payment Services. The increased interchange fees as a percentage of revenue resulted from the addition of large lower margin merchants, the expansion of relationships with existing large lower margin merchants, and price increases instituted by the debit and credit networks.

Selling, general and administrative expenses increased as a percentage of revenue to 6.1% in the first quarter of 2003 from 5.9% in the same period in 2002. Overall, selling, general and administrative expenses increased to $31.8 million in the first quarter of 2003 from $24.8 million in the same period in 2002. This increase was primarily attributable to increased sales and agent commissions, and advertising and marketing expenses.

Merger, acquisition, restructuring and write-off charges decreased to $2.4 million in the first quarter of 2003 from $47.5 million in the same period in 2002. The charges incurred in the first quarter of 2003 included $2.8 million representing professional fees related to the First Data merger offset by a $0.4 million change in estimate related to our first quarter 2002 consolidation plan. The charges incurred in the same period in 2002 included $22.5 million for the write-off of non-performing purchased merchant contracts, $7.9 million for the write-off of capitalized software and equipment no longer in use, and $17.1 million for other activities.

Operating income as a percentage of revenue increased to 20.8% in the first quarter of 2003 from 16.0% in the same period in 2002. This increase was due to a decrease of $45.1 million in merger, acquisition, restructuring, and write-off charges, and was partially offset by the addition of lower margin revenue from large merchants and the increase in selling, general and administrative expenses.

Other income (expense) decreased as a percentage of revenue to (0.1)% in the first quarter of 2003 from 0.1% in the same period in 2002. This decrease was the result of a charge for other than temporary impairment on securities available for sale in the first quarter of 2003.

Net investment income decreased as a percentage of revenue to 2.4% in the first quarter of 2003 from 3.9% in the same period in 2002. Overall, net investment income decreased 25.1% to $12.3 million in the first quarter of 2003 compared to $16.5 million in the same period in 2002. This decrease resulted primarily from lower rates of return and less cash available for investment due to the repurchase during 2002 of $393.5 million of our common stock.

Our overall tax rate decreased to 35.0% in the first quarter of 2003 compared to 35.5% in the same period in 2002.

Net income as a percentage of revenue increased to 15.0% in the first quarter of 2003 from 12.9% in the same period in 2002. The components of this increase are explained above.

28

CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

In the first quarter of 2003 we generated cash of $446.1 million from operating activities. Included in this amount is $284.3 million from the change in settlement receivables and payables. Fluctuations in settlement receivable and payable balances are affected primarily by the timing of settlements. If the end of a reporting period occurs on a Saturday or Sunday, we are due cash from the credit card associations that is payable to our merchants. If the end of a reporting period occurs on a Monday, we hold multiple days of cash that is payable to our merchants. This may inflate the period-end cash balance and cash provided by operating activities on our cash flow statement. Conversely, cash provided by operating activities may be adversely affected for the next reporting period depending on what day of the week the reporting period ends. All settlement cash balances are cleared in one or two business days. Inclusion of settlement in is not indicative of cash provided by operating activities unless settlement receivable and payable amounts are consistent from period to period.

We generally hold a significant amount of cash and securities because of the capital requirements of banking regulators and because of the liquidity requirements associated with conducting settlement operations and owning ATM machines. During the first quarter of 2003 we invested $0.7 million in securities available for sale, net of sales and maturities. As of March 31, 2003, we held securities with a market value of $1,119.6 million, including $179.8 million pledged as collateral for the Federal Home Loan Bank (FHLB) advances. We also invested $29.8 million in the first quarter of 2003 in capital expenditures, which were primarily for capitalized and purchased software and computer facilities and equipment.

We have historically financed our operations primarily through net cash provided by operating activities, the issuance of equity, and the exercise of stock options.

We have lines of credit with financial institutions totaling $20.0 million. As of March 31, 2003, no amounts were outstanding on these lines of credit. As of March 31, 2003, we had $180.4 million of advances outstanding to, and $6.0 million in unused lines of credit with, the FHLB. In the first quarter of 2003 we paid $17.6 million on FHLB advances, net of proceeds.

29

CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On August 5, 2002 we announced that our Board of Directors approved the repurchase of up to $250.0 million of our common stock. Under the repurchase plan, we may buy back shares of our outstanding stock from time to time either on the open market or through privately negotiated transactions. On November 7, 2002 we announced that our Board of Directors approved the repurchase of an additional $150.0 million of our common stock and on November 21, 2002 we announced that the repurchase of an additional $100.0 million of our common stock was approved. The Board’s approvals bring the total approved repurchase to $500.0 million. Due to the blackout period for fourth quarter earnings and the discussions and due diligence process with First Data, there were no shares repurchased during the first quarter of 2003.

During the third quarter of 2002, we entered into agreements for the financing, construction and leasing of a new corporate headquarters in Memphis, Tennessee with an estimated total cost of $55.0 million. The agreements qualify for operating lease accounting treatment under Statement of Financial Accounting Standards 13, “Accounting For Leases,” and, as such, the related assets and obligations are not recorded on our balance sheet. The term of the lease is seven years. Upon the completion of construction, which is expected in the fourth quarter of 2003, rent payments will begin and will be expensed in our statements of income. The anticipated minimum lease payments under these agreements are not material to us. At the end of the lease term, we have options which include the renewal of the lease for five years and a fixed-price purchase option on the land and facility. We have guaranteed the residual value of the land and facility at the end of the lease term to the owner / lessor. Under this guarantee, we would be responsible for a decline in fair value during the lease term up to an estimated maximum amount of approximately $45.9 million if we do not exercise our option to acquire the land and facility at the end of the term of the lease. We also hold separate agreements with similar provisions on properties we currently occupy in Wilmington, Delaware and Marietta, Georgia. At their inception, the combined total cost financed under these agreements was approximately $35.0 million and the combined residual guarantees totaled approximately $29.3 million. Based on current market conditions, we do not expect to be required to make payments under these residual value guarantees.

We are currently evaluating the provisions of the Financial Accounting Standards Board Interpretation 46, “Consolidation of Variable Interest Entities,” which will be applicable to the Memphis, Tennessee, Wilmington, Delaware, and Marietta, Georgia leases beginning July 1, 2003.

We believe that our cash and cash equivalents, securities, available credit (unused lines of credit with the FHLB and unsecured lines of credit with financial institutions), and cash generated from operations are adequate to meet our capital and operating needs. Concord EFS National Bank, our wholly owned financial institution subsidiary, exceeded all required regulatory capital ratios as of March 31, 2003.

30

CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We have a number of significant customer contracts in our Network Services segment that by their terms terminate on December 31, 2004. We are actively pursuing the renewal of these customer contracts; however, there is no assurance that they will be renewed. If some or all of these contracts are renewed, there may be material expenditures associated with the renewals.

Effects of Inflation

Our assets are primarily monetary, consisting of cash, assets convertible into cash, securities, and receivables. Because of their liquidity, these assets are not significantly affected by inflation; however, earnings and asset values are impacted by the interest rate environment. We believe that anticipated replacement costs of software, facilities, and equipment will not materially affect operations. However, the rate of inflation affects our expenses, such as those for employee compensation and telecommunications, which may not be readily recoverable in the price of our services.

31

CONCORD EFS, INC. AND SUBSIDIARIES

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

As of March 31, 2003 there were no changes with regard to market risk that would require further quantitative or qualitative disclosure. For our quantitative and qualitative disclosures about market risk for the fiscal year ended December 31, 2002, refer to Exhibit 13 to our annual report on Form 10-K, filed on March 27, 2003.

32

CONCORD EFS, INC. AND SUBSIDIARIES

CONTROLS AND PROCEDURES

Item 4.  Controls and Procedures

Based on their evaluation as of a date within 90 days prior to the filing of this quarterly report on Form 10-Q, our Co-Chief Executive Officers and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) are effective. As of the date of this quarterly report on Form 10-Q, there have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of such evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

33

CONCORD EFS, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION

Item 1.  Legal Proceedings

From time to time we are involved in various litigation matters arising out of the conduct of our business. Pending matters that are currently material to us were reported in our Annual Report on Form 10-K for the year ended December 31, 2002. There were no material developments in the litigation matters previously disclosed except for the developments discussed below.

As previously disclosed, a purported securities class action and two purported stockholder derivative actions are pending against us and certain of our current and former officers and directors, as well as other defendants. The following table lists certain information with respect to these actions, as of April 29, 2003:

Name of Proceeding	Filing Date +	Type of Case
In re Concord EFS, Inc. Derivative Litigation	September 9, 2002 *	Derivative
In re Concord EFS, Inc. Securities Litigation	September 6, 2002 **	Securities Fraud
In re Concord EFS, Inc. Derivative Litigation	September 13, 2002 **	Derivative

+ For consolidated matters, the filing date represents the date on which the first component case was filed.

* Pending in Tennessee state court in Memphis (Circuit Court)

** Pending in the United States District Court for the Western District of Tennessee

All of the above lawsuits raise allegations relating to our financial performance between March 2001 and September 2002, changes in the price of our common stock during that time, alleged failures to disclose material facts, and alleged insider trading and breaches of fiduciary duties by certain officers and certain directors. On April 21, 2003 the plaintiffs in the Tennessee state court derivative action filed a consolidated complaint which adds allegations that the defendants arranged the proposed merger with First Data at a below market price in return for indemnification against alleged prior wrong doing and for other benefits to them personally. The lawsuits seek unspecified compensatory and punitive damages, attorneys’ fees and other relief. In addition, the Tennessee state court derivative action seeks an injunction against the proposed merger. Although these matters are in the preliminary stages, we believe that the claims against us and our directors and officers are without merit and intend to vigorously defend against all claims.

Three lawsuits similar to those listed above have been voluntarily dismissed. The securities fraud lawsuit filed by Colbert Birnet, LP on September 12, 2002 in the United States District Court for the Western District of Tennessee was voluntarily dismissed on November 21, 2002; the derivative lawsuit filed by Dan Miller on October 24, 2002 in Delaware state court in New Castle County (Chancery Court) was voluntarily dismissed on January 23, 2003; and the

34

CONCORD EFS, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION

Item 1.  Legal Proceedings, continued

derivative lawsuit filed by Michael McClay on November 12, 2002 in Delaware state court in New Castle County (Chancery Court) was voluntarily dismissed on January 23, 2003.

On or about March 24, 2003 a purported class action complaint was filed in the Circuit Court of Tennessee for the Thirtieth Judicial District at Memphis by Joe Perritt, but was voluntarily dismissed without prejudice by Mr. Perritt shortly thereafter.

On or about April 2, 2003 a purported class action complaint was filed in the Chancery Court for Shelby County, Tennessee, by Barton K. O’Brien. The defendants are Concord, certain of our current and former officers and directors, and First Data. The complaint contains allegations regarding the individual defendants’ alleged insider trading and alleged violations of securities and other laws and alleges that this alleged misconduct reduced the consideration offered to the Concord’s shareholders in the proposed merger between Concord and First Data. The complaint seeks class certification, attorneys’ fees, expert fees, costs and other relief the court deems just and proper. The complaint seeks an order enjoining consummation of the merger, rescinding the merger if it is consummated and setting it aside or awarding rescissory damages to members of the putative class, and directing the defendants to account to the putative class members for unspecified damages. Although this matter is in the very preliminary stages, we believe that the claims are without merit and we intend to vigorously contest these claims.

On or about April 3 and 4, 2003 two purported class action complaints were filed in the Circuit Court of Tennessee for the Thirtieth Judicial District at Memphis by Charles Reed and Coralyn Stransky. The defendants in these actions (both of which closely parallel the allegation in the action originally filed by Mr. Perritt) are certain of our current and former officers and directors. The complaints generally allege breaches of the defendants’ duty of loyalty and due care in connection with the defendants’ alleged attempt to sell Concord without maximizing the value to shareholders in order to advance the defendants’ alleged individual interests in obtaining indemnification agreements related to the securities and other derivative litigation discussed above. The complaints seek class certification, injunctive relief directing the defendants’ conduct in connection with an alleged sale or auction of Concord, reasonable attorneys’ fees, experts’ fees and other costs and relief the court deems just and proper. These complaints have recently been consolidated into one action (In Re Concord EFS, Inc. Shareholder Litigation) and transferred to the division of the Shelby County Circuit Court in which the Tennessee consolidated state-court derivative action (In Re Concord EFS, Inc. Derivative Litigation, filed September 9, 2002) is pending. Although these matters are in the very preliminary stages, we believe that the claims against our officers and directors are without merit and we intend to vigorously contest these claims.

35

CONCORD EFS, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION

Item 1.    Legal Proceedings, continued

On September 30, 2002 Nancy Canning filed a purported class action lawsuit against Concord in New Jersey state court. The plaintiff alleges that we wrongfully allowed and facilitated surcharges on EBT withdrawals at ATMs within our network. The plaintiff’s four original claims were for violation of N.J.S.A. 44:10-75(c) (which concerns New Jersey’s EBT program), violation of New Jersey’s Consumer Fraud Act, negligence, and breach of contract (as an alleged third-party beneficiary). The plaintiff seeks certification of a class consisting of all New Jersey public assistance recipients participating in the New Jersey EBT program who, since March 24, 1997, withdrew their cash benefits from ATMs serviced and processed by Concord and incurred a surcharge per EBT withdrawal. The lawsuit seeks unspecified compensatory and punitive damages, attorneys’ fees, and injunctive and other relief. We moved to dismiss all four claims. At a hearing on March 7, 2003, the court found that the claim for violation of N.J.S.A. 44:10-75(c) should be dismissed with prejudice and that the claims for violation of New Jersey’s Consumer Fraud Act and breach of contract should be dismissed without prejudice, but the court denied our motion to dismiss as to the negligence claim. On April 6, 2003 Ms. Canning and Danielle Thomas filed an Amended Complaint alleging violation of New Jersey’s Consumer Fraud Act and negligence and seeking unspecified compensatory and punitive damages, attorneys’ fees, and injunctive and other relief. Although this matter is in the preliminary stages, we believe that the claims against us are without merit and intend to vigorously defend against all claims.

On October 31, 1996 Commonwealth Savings Bank (Commonwealth) filed a lawsuit against CoreStates Financial Corp. (CoreStates) in the Court of Common Pleas of Chester County, Pennsylvania. On August 6, 1997 Commonwealth added MONEY ACCESS SERVICE INC. (MASI), a subsidiary of ours, as a defendant therein, alleging that MASI is liable to Commonwealth for an amount in excess of $3.6 million based on claims arising out of alleged errors in the conversion of certain Meridian Bank branches to the MAC network and MASI processing at the time the branches were acquired by Commonwealth from CoreStates and CoreStates’ affiliates. Discovery is complete. The court has struck various reports and portions of reports submitted by Commonwealth’s damages experts. At a deposition in March 2000, Commonwealth’s expert testified to a damages calculation of $4.2 million. On November 15, 2002 CoreStates and MASI filed motions for partial summary judgment on all but a small part of Commonwealth’s remaining claim, which were denied on April 15, 2003. No trial date has been set. We believe that the claims against us are without merit and intend to continue to vigorously defend against all claims.

We are also a party to various routine lawsuits arising out of the conduct of our business, none of which is expected to have a material adverse effect upon our financial condition or results of operations.

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CONCORD EFS, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit No.	Description
2.1	Agreement and Plan of Merger among Concord EFS, Inc., First Data Corporation and Monaco Subsidiary Corporation, dated as of April 1, 2003, is incorporated herein by reference to Exhibit 2.1 to Concord’s current report on Form 8-K (File No. 001-31527), filed on April 2, 2003.
3.1	Restated Certificate of Incorporation of Concord EFS, Inc. is incorporated herein by reference to Exhibit 4.1 to Concord’s registration statement on Form S-8 (File No. 333-90678), filed on June 18, 2002.
3.2	Amended and Restated Bylaws of Concord EFS, Inc. are incorporated herein by reference to Exhibit 4.2 to Concord’s registration statement on Form S-8 (File No. 333-74215), filed on March 10, 1999.
10.1	Employment Agreement, dated as of January 21, 2003, between Concord EFS, Inc. and Paul W. Finch Jr., is incorporated by reference to Exhibit 10.24 to Concord’s annual report on Form 10-K (File No. 001-31527), filed on March 27, 2003.
10.2	Amendment to Employment Agreement, dated October 2, 2002, effective February 26, 2003, between Concord EFS, Inc. and Edward T. Haslam, is incorporated by reference to Exhibit 10.26 to Concord’s annual report on Form 10-K (File No. 001-31527), filed on March 27, 2003.
10.3	Second Amendment to Employment Agreement, dated as of February 1, 2003, between Star Systems, Inc., Concord EFS, Inc., and E. Miles Kilburn, is incorporated by reference to Exhibit 10.27 to Concord’s annual report on Form 10-K (File No. 001-31527), filed on March 27, 2003.
10.4	Employment Agreement, dated as of April 1, 2003, by and between Concord EFS, Inc. and Dan M. Palmer
10.5	Employment Agreement, dated as of April 1, 2003, by and between Concord EFS, Inc. and Edward Labry
99.1	Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2	Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.3	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.4	Cautionary Statements

37

CONCORD EFS, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K, continued

(b) Reports on Form 8-K

On April 2, 2003 we filed a current report on Form 8-K to file, under Item 5 of that form, our agreement and plan of merger with First Data and the related press release.

On April 29, 2003 we filed a current report on Form 8-K to file, under Item 9 of that form, our press release containing earnings information for our first quarter of 2003 ended March 31, 2003.

38

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 9, 2003	By:	/s/    DAN M. PALMER
		Dan M. Palmer Director and Co-Chief Executive Officer (Principal Executive Officer)
Date: May 9, 2003	By:	/s/    BOND R. ISAACSON
		Bond R. Isaacson Director and Co-Chief Executive Officer (Principal Executive Officer)
Date: May 9, 2003	By:	/s/    EDWARD T. HASLAM
		Edward T. Haslam Senior Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)

39

CERTIFICATION

I, Dan M. Palmer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Concord EFS, Inc. (the “registrant”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 9, 2003

By:	/s/    DAN M. PALMER
	Dan M. Palmer Co-Chief Executive Officer

40

CERTIFICATION

I, Bond R. Isaacson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Concord EFS, Inc. (the “registrant”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 9, 2003

By:	/s/    BOND R. ISAACSON
	Bond R. Isaacson Co-Chief Executive Officer

41

CERTIFICATION

I, Edward T. Haslam, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Concord EFS, Inc. (the “registrant”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 9, 2003

By:	/s/    EDWARD T. HASLAM
	Edward T. Haslam Chief Financial Officer

42

CONCORD EFS, INC. AND SUBSIDIARIES

FORM 10-Q LISTING OF EXHIBITS

Exhibit No.	Description
2.1	Agreement and Plan of Merger among Concord EFS, Inc., First Data Corporation and Monaco Subsidiary Corporation, dated as of April 1, 2003, is incorporated herein by reference to Exhibit 2.1 to Concord’s current report on Form 8-K (File No. 001-31527), filed on April 2, 2003.
3.1	Restated Certificate of Incorporation of Concord EFS, Inc. is incorporated herein by reference to Exhibit 4.1 to Concord’s registration statement on Form S-8 (File No. 333-90678), filed on June 18, 2002.
3.2	Amended and Restated Bylaws of Concord EFS, Inc. are incorporated herein by reference to Exhibit 4.2 to Concord’s registration statement on Form S-8 (File No. 333-74215), filed on March 10, 1999.
10.1	Employment Agreement, dated as of January 21, 2003, between Concord EFS, Inc. and Paul W. Finch Jr., is incorporated by reference to Exhibit 10.24 to Concord’s annual report on Form 10-K (File No. 001-31527), filed on March 27, 2003.
10.2	Amendment to Employment Agreement, dated October 2, 2002, effective February 26, 2003, between Concord EFS, Inc. and Edward T. Haslam, is incorporated by reference to Exhibit 10.26 to Concord’s annual report on Form 10-K (File No. 001-31527), filed on March 27, 2003.
10.3	Second Amendment to Employment Agreement, dated as of February 1, 2003, between Star Systems, Inc., Concord EFS, Inc., and E. Miles Kilburn, is incorporated by reference to Exhibit 10.27 to Concord’s annual report on Form 10-K (File No. 001-31527), filed on March 27, 2003.
10.4	Employment Agreement, dated as of April 1, 2003, by and between Concord EFS, Inc. and Dan M. Palmer
10.5	Employment Agreement, dated as of April 1, 2003, by and between Concord EFS, Inc. and Edward Labry
99.1	Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2	Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.3	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.4	Cautionary Statements

43

EX-10.4

Exhibit 10.4

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is entered into as of April 1, 2003 by and between Concord EFS, Inc., a Delaware corporation (the “Company”), and Dan M. Palmer (the “Executive”).

WHEREAS, the Company desires to employ the Executive to serve as Special Advisor to the Chief Executive Officer of First Data Corporation (“FDC”) following the consummation of the merger (the “Merger”) contemplated by the Agreement and Plan of Merger dated as of April 1, 2003 among the Company, FDC and Monaco Subsidiary Corporation, and the Executive desires to be employed in such position, upon the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows:

1.  Employment. This Agreement shall become effective concurrently with the completion of the Merger. Upon the consummation of the Merger, the Company will employ the Executive and the Executive hereby agrees to be employed by the Company upon the terms and subject to the conditions contained in this Agreement. The term of employment of the Executive by the Company pursuant to this Agreement shall commence upon the consummation of the Merger and, unless earlier terminated pursuant to Section 4, shall end 24 months after such date (such period referred to herein as the “Initial Term,” collectively with any extensions of this Agreement as the “Employment Period”), provided that such term(s) shall be automatically extended for additional thirty (30) day periods unless either party gives notice to the other party fifteen (15) days prior to the end of a term that such party does not wish to extend the Employment Period.

2.  Position and Duties; Responsibilities. The Company shall employ the Executive during the Employment Period as Special Advisor to the Chief Executive Officer of First Data Corporation after the Merger. During the Employment Period, the Executive shall perform faithfully and loyally and to the best of the Executive’s abilities the duties assigned to the Executive hereunder and shall devote the Executive’s full business time, attention and effort to the affairs of the Company and its subsidiaries and shall use the Executive’s best efforts to promote the interests of the Company and its subsidiaries. The Executive may engage in charitable, civic or community activities and, with the prior approval of the Board of Directors of the Company (the “Board”), may serve as a director of any other business corporation, provided that such activities or service do not interfere with the Executive’s duties hereunder or violate the terms of any of the covenants contained in Sections 6, 7 or 8 hereof. The Executive shall at all times abide by all policies and procedures of the Company as in effect or amended from time to time in the Company’s discretion.

3.  Compensation. (a)  Base Salary. During the Employment Period, the Company shall pay to the Executive a base salary at the rate of $650,000 per annum (“Base Salary”), payable in accordance with the Company’s normal payroll practices net of required or permitted withholdings and deductions.

(b)  Other Benefits. During the Employment Period, the Executive shall be eligible to participate in the Company’s health, disability and group life plans and such other employee benefit plans as the Executive and the Company may mutually agree from time to time. The Company reserves the right to alter, suspend, amend or discontinue any and all of its benefit plans and fringe benefits, in whole or in part, at any time with or without notice.

(c)  Expense Reimbursement. During the Employment Period, the Company shall reimburse the Executive, in accordance with the Company’s policies and procedures, for all proper expenses incurred by the Executive in the performance of the Executive’s duties hereunder.

4.  Termination. (a)  Death. Upon the death of the Executive, this Agreement shall automatically terminate and all rights of the Executive and the Executive’s heirs, executors and administrators to compensation and other benefits under this Agreement shall cease immediately, except that the Executive’s heirs, executors or administrators, as the case may be, shall be entitled to:

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(i)  accrued Base Salary and vacation pay, less required and authorized withholding and deductions, through and including the Executive’s date of death;

(ii)  other Employee Benefits to which the Executive was entitled on the date of death in accordance with the terms of the plans and programs of the Company; and

(iii)  payment equal to the Executive’s Base Salary at the Executive’s then current rate for 12 months, less required and authorized withholding and deductions, payable in accordance with the Company’s normal payroll practices or in a lump sum, as determined by the Company in its discretion.

(b)  Disability. The Company may, at its option, terminate this Agreement upon written notice to the Executive if the Executive, because of physical or mental incapacity or disability, fails to perform the essential functions of the Executive’s position, with or without reasonable accommodation, required of the Executive hereunder for a continuous period of 30 days. Upon such termination, all obligations of the Company hereunder shall cease immediately, except that the Executive shall be entitled to:

(i)  accrued Base Salary and vacation pay, less required and authorized withholding and deductions, through and including the effective date of the Executive’s termination of employment;

(ii)  other Employee Benefits to which the Executive is entitled upon termination of employment in accordance with the terms of the plans and programs of the Company; and

(iii)  payment equal to the Executive’s Base Salary at the Executive’s then current rate for 12 months, less required and authorized withholding and deductions, payable in installments in accordance with the Company’s normal payroll practices or in a lump sum, as determined by the Company in its discretion.

In the event of any dispute regarding the existence of the Executive’s incapacity or disability hereunder, the matter shall be resolved by the determination of a physician selected by the Board. The Executive shall submit to appropriate medical examinations for purposes of such determination.

(c)  Cause. (i)  The Company may, at its option, terminate the Executive’s employment under this Agreement for Cause (as hereinafter defined) upon written notice to the Executive (the “Cause Notice”). Any such termination for Cause shall be authorized by the Board. The Cause Notice shall state the particular action(s) or inaction(s) giving rise to termination for Cause. The Executive shall have five (5) days after the Cause Notice is given to cure the particular action(s) or inaction(s), to the extent a cure is possible. If the Executive so effects a cure to the satisfaction of the Board, the Cause Notice shall be deemed rescinded and of no force or effect.

(ii)  As used in this Agreement, the term “Cause” shall mean any one or more of the following:

(A)  any refusal by the Executive to perform the Executive’s duties under this Agreement or to perform specific directives of the Board or of the Chairman of the Board which are consistent with the scope and nature of the Executive’s duties and responsibilities as set forth herein;

(B)  any act of fraud, embezzlement or theft by the Executive in connection with the Executive’s duties hereunder or in the course of the Executive’s employment hereunder or any prior employment, or the Executive’s admission or conviction of a felony or of any crime involving moral turpitude, fraud, embezzlement, theft or misrepresentation;

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(C)  any gross negligence or willful misconduct of the Executive resulting in a loss to the Company or any of its subsidiaries, or damage to the reputation of the Company or any of its subsidiaries;

(D)  any breach by the Executive of any one or more of the covenants contained in Sections 6, 7 or 8 hereof; or

(E)  any violation of any statutory or common law duty of loyalty to the Company or any of its subsidiaries.

(iii)  The exercise of the right of the Company to terminate this Agreement pursuant to this Section 4(c) shall not abrogate the rights or remedies of the Company in respect of the breach giving rise to such termination.

(iv)  If the Company terminates the Executive’s employment for Cause, all obligations of the Company hereunder shall cease, except that the Executive shall be entitled only to the payments and benefits specified in Sections 4(a)(i) and 4(a)(ii) hereof.

(d)  Termination Without Cause. The Company may, at its option, terminate the Executive’s employment under this Agreement upon written notice to the Executive for any reason. However, if the Company terminates the Executive’s employment for any reason other than a reason set forth in Section 4(a), 4(b) or 4(c), all obligations of the Company hereunder shall cease immediately except that the Executive shall be (1) entitled to the payments and benefits specified in Section 4(a)(i) through 4(a)(iii) and (2) solely for purposes of continuing to have the right to exercise any vested and theretofore unexercised stock options, Executive shall be deemed to be actively employed through the 24-month period commencing upon the consummation of the Merger. If the Company terminates the Executive’s employment for any such reason, all obligations of the Company hereunder shall cease immediately, except that the Executive shall be entitled to the payments and benefits specified in Sections 4(a)(i) through 4(a)(iii) (inclusive); provided, however, that no termination without cause shall be effective unless, prior to such termination, the stock option plans pursuant to which all Company stock options held by the Executive have been issued permit (including, as and if necessary, by amendment of such plans subsequent to the date hereof) the exercise of all such options through the 24-month period commencing upon the consummation of the Merger notwithstanding any such termination; and provided further that, in the event that such plans provide for any such extension of the exercise period beyond the post-termination period provided for currently under such plans, such options shall be exercisable through the 24-month period commencing upon the consummation of the Merger and the additional 90-day period as provided under the terms of the applicable option plans.

(e)  Termination for Good Reason.

(i)  The Executive may terminate the Executive’s employment under this Agreement for Good Reason (as hereinafter defined) upon written notice to the Company (the “Good Reason Notice”). The Good Reason Notice shall state the particular action(s) or inaction(s) giving rise to the termination for Good Reason and must be delivered to the Company within thirty (30) days after the Executive becomes aware of such action(s) or inaction(s). The Company shall have thirty (30) days after the Good Reason Notice is given to cure the particular action(s) or inaction(s). If the Company so effects a cure, the Good Reason Notice shall be deemed rescinded and of no further force and effect. A termination for Good Reason shall be treated as a termination without cause by the Company under Section 4(d).

(ii)  As used in this Agreement, the term “Good Reason” shall mean any one or more of the following: (A) action by the Company resulting in a substantial diminution of the Executive’s titles or positions with the Company after the Merger, (B) any reduction in the Executive’s Base Salary or (C) any relocation of the Executive more than fifty (50) miles from Memphis, Tennessee.

(f)  Payments in Lieu of Other Severance Rights. The severance payments provided hereunder shall be made in lieu of any other severance payments under any severance agreement, plan, program or arrangement of the Company applicable to the Executive; provided that the sum of such payments shall not be less

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than the amount that otherwise would have been payable to the Executive under the Company’s severance policy, if any.

(g)  Cooperation & Indemnification. In the event of termination, the Executive agrees to reasonably assist and cooperate with the Company, its subsidiaries and/or their agents, officers, directors and employees (i) on matters relating to the tasks for which the Executive was responsible, or about which the Executive had knowledge, before cessation of employment or which may otherwise be within the knowledge of the Executive and (ii) exclusively in connection with any existing or future disputes, litigation or investigations of any nature brought by, against, or otherwise involving the Company in which the Company deems the Executive’s cooperation necessary. The Company will reimburse the Executive for reasonable out of pocket expenses incurred in connection therewith, in accordance with Company policy. Executive shall be eligible for such indemnification as is provided for by the bylaws of the Company.

5.  Federal and State Withholding. The Company shall deduct from the amounts payable to the Executive pursuant to this Agreement the amount of all required federal, state and local withholding taxes in accordance with the Executive’s Form W-4 on file with the Company, and all applicable federal employment taxes. The Executive shall be solely responsible for all other taxes associated with the amounts payable under the Agreement, except for the employer portion of any employment taxes as required under applicable law.

6.  Noncompetition; Nonsolicitation. (a)  General. The Executive acknowledges that in the course of the Executive’s employment with the Company, the Executive has and will become familiar with trade secrets and other confidential information concerning the Company and its affiliates and has established and will establish substantial relationships with certain customers of the Company and its affiliates. The Executive further acknowledges that the Executive’s services will be of special, unique and extraordinary value to the Company and its affiliates.

(b)  Noncompetition. The Executive agrees that during the period of the Executive’s employment with the Company, the period, if any, during which the Executive is receiving payments from the Company pursuant to Section 4, and for a period of 12 months thereafter (the “Noncompetition Period”), the Executive shall not in any manner, directly or indirectly, through any person, firm or corporation, alone or as a member of a partnership or as an officer, director, stockholder, investor or employee of or consultant to any other corporation or enterprise or otherwise, engage or be engaged, or assist any other person, firm, corporation or enterprise in engaging or being engaged, in the business of furnishing electronic funds transfer and related services consisting of automated teller machine, point of sale transactions and related services, data processing services related to terminal driving, debit or credit processing or card authorization and card production and other payment system services, or in any other business being conducted by the Company or any of its affiliates as of the termination of the Executive’s employment in which the Executive was involved during the Executive’s employment, in any geographic area in which the Company or any of its affiliates is then conducting such business. Notwithstanding the foregoing, the Noncompetition Period shall not last more than 36 months.

(c)  Nonsolicitation. The Executive further agrees that during the Noncompetition Period, the Executive shall not (i) in any manner, directly or indirectly, induce or attempt to induce any employee of the Company or any of its affiliates to terminate or abandon his or her employment for any purpose whatsoever or (ii) in connection with any business to which Section 6(b) applies, call on, service, solicit or otherwise do business with any customer (determined as of the effective date of the termination of Executive’s employment) of the Company or any of its affiliates.

(d)  Exceptions. Nothing in this Section 6 shall prohibit the Executive from being (i) a stockholder in a mutual fund or a diversified investment company or (ii) an owner of not more than two percent (2%) of the outstanding stock of any class of a corporation, any securities of which are publicly traded, so long as the Executive has no active participation in the business of such corporation.

(e)  Nondisparagement. Except as otherwise required by applicable law, the Executive agrees not to make, or cause to be made, any oral or written statement, or take any other action, which disparages, criticizes, damages the reputation of, or is hostile to, the Company or its administration, employees, management, officers, shareholders, agents and/or directors. In the event that the Executive violates this provision, including making statements to the media, it will be considered a material breach hereof.

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(f)  Tolling. The Noncompetition Period shall be extended for any period during which the Executive is in breach of this Section 6.

7.  Confidentiality. The Executive shall not, at any time during the Employment Period or thereafter, make use of or disclose, directly or indirectly, any (i) trade secret or other confidential or secret information of the Company or of any of its subsidiaries or (ii) other technical, business, marketing, proprietary, financial, customer, pricing or personnel information of the Company or of any of its subsidiaries not intended to be available to the public generally or to the competitors of the Company or to the competitors of any of its subsidiaries (“Confidential Information”), except to the extent that such Confidential Information (a) becomes a matter of public record or is published in a newspaper, magazine or other periodical or on electronic or other media available to the general public, other than as a result of any act or omission of the Executive, (b) is required to be disclosed by any law, regulation or order of any court or regulatory commission, department or agency, provided that the Executive gives prompt notice of such requirement to the Company to enable the Company to seek an appropriate protective order, or (c) is required to be used or disclosed by the Executive to perform properly the Executive’s duties under this Agreement. Promptly following the termination of the Employment Period, the Executive shall surrender to the Company all property of the Company and its subsidiaries and the actual and prospective customers of the Company and its subsidiaries that the Executive may then possess or have under the Executive’s control (together with all copies thereof), including but not limited to records, memoranda, notes, plans, reports, computer tapes and software and other documents and data which constitute Confidential Information.

8.  Intellectual Property and Developments. The Executive shall disclose promptly to the Company all inventions, discoveries, developments, improvements, processes, designs, works of authorship, ideas and related documentation that are written, discovered, made, conceived or first reduced to practice by the Executive (either solely or jointly with another or others) while employed by the Company (collectively, “Development(s)”), whether or not they are patentable, copyrightable or subject to trade secret protection. The Executive shall not, at any time during or after the Executive’s employment, have or claim any right, title or interest in or to, or disclose to any third party, any Development(s) or any trade name, patent, trademark, copyright, intellectual property or other proprietary rights belonging to the Company. All Development(s) shall be the sole and exclusive property of the Company and shall be “work made for hire” as that term is defined in the copyright laws of the United States, not works of joint ownership. In any event, to the extent that any Development(s) may not be held to be work made for hire, or to the extent that the Executive has any right, title or interest in or to the Development(s) (including without limitation patent rights, copyrights, trade secrets or other proprietary rights), the Executive hereby assigns to the Company (without any further consideration) all such rights, title, and interest in and to the Development(s). The Executive shall cooperate fully with the Company during the Executive’s employment and thereafter in the securing of any trade name, patent, trademark, copyright or intellectual property protection or other similar rights in the United States and in foreign countries and shall give evidence and testimony and execute and deliver to the Company all papers reasonably requested by any of them in connection therewith.

9.  Remedies. (a)  Acknowledgment. The Executive acknowledges that the provisions contained in Sections 6, 7, and 8 are reasonable and necessary because of the substantial harm that could be caused to the Company by the Executive engaging in any of the prohibited or restricted activities contained in such Sections. The Executive represents and warrants that the prohibitions and restrictions contained in Sections 6, 7, and 8 will not impair the Executive’s ability to earn a livelihood because the Executive has the ability and experience to engage in employment that will not breach or violate the prohibitions and restrictions contained in such Sections.

(b)  Injunctive Relief. The parties hereto agree that the Company and its subsidiaries would be damaged irreparably in the event that any provision of Section 6, 7, and 8 of this Agreement were not performed in accordance with its terms or were otherwise breached and that money damages would be an inadequate remedy for any such nonperformance or breach. Accordingly, the Company and its successors and permitted assigns shall be entitled, in addition to other rights and remedies existing in their favor, to an injunction or injunctions to prevent any breach or threatened breach of any of such provisions and to enforce such provisions specifically (without posting a bond or other security). The Executive agrees that the Executive will submit to the personal jurisdiction of the courts of the State of Delaware in any action by the Company to enforce an arbitration award against the Executive or to obtain interim injunctive or other relief pending an arbitration decision.

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(c)  Reformation. The Executive and the Company agree that in the event any of the prohibitions or restrictions set forth in Sections 6, 7, and 8 of this Agreement are found by a court of final and competent jurisdiction to be unreasonable and accordingly unfavorable, it is the purpose and intent of the parties that any prohibitions or restrictions be deemed modified or limited so that, as modified or limited, such prohibitions or restrictions may be enforced to the fullest extent permitted by law.

10.  Representations. The Executive represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by the Executive does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which the Executive is a party or by which the Executive is bound, (ii) the Executive is not a party to or bound by any employment agreement, noncompetition agreement or confidentiality agreement with any other person or entity that will interfere with Executive’s ability to fulfill his obligations under this Agreement and (iii) upon the execution of this Agreement by the Company and the Executive, this Agreement shall be the valid and binding obligation of the Executive, enforceable in accordance with its terms.

11.  Survival. Sections 4 through 19 of this Agreement shall survive and continue in full force and effect in accordance with their respective terms, notwithstanding any termination of the Employment Period.

12.  Arbitration. Except as otherwise set forth in Section 9 hereof, any dispute or controversy between the Company and the Executive, whether arising out of or relating to this Agreement, the breach of this Agreement, or otherwise, shall be settled by arbitration in Delaware administered by the American Arbitration Association, with any such dispute or controversy arising under this Agreement being so administered in accordance with its Commercial Rules then in effect, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall have the authority to award any remedy or relief that a court of competent jurisdiction could order or grant, including, without limitation, the issuance of an injunction. Except as necessary in court proceedings to enforce this arbitration provision or an award rendered hereunder, or to obtain interim relief, neither a party nor an arbitrator may disclose the existence, content or results of any arbitration hereunder without the prior written consent of the Company and the Executive. The Company and the Executive acknowledge that this Agreement evidences a transaction involving interstate commerce. Notwithstanding any choice of law provision included in this Agreement, the United States Federal Arbitration Act shall govern the interpretation and enforcement of this arbitration provision.

13.  Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed given when (a) delivered personally or by overnight courier to the following address of the other party hereto (or such other address for such party as shall be specified by notice given pursuant to this Section) or (b) sent by facsimile to the following facsimile number of the other party hereto (or such other facsimile number for such party as shall be specified by notice given pursuant to this Section), with the confirmatory copy delivered by overnight courier to the address of such party pursuant to this Section 13:

If to the Company, to:

Office of the General Counsel

Concord EFS, Inc.

1100 Carr Road

Wilmington, DE 19809

If to the Executive, to:

Dan M. Palmer

2764 Johnson Rd

Germantown, TN 38139

14.  Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under applicable law or rule in any jurisdiction, such invalidity,

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illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement or the validity, legality or enforceability of such provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

15.  Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or between the parties, written or oral, which may have related in any manner to the subject matter hereof.

16.  Successors and Assigns. This Agreement shall be enforceable by the Executive and the Executive’s heirs, executors, administrators and legal representatives, and by the Company and its successors and assigns. The Executive may not assign this Agreement and any such assignment shall be null and void. The Company shall have the right to assign the Agreement.

17.  Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware without regard to principles of conflict of laws.

18.  Amendment and Waiver. The provisions of this Agreement may be amended or waived only by the written agreement of the Company and the Executive, and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall affect the validity, binding effect or enforceability of this Agreement.

19.  Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed to be an original and both of which together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

CONCORD EFS, INC.

By: /s/    J. Richard Buchignani

Title: General Counsel and Vice Chairman

DAN M. PALMER

/s/    Dan M. Palmer

EX-10.5

Exhibit 10.5

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is entered into as of April 1, 2003 by and between Concord EFS, Inc., a Delaware corporation (the “Company”), and Edward Labry (the “Executive”).

WHEREAS, the Company desires to employ the Executive to serve as Special Advisor to the Chief Executive Officer of First Data Corporation (“FDC”) following the consummation of the merger (the “Merger”) contemplated by the Agreement and Plan of Merger dated as of April 1, 2003 among the Company, FDC and Monaco Subsidiary Corporation, and the Executive desires to be employed by the Company, upon the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows:

1.  Employment. This Agreement shall become effective concurrently with the completion of the Merger. Upon consummation of the Merger, the Company will employ the Executive and the Executive hereby agrees to be employed by the Company upon the terms and subject to the conditions contained in this Agreement. The term of employment of the Executive by the Company pursuant to this Agreement shall commence upon the consummation of the Merger and, unless earlier terminated pursuant to Section 4, shall end 24 months after such date (such period referred to herein as the “Initial Term,” collectively with any extensions of this Agreement as the “Employment Period”), provided that such term(s) shall be automatically extended for additional thirty (30) day periods unless either party gives notice to the other party fifteen (15) days prior to the end of a term that such party does not wish to extend the Employment Period.

2.  Position and Duties; Responsibilities. The Company shall employ the Executive during the Employment Period as Special Advisor to the Chief Executive Officer of FDC after the Merger. During the Employment Period, the Executive shall perform faithfully and loyally and to the best of the Executive’s abilities the duties assigned to the Executive hereunder and shall devote the Executive’s full business time, attention and effort to the affairs of the Company and its subsidiaries and shall use the Executive’s best efforts to promote the interests of the Company and its subsidiaries. The Executive may engage in charitable, civic or community activities and, with the prior approval of the Board of Directors of the Company (the “Board”), may serve as a director of any other business corporation, provided that such activities or service do not interfere with the Executive’s duties hereunder or violate the terms of any of the covenants contained in Sections 6, 7 or 8 hereof. The Executive shall at all times abide by all policies and procedures of the Company as in effect or amended from time to time in the Company’s discretion.

3.  Compensation. (a)  Base Salary. During the Employment Period, the Company shall pay to the Executive a base salary at the rate of $750,000 per annum (“Base Salary”), payable in accordance with the Company’s normal payroll practices net of required or permitted withholdings and deductions.

(b)  Other Benefits. During the Employment Period, the Executive shall be eligible to participate in the Company’s health, disability and group life plans and such other employee benefit plans as the Executive and the Company may mutually agree from time to time. The Company reserves the right to alter, suspend, amend or discontinue any and all of its benefit plans and fringe benefits, in whole or in part, at any time with or without notice.

(c)  Expense Reimbursement. During the Employment Period, the Company shall reimburse the Executive, in accordance with the Company’s policies and procedures, for all proper expenses incurred by the Executive in the performance of the Executive’s duties hereunder.

4.  Termination. (a)  Death. Upon the death of the Executive, this Agreement shall automatically terminate and all rights of the Executive and the Executive’s heirs, executors and administrators to compensation and other benefits under this Agreement shall cease immediately, except that the Executive’s heirs, executors or administrators, as the case may be, shall be entitled to:

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(i)  accrued Base Salary and vacation pay, less required and authorized withholding and deductions, through and including the Executive’s date of death;

(ii)  other Employee Benefits to which the Executive was entitled on the date of death in accordance with the terms of the plans and programs of the Company; and

(iii)  payment equal to the Executive’s Base Salary at the Executive’s then current rate for 12 months, less required and authorized withholding and deductions, payable in accordance with the Company’s normal payroll practices or in a lump sum, as determined by the Company in its discretion.

(b)  Disability. The Company may, at its option, terminate this Agreement upon written notice to the Executive if the Executive, because of physical or mental incapacity or disability, fails to perform the essential functions of the Executive’s position, with or without reasonable accommodation, required of the Executive hereunder for a continuous period of 30 days. Upon such termination, all obligations of the Company hereunder shall cease immediately, except that the Executive shall be entitled to:

(i)  accrued Base Salary and vacation pay, less required and authorized withholding and deductions, through and including the effective date of the Executive’s termination of employment;

(ii)  other Employee Benefits to which the Executive is entitled upon termination of employment in accordance with the terms of the plans and programs of the Company; and

(iii)  payment equal to the Executive’s Base Salary at the Executive’s then current rate for 12 months, less required and authorized withholding and deductions, payable in installments in accordance with the Company’s normal payroll practices or in a lump sum, as determined by the Company in its discretion.

In the event of any dispute regarding the existence of the Executive’s incapacity or disability hereunder, the matter shall be resolved by the determination of a physician selected by the Board. The Executive shall submit to appropriate medical examinations for purposes of such determination.

(c)  Cause. (i)  The Company may, at its option, terminate the Executive’s employment under this Agreement for Cause (as hereinafter defined) upon written notice to the Executive (the “Cause Notice”). Any such termination for Cause shall be authorized by the Board. The Cause Notice shall state the particular action(s) or inaction(s) giving rise to termination for Cause. The Executive shall have five (5) days after the Cause Notice is given to cure the particular action(s) or inaction(s), to the extent a cure is possible. If the Executive so effects a cure to the satisfaction of the Board, the Cause Notice shall be deemed rescinded and of no force or effect.

(ii)  As used in this Agreement, the term “Cause” shall mean any one or more of the following:

(A)  any refusal by the Executive to perform the Executive’s duties under this Agreement or to perform specific directives of the Board or of the Chairman of the Board which are consistent with the scope and nature of the Executive’s duties and responsibilities as set forth herein;

(B)  any act of fraud, embezzlement or theft by the Executive in connection with the Executive’s duties hereunder or in the course of the Executive’s employment hereunder or any prior employment, or the Executive’s admission or conviction of a felony or of any crime involving moral turpitude, fraud, embezzlement, theft or misrepresentation;

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(C)  any gross negligence or willful misconduct of the Executive resulting in a loss to the Company or any of its subsidiaries, or damage to the reputation of the Company or any of its subsidiaries;

(D)  any breach by the Executive of any one or more of the covenants contained in Sections 6, 7 or 8 hereof; or

(E)  any violation of any statutory or common law duty of loyalty to the Company or any of its subsidiaries.

(iii)  The exercise of the right of the Company to terminate this Agreement pursuant to this Section 4(c) shall not abrogate the rights or remedies of the Company in respect of the breach giving rise to such termination.

(iv)  If the Company terminates the Executive’s employment for Cause, all obligations of the Company hereunder shall cease, except that the Executive shall be entitled only to the payments and benefits specified in Sections 4(a)(i) and 4(a)(ii) hereof.

(d)  Termination Without Cause. The Company may, at its option, terminate the Executive’s employment under this Agreement upon written notice to the Executive for any reason. However, if the Company terminates the Executive’s employment for any reason other than a reason set forth in Section 4(a), 4(b) or 4(c), all obligations of the Company hereunder shall cease immediately except that the Executive shall be (1) entitled to the payments and benefits specified in Section 4(a)(i) through 4(a)(iii) and (2) solely for purposes of continuing to have the right to exercise any vested and theretofore unexercised stock options, Executive shall be deemed to be actively employed through the 24-month period commencing upon the consummation of the Merger. If the Company terminates the Executive’s employment for any such reason, all obligations of the Company hereunder shall cease immediately, except that the Executive shall be entitled to the payments and benefits specified in Sections 4(a)(i) through 4(a)(iii) (inclusive); provided, however, that no termination without cause shall be effective unless, prior to such termination, the stock option plans pursuant to which all Company stock options held by the Executive have been issued permit (including, as and if necessary, by amendment of such plans subsequent to the date hereof) the exercise of all such options through the 24-month period commencing upon the consummation of the Merger notwithstanding any such termination; and provided further that, in the event that such plans provide for any such extension of the exercise period beyond the post-termination period provided for currently under such plans, such options shall be exercisable through the 24-month period commencing upon the consummation of the Merger and the additional 90-day period as provided under the terms of the applicable option plans.

(e)  Termination for Good Reason.

(i)  The Executive may terminate the Executive’s employment under this Agreement for Good Reason (as hereinafter defined) upon written notice to the Company (the “Good Reason Notice”). The Good Reason Notice shall state the particular action(s) or inaction(s) giving rise to the termination for Good Reason and must be delivered to the Company within thirty (30) days after the Executive becomes aware of such action(s) or inaction(s). The Company shall have thirty (30) days after the Good Reason Notice is given to cure the particular action(s) or inaction(s). If the Company so effects a cure, the Good Reason Notice shall be deemed rescinded and of no further force and effect. A termination for Good Reason shall be treated as a termination without cause by the Company under Section 4(d).

(ii)  As used in this Agreement, the term “Good Reason” shall mean any one or more of the following: (A) action by the Company resulting in a substantial diminution of the Executive’s titles or positions with the Company after the Merger, (B) any reduction in the Executive’s Base Salary or (C) any relocation of the Executive more than fifty (50) miles from Memphis, Tennessee.

(f)  Payments in Lieu of Other Severance Rights. The severance payments provided hereunder shall be made in lieu of any other severance payments under any severance agreement, plan, program or arrangement of the Company applicable to the Executive; provided that the sum of such payments shall not be less

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than the amount that otherwise would have been payable to the Executive under the Company’s severance policy, if any.

(g)  Cooperation & Indemnification. In the event of termination, the Executive agrees to reasonably assist and cooperate with the Company, its subsidiaries and/or their agents, officers, directors and employees (i) on matters relating to the tasks for which the Executive was responsible, or about which the Executive had knowledge, before cessation of employment or which may otherwise be within the knowledge of the Executive and (ii) exclusively in connection with any existing or future disputes, litigation or investigations of any nature brought by, against, or otherwise involving the Company in which the Company deems the Executive’s cooperation necessary. The Company will reimburse the Executive for reasonable out of pocket expenses incurred in connection therewith, in accordance with Company policy. Executive shall be eligible for such indemnification as is provided for by the bylaws of the Company.

5.  Federal and State Withholding. The Company shall deduct from the amounts payable to the Executive pursuant to this Agreement the amount of all required federal, state and local withholding taxes in accordance with the Executive’s Form W-4 on file with the Company, and all applicable federal employment taxes. The Executive shall be solely responsible for all other taxes associated with the amounts payable under the Agreement, except for the employer portion of any employment taxes as required under applicable law.

6.  Noncompetition; Nonsolicitation. (a)  General. The Executive acknowledges that in the course of the Executive’s employment with the Company, the Executive has and will become familiar with trade secrets and other confidential information concerning the Company and its affiliates and has established and will establish substantial relationships with certain customers of the Company and its affiliates. The Executive further acknowledges that the Executive’s services will be of special, unique and extraordinary value to the Company and its affiliates.

(b)  Noncompetition. The Executive agrees that during the period of the Executive’s employment with the Company, the period, if any, during which the Executive is receiving payments from the Company pursuant to Section 4, and for a period of 12 months thereafter (the “Noncompetition Period”), the Executive shall not in any manner, directly or indirectly, through any person, firm or corporation, alone or as a member of a partnership or as an officer, director, stockholder, investor or employee of or consultant to any other corporation or enterprise or otherwise, engage or be engaged, or assist any other person, firm, corporation or enterprise in engaging or being engaged, in the business of furnishing electronic funds transfer and related services consisting of automated teller machine, point of sale transactions and related services, data processing services related to terminal driving, debit or credit processing or card authorization and card production and other payment system services, or in any other business being conducted by the Company or any of its affiliates as of the termination of the Executive’s employment in which the Executive was involved during the Executive’s employment, in any geographic area in which the Company or any of its affiliates is then conducting such business. Notwithstanding the foregoing, the Noncompetition Period shall not last more than 36 months.

(c)  Nonsolicitation. The Executive further agrees that during the Noncompetition Period, the Executive shall not (i) in any manner, directly or indirectly, induce or attempt to induce any employee of the Company or any of its affiliates to terminate or abandon his or her employment for any purpose whatsoever or (ii) in connection with any business to which Section 6(b) applies, call on, service, solicit or otherwise do business with any customer (determined as of the effective date of the termination of Executive’s employment) of the Company or any of its affiliates.

(d)  Exceptions. Nothing in this Section 6 shall prohibit the Executive from being (i) a stockholder in a mutual fund or a diversified investment company or (ii) an owner of not more than two percent (2%) of the outstanding stock of any class of a corporation, any securities of which are publicly traded, so long as the Executive has no active participation in the business of such corporation.

(e)  Nondisparagement. Except as otherwise required by applicable law, the Executive agrees not to make, or cause to be made, any oral or written statement, or take any other action, which disparages, criticizes, damages the reputation of, or is hostile to, the Company or its administration, employees, management, officers, shareholders, agents and/or directors. In the event that the Executive violates this provision, including making statements to the media, it will be considered a material breach hereof.

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(f)  Tolling. The Noncompetition Period shall be extended for any period during which the Executive is in breach of this Section 6.

7.  Confidentiality. The Executive shall not, at any time during the Employment Period or thereafter, make use of or disclose, directly or indirectly, any (i) trade secret or other confidential or secret information of the Company or of any of its subsidiaries or (ii) other technical, business, marketing, proprietary, financial, customer, pricing or personnel information of the Company or of any of its subsidiaries not intended to be available to the public generally or to the competitors of the Company or to the competitors of any of its subsidiaries (“Confidential Information”), except to the extent that such Confidential Information (a) becomes a matter of public record or is published in a newspaper, magazine or other periodical or on electronic or other media available to the general public, other than as a result of any act or omission of the Executive, (b) is required to be disclosed by any law, regulation or order of any court or regulatory commission, department or agency, provided that the Executive gives prompt notice of such requirement to the Company to enable the Company to seek an appropriate protective order, or (c) is required to be used or disclosed by the Executive to perform properly the Executive’s duties under this Agreement. Promptly following the termination of the Employment Period, the Executive shall surrender to the Company all property of the Company and its subsidiaries and the actual and prospective customers of the Company and its subsidiaries that the Executive may then possess or have under the Executive’s control (together with all copies thereof), including but not limited to records, memoranda, notes, plans, reports, computer tapes and software and other documents and data which constitute Confidential Information.

8.  Intellectual Property and Developments. The Executive shall disclose promptly to the Company all inventions, discoveries, developments, improvements, processes, designs, works of authorship, ideas and related documentation that are written, discovered, made, conceived or first reduced to practice by the Executive (either solely or jointly with another or others) while employed by the Company (collectively, “Development(s)”), whether or not they are patentable, copyrightable or subject to trade secret protection. The Executive shall not, at any time during or after the Executive’s employment, have or claim any right, title or interest in or to, or disclose to any third party, any Development(s) or any trade name, patent, trademark, copyright, intellectual property or other proprietary rights belonging to the Company. All Development(s) shall be the sole and exclusive property of the Company and shall be “work made for hire” as that term is defined in the copyright laws of the United States, not works of joint ownership. In any event, to the extent that any Development(s) may not be held to be work made for hire, or to the extent that the Executive has any right, title or interest in or to the Development(s) (including without limitation patent rights, copyrights, trade secrets or other proprietary rights), the Executive hereby assigns to the Company (without any further consideration) all such rights, title, and interest in and to the Development(s). The Executive shall cooperate fully with the Company during the Executive’s employment and thereafter in the securing of any trade name, patent, trademark, copyright or intellectual property protection or other similar rights in the United States and in foreign countries and shall give evidence and testimony and execute and deliver to the Company all papers reasonably requested by any of them in connection therewith.

9.  Remedies. (a)  Acknowledgment. The Executive acknowledges that the provisions contained in Sections 6, 7, and 8 are reasonable and necessary because of the substantial harm that could be caused to the Company by the Executive engaging in any of the prohibited or restricted activities contained in such Sections. The Executive represents and warrants that the prohibitions and restrictions contained in Sections 6, 7, and 8 will not impair the Executive’s ability to earn a livelihood because the Executive has the ability and experience to engage in employment that will not breach or violate the prohibitions and restrictions contained in such Sections.

(b)  Injunctive Relief. The parties hereto agree that the Company and its subsidiaries would be damaged irreparably in the event that any provision of Section 6, 7, and 8 of this Agreement were not performed in accordance with its terms or were otherwise breached and that money damages would be an inadequate remedy for any such nonperformance or breach. Accordingly, the Company and its successors and permitted assigns shall be entitled, in addition to other rights and remedies existing in their favor, to an injunction or injunctions to prevent any breach or threatened breach of any of such provisions and to enforce such provisions specifically (without posting a bond or other security). The Executive agrees that the Executive will submit to the personal jurisdiction of the courts of the State of Delaware in any action by the Company to enforce an arbitration award against the Executive or to obtain interim injunctive or other relief pending an arbitration decision.

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(c)  Reformation. The Executive and the Company agree that in the event any of the prohibitions or restrictions set forth in Sections 6, 7, and 8 of this Agreement are found by a court of final and competent jurisdiction to be unreasonable and accordingly unfavorable, it is the purpose and intent of the parties that any prohibitions or restrictions be deemed modified or limited so that, as modified or limited, such prohibitions or restrictions may be enforced to the fullest extent permitted by law.

10.  Representations. The Executive represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by the Executive does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which the Executive is a party or by which the Executive is bound, (ii) the Executive is not a party to or bound by any employment agreement, noncompetition agreement or confidentiality agreement with any other person or entity that will interfere with Executive’s ability to fulfill his obligations under this Agreement and (iii) upon the execution of this Agreement by the Company and the Executive, this Agreement shall be the valid and binding obligation of the Executive, enforceable in accordance with its terms.

11.  Survival. Sections 4 through 19 of this Agreement shall survive and continue in full force and effect in accordance with their respective terms, notwithstanding any termination of the Employment Period.

12.  Arbitration. Except as otherwise set forth in Section 9 hereof, any dispute or controversy between the Company and the Executive, whether arising out of or relating to this Agreement, the breach of this Agreement, or otherwise, shall be settled by arbitration in Delaware administered by the American Arbitration Association, with any such dispute or controversy arising under this Agreement being so administered in accordance with its Commercial Rules then in effect, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall have the authority to award any remedy or relief that a court of competent jurisdiction could order or grant, including, without limitation, the issuance of an injunction. Except as necessary in court proceedings to enforce this arbitration provision or an award rendered hereunder, or to obtain interim relief, neither a party nor an arbitrator may disclose the existence, content or results of any arbitration hereunder without the prior written consent of the Company and the Executive. The Company and the Executive acknowledge that this Agreement evidences a transaction involving interstate commerce. Notwithstanding any choice of law provision included in this Agreement, the United States Federal Arbitration Act shall govern the interpretation and enforcement of this arbitration provision.

13.  Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed given when (a) delivered personally or by overnight courier to the following address of the other party hereto (or such other address for such party as shall be specified by notice given pursuant to this Section) or (b) sent by facsimile to the following facsimile number of the other party hereto (or such other facsimile number for such party as shall be specified by notice given pursuant to this Section), with the confirmatory copy delivered by overnight courier to the address of such party pursuant to this Section 13:

If to the Company, to:

Office of the General Counsel

Concord EFS, Inc.

1100 Carr Road

Wilmington, DE 19809

If to the Executive, to:

Edward Labry

230 East Cherry Circle

Memphis, TN 38117

14.  Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under applicable law or rule in any jurisdiction, such invalidity,

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illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement or the validity, legality or enforceability of such provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

15.  Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or between the parties, written or oral, which may have related in any manner to the subject matter hereof.

16.  Successors and Assigns. This Agreement shall be enforceable by the Executive and the Executive’s heirs, executors, administrators and legal representatives, and by the Company and its successors and assigns. The Executive may not assign this Agreement and any such assignment shall be null and void. The Company shall have the right to assign the Agreement.

17.  Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware without regard to principles of conflict of laws.

18.  Amendment and Waiver. The provisions of this Agreement may be amended or waived only by the written agreement of the Company and the Executive, and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall affect the validity, binding effect or enforceability of this Agreement.

19.  Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed to be an original and both of which together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

CONCORD EFS, INC.

By: /s/    J. Richard Buchignani

Title: General Counsel and Vice Chairman

EDWARD LABRY

/s/    Edward Labry

EX-99.1

Exhibit 99.1

Certification Pursuant to 18 U.S.C. Section 1350, as

Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Concord EFS, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dan M. Palmer, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/S/    DAN M. PALMER
	Dan M. Palmer Co-Chief Executive Officer

Dated: May 9, 2003

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.2

Exhibit 99.2

Certification Pursuant to 18 U.S.C. Section 1350, as

Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Concord EFS, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bond R. Isaacson, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/S/    BOND R. ISAACSON
	Bond R. Isaacson Co-Chief Executive Officer

Dated: May 9, 2003

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.3

Exhibit 99.3

Certification Pursuant to 18 U.S.C. Section 1350, as

Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Concord EFS, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward T. Haslam, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/S/    EDWARD T. HASLAM
	Edward T. Haslam Chief Financial Officer

Dated: May 9, 2003

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.4

Exhibit 99.4

CONCORD EFS, INC.

CAUTIONARY STATEMENTS

Press releases and the reports and other documents we file with the Securities and Exchange Commission may contain or incorporate by reference forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements reflect management’s expectations, estimates, and assumptions, based on information available at the time the document, or any document incorporated therein by reference, was prepared. These forward-looking statements include, but are not limited to, statements regarding future events, plans, goals, objectives, and expectations. The words “anticipate,” “believe,” “estimate,” “expect,” “plan,” “intend,” “likely,” “will,” “should,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors which may cause our actual performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by those statements. Important factors that could cause our actual results to differ materially from those in forward-looking statements include, but are not limited to, those indicated below. We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time. You are cautioned not to rely on forward-looking statements.

1.  If we fail to successfully execute our corporate consolidation plans, our business, operating results, and financial condition could be adversely affected.

We typically initiate consolidation plans to integrate our acquisitions, to exit existing businesses, and to improve the efficiency of our operations. The plans are intended, among other things, to eliminate operational redundancies and functionally integrate acquired organizations into Concord. We cannot assure you that we will be able to implement our consolidation plans without encountering difficulties or experiencing the loss of key employees or customers or that the expected benefits from such consolidation plans will be realized. If we are unsuccessful in executing our consolidation plans, our business, operating results, and financial condition could be adversely affected.

2.  If we lose key personnel or are unable to attract additional qualified personnel as we grow, our business could be adversely affected.

We are dependent upon the ability and experience of a number of our key management personnel who have substantial experience with our operations, the rapidly changing electronic payment processing industry, and the selected markets in which we offer our services. It is possible that the loss of the services of one or a combination of our senior executives or key managers would have an adverse effect on our operations. Our success also depends on our ability to continue to attract, manage, and retain other qualified middle management and

technical and clerical personnel as we grow. We cannot assure you that we will continue to attract or retain such personnel.

3.  Loss of key customers could adversely affect our business, operating results, and financial condition.

Customer attrition is due to several factors, including losses to competitors, business acquisitions and mergers, and business closures. We cannot assure you that any of our customer contracts will be renewed or, if renewed, will be renewed on terms as favorable to us as at present. If they are not renewed, or if they are renewed on less favorable terms, we may not be able to reduce our costs in proportion to the lost revenue, because many of our costs are fixed. For example, we have a number of significant contracts that by their terms terminate on December 31, 2004. Increased attrition or renewal on less favorable terms could have an adverse effect on our business, operating results, and financial condition. In addition, the loss of several of these large customers could have an additional adverse effect on our business, operating results, and financial condition due to the interdependency of participants in the STAR_sm network. The loss of a significant number of STAR-branded cards, ATMs, or POS terminals could cause other financial institutions or merchants to evaluate their contractual participation in the STAR network.

4.  We face significant competition in each of our lines of business.

All the businesses we are engaged in are highly competitive. The level of competition has increased in recent years, and other service providers have established a sizable market share in some of the service areas in which we compete. We expect that the level of competition will continue to increase. For example, competitors to our debit network, which consist of other national and regional debit networks, continue to consolidate as large banks merge and combine their debit networks and as shared debit networks continue to combine into larger, super-regional conglomerates. The continued expansion of the national debit networks operated by VISA and MasterCard also places increasing competitive pressure on other networks as banks seek to consolidate their network affiliations. Further, several of our competitors and potential competitors have greater capital and technological, management, and marketing resources than we have, and we cannot assure you that we will continue to be able to compete successfully with such entities. The competitive pricing pressures resulting in an increase in competition could adversely affect our margins and may have an adverse effect on our business, operating results, and financial condition.

5.  Current or future card association rules and practices could adversely affect our business, transaction volumes, operating results, and financial condition.

Concord EFS National Bank is a member of the VISA and MasterCard organizations and is a registered processor of Discover, American Express, and Diners Club transactions. We compete directly with VISA and MasterCard in the provision of network and transaction processing services. Further, the rules of the credit card associations are set by member banks or, in the case of Discover, American Express, and Diners Club, by the card issuers, and some of

those banks and issuers are our competitors with respect to these services. With respect to our electronic benefits transfer (EBT) business, the governmental issuers of the benefits set the rules governing such transactions, and the financial institutions or processors hired by the government administer them. We cannot assure you that the credit card associations will maintain our registrations or that the current card association or EBT rules allowing us to market and provide transaction processing services will remain in effect. The termination of our member registration or our status as a certified processor and changes in card association or EBT rules, including any that limit our ability to provide transaction processing and marketing services, could have an adverse effect on our business, transaction volumes, operating results, and financial condition. In addition, if we were precluded from processing any of these card association transactions, there can be no assurance that our processing clients would continue to use us to process transactions in other networks.

In addition, our STAR network, as a result of the combination of the STAR, MAC_®, and Cash Station^® networks, is the first regional debit network that may potentially be viewed as achieving national status in terms of size and geographic coverage. Current VISA and MasterCard rules prohibit their members from issuing the debit cards or credit cards of any competing national network, with the exception of each other. These rules also prohibit the coexistence of competing national marks on their credit and branded debit cards. If VISA or MasterCard were to determine that STAR is a competing national network and mark, they could attempt to prohibit their members from issuing STAR-branded cards and/or prohibit the coexistence of the STAR mark with the VISA and/or MasterCard marks on debit and credit cards. If this occurred, we cannot predict whether, when forced to choose between us and other brands, issuing banks would favor us over VISA or MasterCard. Further, we could lose access to the VISA or MasterCard network and cardholders, which could adversely affect our business, automated teller machine (ATM) transactions, personal identification number (PIN)-secured and signature debit transactions, credit card transactions, operating results, and financial condition.

Card issuers who participate in both STAR and VISA or MasterCard networks also may provide incentives for cardholders to use VISA or MasterCard signature-based systems instead of our STAR PIN-based system. Such incentives may adversely affect our business, operating results, and financial condition.

In addition, VISA’s combined PIN-based and signature debit product called VISA Check Card II could adversely impact our Network Services business if a significant number of financial institutions issue the product or if VISA reinstitutes its original rule prohibiting the placement of competing debit marks on the product.

6.  We must remain current with rapid technological change.

Our ability to provide services is heavily dependent upon our use of and access to computing and telecommunications technology. The businesses we are engaged in have been characterized by rapid technological change. We cannot assure you that we will be able to continue to incorporate new developments in technology or that the costs involved in doing so will not be substantial.

7.  Acquisitions involve risks that could cause our actual growth to differ from our expectations.

We expect to continue to seek selective acquisitions as an element of our growth strategy. It is possible that recent or future acquisitions could have an adverse effect upon our operating results, particularly in the fiscal quarters immediately following the completion of such transactions while the operations of the acquired entities are being integrated into our operations. For example, we may not be able to successfully integrate acquired businesses in a timely manner. We may also incur substantial costs, delays, or other operational or financial problems in connection with such acquisitions, including during the integration process. In addition, we could incur additional indebtedness to finance acquisitions.

8.  If additional state taxes are imposed on us, our business, operating results, and financial condition could be adversely affected.

Transaction processing companies like us may be subject to state taxation of certain portions of their fees charged to customers for their services. Application of this tax is an ongoing issue in the industry, and the states have not yet adopted uniform guidelines implementing these regulations. If we are required to pay these taxes and are unable to pass this tax expense through to our customers, our business, operating results, and financial condition could be adversely affected.

9.  Continued consolidation in the banking and retail industries could adversely affect our growth.

• Our Network Services business could be adversely affected. As banks consolidate, our ability to successfully offer our Network Services will depend in part on whether the institutions that survive those consolidations are willing to outsource their ATM and debit processing to third-party vendors like us and whether those institutions have pre-existing relationships with any of our competitors. Larger institutions with more geographically dispersed customer bases may wish to consolidate their network participation with fewer networks having the broadest geographic coverage and the best service offerings. As regional networks continue to consolidate, we may lose network business if we are unable to continue to offer a range of products that is competitive in terms of geographic distribution as well as quality and breadth of service. Larger banks that continue to participate in our network may also process proportionately fewer ATM transactions through our network as more transactions can be handled within the bank’s own internal systems, and larger banks with larger transaction volumes may demand lower fees which could result in lower operating margins for us.

• Our Payment Services business could lose customers, and fee revenue could decrease. Continued consolidation in the retail industry, which makes up a substantial portion of our customer base for Payment Services, could impede our

ability to grow as the survivors of such consolidation may have relationships with competitors or may be more interested in pursuing internal processing options due to their increased scale. Larger merchants with larger transaction volumes may also demand lower fees which could result in lower operating margins for us.

10.  We are subject to the business cycles and credit risk of our merchant customers.

A recessionary economic environment could have a negative impact on our customers, particularly smaller merchants and trucking companies, which could, in turn, negatively impact our business, operating results, and financial condition. If our customers make fewer sales of their products and services, we will have fewer transactions to process, resulting in lower revenue. Similarly, if the dollar amount of those sales is smaller, we will have smaller transactions to process, also resulting in lower revenue.

In addition, in a recessionary environment our merchant customers could experience a higher rate of bankruptcy filings which could adversely affect us financially. For example, we bear credit risk for billing disputes between credit card holders and bankrupt merchants. In the event a billing dispute between a credit card holder and a merchant is not resolved in favor of the merchant, the transaction is normally charged back to the merchant, and the purchase price is refunded to the cardholder. However, if that merchant files for bankruptcy or is otherwise unable or unwilling to pay, we must bear the credit risk for the full transaction amount of these chargebacks. Billing disputes would include instances where a customer ordered goods or services on credit, but those goods and services are not delivered by the defunct merchant. We cannot assure you that chargebacks will not increase in the future. Increases in chargebacks that are not paid by merchants could have an adverse effect on our business, operating results, and financial condition.

11.  The outcome of litigation involving VISA and MasterCard could have a negative impact on our business.

VISA and MasterCard have been sued by the Department of Justice (DOJ) for alleged violation of the federal antitrust laws arising out of their respective functionally identical policies of (1) allowing members in the respective organization to issue cards participating in the other organization’s system and (2) prohibiting their members from issuing cards in competing systems other than VISA, MasterCard, or Citigroup, one of the largest owners/members of VISA and MasterCard. The potential impact of this litigation on us depends upon whether or not the DOJ is successful, and if it is successful, the relief ordered by the court. We do not currently issue cards in either system and have not been deemed to operate a competing system by either VISA or MasterCard. If VISA and MasterCard are permitted to prohibit members from issuing cards in competing systems, however, there could be a significant negative impact on us if VISA or MasterCard were then to deem the STAR debit network to be a competing system for these purposes.

VISA and MasterCard also have been sued in a class action case brought by merchants who allege that VISA and MasterCard have (1) unlawfully tied merchant acceptance of VISA

and MasterCard signature debit cards to merchant acceptance of VISA and MasterCard credit cards and (2) attempted and conspired to monopolize the market for debit cards, a market in which we compete against VISA and MasterCard. On April 28, 2003 MasterCard announced that it agreed to settle with the merchants and, on April 30, 2003 VISA announced that it had reached a separate settlement with the merchants. According to published reports, under the terms of the settlements, the final terms of which have not been disclosed, VISA will pay $2 billion to the plaintiff class and MasterCard will pay $1 billion. Each has also agreed to reduce the fees charged to merchants on debit card purchases. The potential impact of this litigation on us depends on the final settlement terms agreed to by the parties and the impact of the settlement terms on the business practices of VISA and MasterCard.

12.  Utility and system interruptions or processing errors could adversely affect our business, operating results, and financial condition.

In order to process transactions promptly, our computer equipment and network servers must be functional on a 24-hour basis, which requires access to telecommunications facilities and the availability of electricity. Telecommunications services and the electricity supply are susceptible to disruption. Computer system interruptions and other processing errors may result from such disruptions or from human error or other unrelated causes. There is also the potential threat of telecommunications disruptions caused by the malicious acts of computer criminals, who may attempt to compromise specific systems or generally propagate malicious software, such as viruses and worms. The loss of one or more of our data centers could result in a significant delay in resuming normal business activities and functions. Any extensive or long-term disruptions in our processing services could cause us to incur substantial additional expense, which could have an adverse effect on our business, operating results, and financial condition.

13.  Information theft could adversely affect our business, operating results, and financial condition.

An active and lucrative black market has developed in stolen credit card numbers and other personal information of consumers. This has led to organized criminal attempts to steal credit card databases from banks, merchants, and processors. Notwithstanding our efforts to counteract such theft, the risk is real, and any such theft could adversely affect our business, operating results, and financial condition.

14.  We may be susceptible to merchant fraud as well as credit and fraud risk of entities we sponsor into debit, credit, and EBT networks.

Merchant fraud includes recording false sales transactions or false credits by the merchant or its customers. Under some circumstances we bear the risk of incidents of merchant fraud. It is possible that incidents of merchant fraud could increase in the future. Increased incidents of merchant fraud could have an adverse effect on our business, operating results, and financial condition. As part of our processing business, we sponsor the participation of a variety of independent sales organizations, financial institutions, and other entities into debit, credit, and

EBT networks. As sponsor, we could bear the credit and fraud risk of those entities under some circumstances. Increased bankruptcy or incidence of fraud among these institutions could have an adverse effect on our business, operating results, and financial condition.

15.  Changes in card association fees or products could increase our costs or otherwise limit our operations.

From time to time, VISA, MasterCard, Discover, American Express, and Diners Club increase the organization and/or processing fees (known as interchange fees) that they charge. For example, in April 2002 MasterCard increased its fees, and in October 2002 VISA increased its fees. It is possible that competitive pressures will result in our absorbing a portion of such increases in the future, which would increase our operating costs, reduce our profit margin, and adversely affect our business, operating results, and financial condition. Furthermore, the rules and regulations of the various card associations and networks prescribe certain capital requirements. Any increase in the capital level required would further limit our use of capital.

16.  Revenue growth in ATM processing could slow because of market saturation or restrictions on surcharging.

Revenue from “convenience fees” or “surcharges” imposed by owners of ATMs, including us, has been a significant factor in the recent growth in our ATM processing business, since such fees have encouraged ATM owners to deploy additional terminals. There have been initiatives at the federal, state, and local levels to limit surcharges. To the extent that ATM deployment does not continue to grow at recent rates due to the enactment and successful enforcement of statutory restrictions on surcharges, the availability of fewer favorable retail ATM locations, market saturation, or other factors, demand for our ATM processing services may not continue to grow at recent rates or may decline.

17.  Rules and regulations governing financial institutions and changes to those rules and regulations could limit our business.

We are a financial holding company and a bank holding company subject to regulation under the Bank Holding Company Act of 1956, as amended, and to regulation by the Board of Governors of the Federal Reserve System (Federal Reserve). Our bank subsidiary, Concord EFS National Bank, is a national banking association established under the National Bank Act and is subject to additional regulation by the Office of the Comptroller of the Currency as well as the Federal Reserve. The Federal Deposit Insurance Corporation insures the domestic deposits of Concord EFS National Bank under the Federal Deposit Insurance Act. The restrictions imposed by these and other laws governing the activities of national banks and their holding companies and related regulations and restrictions imposed by regulatory agencies limit our discretion and the discretion of Concord EFS National Bank and its affiliates in operating their businesses. These limitations include:

• restrictions on engaging in activities that are not approved by the Federal Reserve as financial in nature or incidental or complementary to a financial activity,

• restrictions on mergers and acquisitions involving companies engaged in activities other than those approved by the Federal Reserve as financial in nature or incidental or complementary to a financial activity,

• narrower constraints on activities, mergers, and acquisitions if Concord EFS National Bank does not remain well capitalized and well managed or does not maintain “satisfactory” ratings under the Community Reinvestment Act,

• minimum capital requirements at both the holding company and bank levels,

• restrictions on dividends by Concord EFS National Bank,

• restrictions on intercompany transactions, and

• restrictions on tie-ins involving the products or services of Concord EFS National Bank.

Our failure to comply with financial institution rules and regulations applicable to us could have a material adverse effect on us, including regulatory enforcement proceedings, incurring financial or other penalties, being subject to cease and desist orders, and, in certain cases, being required to divest our depository institution subsidiary Concord EFS National Bank.

Material changes in applicable federal or state regulation of financial institutions could increase our operating costs, change the competitive environment, or otherwise adversely affect us. We cannot assure you that these laws and regulations will not be amended or interpreted differently by regulatory authorities, or that new laws and regulations will not be adopted, which could adversely affect our business, operating results, and financial condition.

In addition, we are subject to the financial privacy provisions of the Gramm-Leach-Bliley Act (the GLB Act). As a result, certain consumer financial information that we receive may be subject to limitations on reuse and redisclosure under the GLB Act. Additionally, pending legislation at the state and federal levels may further restrict our information gathering and disclosure practices. Existing and potential future privacy laws may limit our ability to develop new products and services that make use of certain data gathered through our Network Services and Payment Services businesses.

The USA Patriot Act, which includes a number of provisions designed to enhance the United States regime for combating money laundering and terrorist financing, also may affect our business, operating results, and financial condition. We offer products and services that assist financial institutions in complying with the USA Patriot Act. However, the USA Patriot Act, and particularly its requirements for verification of the identity of customers engaging in various types of financial transactions, may also depress demand for other transaction processing services. These new provisions to address money laundering and terrorist financing also create

new compliance risks, with potentially significant consequences from violations, including monetary penalties and adverse consideration in regulatory applications.

18.  The timing and extent of changes in interest rates could have a significant impact on the returns on our investments.

Expectations regarding and the actual timing of changes in the Federal Funds interest rate could impact the returns on our investable funds. A significant portion of our available-for-sale securities are fixed income securities with values that generally move in the opposite direction of changes in interest rates. This has little impact if we hold the securities to maturity, but if we sell a fixed income security before maturity, the amount of our gain or loss could vary dramatically with fluctuations in interest rates.

The Federal Reserve generally lowers interest rates to stimulate the economy and generally raises interest rates to fight inflation. Given that the Federal Reserve has lowered interest rates several times in the past two years, our investment income has been and could continue to be negatively affected as our cash flow from receipt of interest payments and proceeds from securities sold, called, or matured is reinvested in lower yielding securities due to declining interest rates.

In the event that interest rates rise, our investment portfolio could decrease in value and some expected maturities could lengthen, which would impact our investment strategies.

19.  The price of our common stock could be volatile.

In recent years, there has been and may continue to be significant volatility in the market price for our common stock. Factors such as changes in quarterly operating results, the gain or loss of significant contracts, the entry of new competitors into our markets, changes in management, announcements of technological innovations or new products by us or our competitors, and general events and circumstances beyond our control could have a significant impact on the future market price of our common stock and the relative volatility of such market price. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. Following volatility in the market price of our common stock, various securities fraud class action lawsuits and shareholder derivative actions were filed against us, our directors, and certain of our officers.

20.  We face certain litigation risks.

We and certain of our directors and certain of our officers have been named as defendants in a number of securities fraud class action lawsuits and shareholder derivative actions. Also, we are party to lawsuits in the normal course of our business. Litigation can be expensive, lengthy, and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable resolution or settlement of a particular lawsuit could have an adverse effect on our business, operating results, and financial condition.

21.  The timing and completion of the planned merger with First Data Corporation and the consequences of such merger are         subject to uncertainty.

The completion of the planned merger with First Data could be delayed and may not occur. If the merger does occur, the consequences of the merger could vary significantly based on numerous factors. Important factors upon which forward-looking statements with respect to the planned merger with First Data are premised generally include but are not limited to: (a) receipt of regulatory and shareholder approvals without unexpected delays or conditions, (b) timely implementation and execution of merger integration plans, (c) the ability to implement comprehensive plans for asset rationalization, (d) the successful integration of the IT systems and elimination of duplicative overhead and IT costs without unexpected costs or delays, (e) retention of customers and critical employees, (f) successfully offering First Data/Concord’s comprehensive product offering to the combined customer base, (g) continued growth at rates approximating recent levels for card-based payment transactions and other electronic processing services, (h) no unanticipated changes in laws, regulations, credit card association rules or other industry standards affecting First Data/Concord’s combined businesses which require significant product redevelopment efforts, reduce that market for or value of its products or render products obsolete, (i) no unanticipated developments relating to previously disclosed lawsuits or similar matters, (j) successful management of any impact from slowing economic conditions or consumer spending, (k) no catastrophic events that could impact First Data/Concord’s or its major customers’ operating facilities, communication systems and technology or that have a material negative impact on current economic conditions or levels of consumer spending, (l) no material breach of security of any of First Data/Concord’s combined systems, and (m) successfully managing the potential both for patent protection and patent liability in the context of the rapidly developing legal framework for expansive software patent protection. In addition, the ability of a combined First Data/Concord to achieve expected revenues, accretion and synergy savings also will be affected by the effects of competition (in particular the response to the proposed transaction in the marketplace), and the effects of general economic and other factors beyond the control of First Data and Concord.