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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission file number 2-89213
CONCORD EFS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2462252
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2525 Horizon Lake Drive, Suite 120, Memphis, Tennessee 38133
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, Including Area Code: (901) 371-8000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $33.1/3 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant has required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X
No
Disclosure of delinquent filings pursuant to Item 405 of Regulation S-K
will be contained in the registrant's proxy statement for its 1995
annual meeting of shareholders, which statement is incorporated by
reference in Part III of this Form 10-K. Yes No X
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 1, 1996 was $1,057,284,620.
The number of shares of the registrant's Common Stock outstanding as of
March 1, 1996, was 37,760,156.
DOCUMENTS INCORPORATED BY REFERENCE
PART II
Portions of this Registrant's 1995 Annual Report to Shareholders are
incorporated by reference into Items 5, 6, 7 and 8.
PART III
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held May 2, 1996 are incorporated by reference into
Items 10, 11, 12 and 13.
CONCORD EFS, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Item No.
- -------- PART I
Page
1. Business ----
Description of Business 2
Data Processing and Field Service Support 2
Marketing and Customers 3
Competition 3
Supervision and Regulation 3
Employees 4
2. Properties 5
3. Legal Proceedings 5
4. Submission of Matters to a Vote of Security Holders 5
PART II
5. Market for Registrant's Common Stock
and Related Stockholder Matters 5
6. Selected Financial Data 5
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
8. Financial Statements and Supplementary Data 6
9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosures 7
PART III
10. Directors and Executive Officers of the Registrant 7
11. Executive Compensation 7
12. Security Ownership of Certain Beneficial Owners
and Management 7
13. Certain Relationships and Related Transactions 7
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 7
Index to Exhibits 7
Signatures 9
PART I
Item 1. Business
Concord EFS, Inc. and its subsidiaries (the Company) provide electronic
transaction processing, authorization and settlement services and ATM
processing and ATM driving services to retailers, grocery stores,
financial institutions and trucking companies nationwide. The related
electronic terminal equipment used in transaction processing is sold
and/or maintained by the Company .
On February 20, 1992, Concord Computing Corporation changed its name to
Concord EFS,Inc.(the Parent) and became a holding company.Subsequently,
Concord Computing Corporation (Concord) incorporated as a Delaware
corporation and acquired the operational assets and liabilities of the
Parent. Concord is a wholly owned subsidiary of the Parent. The
Parent was originally incorporated as a Massachusetts company on
January 23, 1970 and has operated continuously since that time. During
1990, the Parent reincorporated in Delaware. The Parent became a one-
bank holding company on December 1, 1992, in connection with the
formation of EFS National Bank (EFSNB) described below.
The Parent acquired a 100% interest in EFS, Inc. (EFS), a Delaware
corporation, on March 15, 1985. EFS National Bank (formerly EFS, Inc.)
(EFSNB), sells credit, debit, and electronic benefits transfer (EBT)
card authorization, data capture and settlement services to retailers
and grocery stores. It also sells cash card and cash forwarding
services to trucking companies through agreements with a network of
truck stops. On December 1, 1992, EFSNB was formed. Simultaneous to
its formation, the Bank issued 1,000,000 outstanding shares of common
stock to the Parent in exchange for all of the outstanding shares of
common stock of EFS, Inc., a wholly owned subsidiary of the Parent.
EFS, Inc. was subsequently dissolved.
EFSNB's formation occurred so the Company could provide a full spectrum
of electronic transaction processing and settlement services to its
customers. Previously, EFS had to contract settlement services and
sponsorship into bankcard associations with unrelated financial
institutions. As a bank, EFSNB can provide its existing services in a
more efficient and cost effective manner as well as new services such
as debit card processing to retailers, convenience stores and
supermarkets and banking services to trucking companies and truck
drivers.
The services of EFSNB do not consist of material amounts of traditional
banking activities (i.e., consumer and commercial loans, demand and
time deposits, real estate, etc.). Therefore, the Company did not
change to the reporting format and related disclosures normally
required for bank holding companies.
Concord Computing Corporation's (Concord) primary activity is check
authorization and POS terminal driving, servicing and maintenance for
grocery store chains. It also owns and operates cash dispensing
machines (ATMs) at truck stops and grocery stores nationwide.
Additionally, Concord provides certain processing services for its
affiliated companies.
The Parent acquired a majority interest in Network EFT, Inc.(NEFTI ), a
Delaware corporation located in Chicago, Illinois, on June 14, 1981.
NEFTI sells electronic funds transfer services to financial
institutions in grocery stores. Depositors of financial institutions
may make deposits and withdrawals and perform electronic banking
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transactions at these terminals. The Parent sold a 37% interest in
NEFTI to a customer in April of 1983. The Parent currently retains a
57% interest in NEFTI.
The Parent incorporated a wholly-owned Tennessee subsidiary, Concord
Equipment Sales, Inc. (formerly VMT, Inc.) on September 5, 1991.
Concord Equipment Sales, Inc. purchases from manufacturers point-of-
sale (POS) terminal products and communications equipment for use by
the Company's customers in connection with the Company's transaction
processing services.
Concord Computing Corporation incorporated a wholly-owned Delaware
subsidiary, Concord Retail Services, Inc. (CRS). CRS provides POS
terminal driving, servicing and maintenance to the Company's customers
in the northeast United States.
Description of Business
The Company operates exclusively in the payment services industry. The
primary components of the services are:
Bank Card Services consist of credit, debit, and EBT card
authorization, data capture and settlement services provided to
retail and grocery store merchants.
Trucking Services consist of cash card, cash forwarding services,
ATM operations and banking services for trucking companies and
truck drivers.
Check Services consist of check authorization services sold to
retail and grocery store merchants.
In addition, the Company provides Electronic Funds Transfer (EFT)
services and sells electronic terminal equipment to customers who are
users of the services.
All of these services are sold directly to the end-user on a nationwide
basis.
The following table is a listing of revenues by service type for the
three years ended December 31:
1995 1994 1993
-------- ------- -------
(in thousands)
Bank Card Services $ 92,223 $66,959 $47,482
Trucking Services 16,687 12,853 12,022
Check Services 12,168 9,954 9,279
EFT and Terminal Services 6,684 6,447 6,660
-------- ------- -------
$127,762 $96,213 $75,443
======== ======= =======
As transaction service revenues are similar in nature, total operating
expenses are not directly attributable to any individual revenue type.
Data Processing and Field Service Support
The Company maintains a data processing facility in Elk Grove,Illinois,
primarily for the Company's Check Services and EFT Services, and a data
processing facility in Memphis, Tennessee for Trucking Services and
Bank Card Services. These facilities utilize fully redundant computers
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which provide the high levels of availability and the transaction
speed necessary for processing large numbers of financial transactions.
Backup power is available to provide service in the event of power
failure at a computer center. The Company maintains dedicated
telephone networks, packet switching networks and In-Watts networks
connecting data processing centers to retail stores where transaction
and electronic funds transfer terminals are located.
The Company also provides field support and repair services for POS
terminal installations. The Company maintains field support and repair
facilities in Elk Grove, Illinois, Aurora, Colorado and West Chester,
Pennsylvania.
Marketing and Customers
The Company markets its services and products on a nationwide basis
directly to retail merchant companies, electronic funds transfer
networks, financial institutions and trucking companies through sales
offices located in suburbs of Chicago and Memphis. The Company's
executive officers participate in the Company's marketing efforts.
The Company's principal services are designed and programed by the
Company, and, in general, utilize commonly available system hardware
and components and are not dependent upon scarce materials, patents or
trademarks for continued viability.
Competition
The Company competes with a large number of suppliers of services and
products, many of which are large companies with substantially greater
financial and marketing resources than those of the Company. The
Company's competition includes other providers of data processing and
switching services including several banks and/or bank holding
companies, electronic funds transfer networks and equipment vendors.
The markets for the services and products which are offered by the
Company are highly fragmented, and no supplier has a dominant share of
the market for Check Services, EFT Services, Terminal Products or Bank
Card Services. One supplier, ComData Network, a wholly-owned sub-
sidiary of Ceridian Corporation, has a dominant share of the Trucking
Services market. Another competitor, First Data Corporation, has a
large share of the Bank Card Services market.
The Company competes in its markets in terms of price, quality, speed
and flexibility in customizing systems to meet the particular needs of
customers. The Company believes that it is one of the few integrated
suppliers of both services and hardware for use in transaction services
at retail locations.
Supervision and Regulation
Concord EFS, Inc. and its subsidiaries are subject to a number of
federal and state laws. As a bank holding company, the Parent is
subject to regulation under the Bank Holding Company Act of 1956, as
amended (the "Act") which is administered by the Federal Reserve Board
(the "Board"). Under the Act, the Company is generally prohibited from
directly engaging in any activities other than banking, managing or
controlling banks, and bank-related activities. Also, the Act
prohibits a bank holding company, with certain exceptions, from
acquiring, directly or indirectly, ownership or control of 5% or more
of the voting shares of any company which is not a bank or bank holding
company. The primary exception to this prohibition involves activities
which the Board determines are closely related to banking. A bank is
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also generally prohibited from engaging in certain tie-in arrangements
with its bank holding company or affiliates with respect to the lease
or sale of property, furnishing of services, or the extension of
credit. The Act contains certain restrictions concerning future
mergers with other bank holding companies and banks. The Financial
Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA)
contains certain merger restrictions with Savings and Loan
Associations.
Under the Act, a bank holding company is required to file with the
Board an annual report and such additional information which the Board
may require. The Board may examine the Company's and each of its
subsidiaries' records, including a review of capital adequacy in
relation to guidelines issued by the Board. If the level of capital
is deemed to be inadequate, the board may restrict the future expansion
and operations of the Company. The Board possesses cease and desist
powers over a bank holding company if its actions or actions of any of
its subsidiaries represent unsafe or unsound practices or violations of
law.
Federal law also regulates transactions among the Company and its
affiliates, including the amount of a banking affiliate's loan to, or
investments in non-bank affiliates and the amount of advances to third
parties collateralized by securities of an affiliate. In addition,
various requirements and restrictions under federal and state laws
regulate the operations of the Company's banking affiliates, requiring
the maintenance of reserves against deposits, limiting the nature of
loans and the interest that may be charged thereon, restricting
investments and other activities. The Company's bank affiliates are
also limited in the amount of dividends that they may declare. Prior
regulatory approval must be obtained before declaring any dividends if
the amount of capital, surplus and retained earnings is below certain
statutory limits.
As a national bank, EFSNB operates under the rules and regulations of
the Comptroller of the Currency and is also a member of the Federal
Reserve System, subject to provisions of the Federal Reserve Act. The
FDIC insures the domestic deposits of all the Banks. Periodic audits
and regularly scheduled reports of financial information are required
by all regulatory agencies. Federal laws also regulate certain
transactions among EFSNB and its affiliates, including Concord EFS,Inc.
The Company's EFT Services sold to financial institutions are regulated
by certain State and Federal banking laws. Material changes in
federal or state regulation could increase the cost to the Company of
providing EFT Services, change the competitive environment or otherwise
adversely affect the Company. The Company is not aware of any such
change which is pending.
Employees
As of December 31, 1995, the Company employed 474 full and part-time
personnel, including 51 data processing and technical employees, 257 in
operations, and 166 in sales and administration. Many of the Company's
employees are highly skilled, and the Company believes its future
success will depend in a large part on its ability to attract and
retain such employees. The Company does not have employment contracts
with any of its personnel. None of the Company's employees are
represented by a labor union and the Company has experienced no work
stoppages. The Company considers its employee relations to be
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excellent.
Item 2. PROPERTIES
The following table sets forth certain information concerning the
principal facilities of the Company, all of which are leased:
APPROXIMATE
AREA IN LEASE
LOCATION SQUARE FEET PRIMARY USES EXPIRATION .
Memphis, TN 34,125 Corporate Offices July 31, 1997
& EFSNB Operations
Elk Grove, IL 18,300 Data Processing, May 31, 1996
Field Service,
NEFTI and Concord
Operations
Aurora, Co 2,800 Field Service month to month
West Chester,
Pennsylvania 1,300 Field Service month to month
The Company believes all facilities are adequate.
Item 3. LEGAL PROCEEDINGS
The Company is a party to various routine lawsuits arising out of the
conduct of its business, none of which are expected to have a material
adverse effect upon the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders in the fourth
quarter of fiscal 1995.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
This information is included under the caption "Market Value For the
Registrant's Common Stock and Related Stockholders Matters" on page 5
of the Company's Annual Report (the "Annual Report"), and is herein
incorporated by reference.
Item 6. SELECTED FINANCIAL DATA
This information is included under the caption "Selected Consolidated
Financial Data" on page 1 of the Annual Report and is herein
incorporated by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This information is included under the captions "Management's Discus-
sion and Analysis of Financial Condition and Results of Operations" on
pages 3, 4 and 5 of the Annual Report and is herein incorporated by
reference.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial state-
ments set forth below are included on pages 6 - 16 of the Annual
Report, and are incorporated herein by reference.
Report of Independent Auditors.
Consolidated Balance Sheets as of December 31, 1995 and 1994.
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1994, and 1993.
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994, and 1993.
Notes to Consolidated Financial Statements as of December 31, 1995.
Quarterly results of operations for the years ended December 31, 1995
and 1994 on page 5 of the Annual Report are incorporated herein by
reference.
Schedule II, Valuation and Qualifying Accounts, is listed below. All
schedules for which provision is made in the applicable accounting
regulations of the Securities & Exchange Commission are not required
under the related instructions and, therefore, have been omitted.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT
CONCORD EFS, INC.
Balance Charged to Balance
Beginning Costs and * End
of Period Expenses Deductions of Period
--------- ---------- ---------- ---------
Year ended
December 31, 1995
Allowance for
uncollectible accounts $750,206 $500,000 $490,771 $759,435
======== ======== ======== ========
Year ended
December 31, 1994
Allowance for
uncollectible accounts $605,247 $480,000 $355,041 $750,206
======== ======== ======== ========
Year ended
December 31, 1993
Allowance for
uncollectible accounts $891,210 $525,000 $810,963 $605,247
======== ======== ======== ========
* Uncollectible accounts written off, net of recoveries.
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See Item 13 below.
Item 11. EXECUTIVE COMPENSATION
See Item 13 below.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See Item 13 below.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Items 10, 11, 12, and 13 is included in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be
held on May 2, 1996 under the captions "Election of Directors",
"Executive Compensation", "Stock Options", Beneficial Ownership of
Common Stock", and "Certain Transactions" and is herein incorporated by
reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) and (2) -- The response to this portion of Item 14 is
submitted as a separate section of this report.
(3) Listing of Exhibits
Exhibit
Numbers
2 Agreement and Plan of Merger dated January 12, 1990 by and
between Concord Computing Corporation, a Massachusetts
corporation , and Concord Computing Corporation, a Delaware
corporation *
3(A) Certificate of Incorporation of Concord Computing Corporation,
a Delaware corporation *
3(B) Bylaws of Concord Computing Corporation, a Delaware
corporation *
3(C) Certificate of Merger of Concord Computing Corporation, a
Massachusetts corporation, with and into Concord Computing
Corporation, a Delaware corporation, filed with the Secretary
of State of Delaware March 22, 1990 *
3(D) Articles of Merger of Concord Computing Corporation, a
Massachusetts corporation, with and into Concord Computing
Corporation, a Delaware corporation, filed with the Secretary
of State of Massachusetts March 22, 1990 *
10 1993 Incentive Stock Option Plan (incorporated by reference
from exhibit to the Registrant's Proxy Statement for the
Annual Meeting of Shareholders held on May 12, 1993.)
11 Statement Re: Computation of Per-share Earnings.
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22 List of Subsidiaries
Jurisdiction of
Company Organization Ownership
Concord Computing Corp. Delaware 100%
EFS National Bank National Bank Charter 100%
Network EFT, Inc. Delaware 57%
Concord Equipment Sales Tennessee 100%
23 Consent of Independent Auditors
* Incorporated by reference from exhibits to the Registrant's
Amendment No. 1 to Form 10-Q for quarter ended March 31, 1990.
(b) Reports on Form 8-K -- No reports on Form 8-K were filed during the
quarter ended December 31, 1995.
(c) Exhibits -- The response to this portion of Item 14 is submitted as
a separate section of this report.
(d) Financial Statement Schedules -- The response to this portion of
Item 14 is submitted as a
separate section of this report.
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For the purposes of complying with the amendments to the rules
governing the Form S-8 (effective July 13, 1990) under the Securities
Act of 1933, the undersigned registrant hereby undertakes as follows,
which undertaking shall be incorporated by reference into registrant's
Registration Statements on Form S-8 No's. 33-60871.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has fully caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Concord EFS, Inc.
By:/s/ Dan M. Palmer
Dan M. Palmer
Chief Executive Officer
Date: March 29, 1996
/s/ Thomas J. Dowling
Thomas J. Dowling
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
- ----------------------------------------------------------------------
/s/ Dan M. Palmer Chairman of the Board and CEO March 29, 1996
Dan M. Palmer of the Company and EFS National
Bank
/s/ Edward A. Labry President of the Company and March 29, 1996
Edward A. Labry III EFS National Bank
/s/ Richard M. Harter Director and Secretary of March 29, 1996
Richard M. Harter the Company
/s/ David C. Anderson Director of the Company March 29, 1996
David C. Anderson
/s/J. Richard Buchignani Director of the Company and March 29, 1996
J. Richard Buchignani EFS National Bank
/s/ Joyce Kelso Director of the Company and March 29, 1996
Joyce Kelso EFS National Bank
/s/ Jerry D. Mooney Director of the Company March 29, 1996
Jerry D. Mooney
/s/Paul L. Whittington Director of the Company March 29, 1996
Paul L. Whittington
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