##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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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 September 30, 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



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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



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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
October 31, 2003 was 465,122,798.



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##### Table of Contents

CONCORD EFS, INC.

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS



|                               | 
|------------------------------ | 
|PART I - Financial Information | 
|                               | 
|Item 1.                        | 
|                               | 
|                               | 
|                               | 
|                               | 
|                               | 
|                               | 
|                               | 
|                               | 
|                               | 
|Item 2.                        | 
|                               | 
|Item 3.                        | 
|                               | 
|Item 4.                        | 
|                               | 
|PART II - Other Information    | 
|                               | 
|Item 1.                        | 
|                               | 
|Item 4.                        | 
|                               | 
|Item 6.                        | 
|                               | 
|Signatures                     | 



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##### Table of Contents

PART I  Financial Information



|Item 1. |  | Financial Statements (Unaudited)
|------- |  | --------------------------------



CONCORD EFS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)



|                                                                                                                                                      |  | September 30,2003 |           |   | December 31,2002
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | - | ----------------
|                                                                                                                                                      |  | (in thousands)   
|ASSETS                                                                                                                                                |  |                   |           |   |                 
|CURRENT ASSETS                                                                                                                                        |  |                   |           |   |                 
|Cash and cash equivalents                                                                                                                             |  | $                 | 521,747   |   |                 
|Securities available for sale                                                                                                                         |  |                   | 801,334   |   |                 
|Accounts receivable, net                                                                                                                              |  |                   | 133,802   |   |                 
|Settlement receivables, net                                                                                                                           |  |                   | 39,912    |   |                 
|Inventories                                                                                                                                           |  |                   | 24,352    |   |                 
|Prepaid expenses and other current assets                                                                                                             |  |                   | 27,481    |   |                 
|Deferred income taxes                                                                                                                                 |  |                   | 15,767    |   |                 
|                                                                                                                                                      |  |                   |           |   |                 
|TOTAL CURRENT ASSETS                                                                                                                                  |  |                   | 1,564,395 |   |                 
|Securities available for sale                                                                                                                         |  |                   | 130,800   |   |                 
|Property and equipment, net                                                                                                                           |  |                   | 347,639   |   |                 
|Goodwill, net                                                                                                                                         |  |                   | 265,040   |   |                 
|Other intangible assets, net                                                                                                                          |  |                   | 46,853    |   |                 
|Other assets, net                                                                                                                                     |  |                   | 84,318    |   |                 
|                                                                                                                                                      |  |                   |           |   |                 
|TOTAL ASSETS                                                                                                                                          |  | $                 | 2,439,045 |   |                 
|                                                                                                                                                      |  |                   |           |   |                 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                  |  |                   |           |   |                 
|CURRENT LIABILITIES                                                                                                                                   |  |                   |           |   |                 
|Accounts payable and other liabilities                                                                                                                |  | $                 | 20,960    |   |                 
|Settlement payables                                                                                                                                   |  |                   | 202,572   |   |                 
|Deposits                                                                                                                                              |  |                   | 27,028    |   |                 
|Accrued liabilities                                                                                                                                   |  |                   | 70,439    |   |                 
|Income taxes payable                                                                                                                                  |  |                   | 36,523    |   |                 
|Current maturities of long-term debt                                                                                                                  |  |                   | 18,951    |   |                 
|                                                                                                                                                      |  |                   |           |   |                 
|TOTAL CURRENT LIABILITIES                                                                                                                             |  |                   | 376,473   |   |                 
|Long-term debt                                                                                                                                        |  |                   | 130,800   |   |                 
|Deferred income taxes                                                                                                                                 |  |                   | 65,225    |   |                 
|Other liabilities                                                                                                                                     |  |                   | 7,938     |   |                 
|                                                                                                                                                      |  |                   |           |   |                 
|TOTAL LIABILITIES                                                                                                                                     |  |                   | 580,436   |   |                 
|                                                                                                                                                      |  |                   |           |   |                 
|Commitments and contingent liabilities                                                                                                                |  |                   |          |   |                 
|Minority interest in subsidiary                                                                                                                       |  |                   | 5,869     |   |                 
|                                                                                                                                                      |  |                   |           |   |                 
|STOCKHOLDERS EQUITY                                                                                                                                  |  |                   |           |   |                 
|Common stock, $0.33 1/3 par value; authorized 1,500,000 shares, issued and outstanding 465,121 at September 30, 2003 and 486,461
at December 31, 2002 |  |                   | 155,040   |   |                 
|Additional paid-in capital                                                                                                                            |  |                   | 990,547   |   |                 
|Retained earnings                                                                                                                                     |  |                   | 713,934   |   |                 
|Accumulated other comprehensive income (loss)                                                                                                         |  |                   | (6,781    | ) |                 
|                                                                                                                                                      |  |                   |           |   |                 
|TOTAL STOCKHOLDERS EQUITY                                                                                                                            |  |                   | 1,852,740 |   |                 
|                                                                                                                                                      |  |                   |           |   |                 
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                            |  | $                 | 2,439,045 |   |                 
|                                                                                                                                                      |  |                   |           |   |                 



See Notes to
Consolidated Financial Statements.



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##### Table of Contents

CONCORD EFS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



|                                                         |  | Three months endedSeptember 30,       |         |      | Nine months endedSeptember 30,
|-------------------------------------------------------- |  | ------------------------------------- | ------- | ---- | ------------------------------
|                                                         |  | 2003                                  |         | 2002 |                               
|                                                         |  | (in thousands, except per share data)
|                                                         |  |                                       |         |     
|Revenue                                                  |  | $                                     | 588,486 |      | $                             
|Cost of operations                                       |  |                                       | 421,922 |      |                               
|Selling, general and administrative expenses             |  |                                       | 34,139  |      |                               
|Merger, acquisition, restructuring and write-off charges |  |                                       | 9,491   |      |                               
|Litigation settlement charges (credits)                  |  |                                       |        |      |                               
|                                                         |  |                                       |         |      |                               
|OPERATING INCOME                                         |  |                                       | 122,934 |      |                               
|Other income and expense:                                |  |                                       |         |      |                               
|Investment income                                        |  |                                       | 12,455  |      |                               
|Interest expense                                         |  |                                       | 1,890   |      |                               
|Other income, net                                        |  |                                       | 7,166   |      |                               
|                                                         |  |                                       |         |      |                               
|INCOME BEFORE TAXES AND MINORITY INTEREST                |  |                                       | 140,665 |      |                               
|Income taxes                                             |  |                                       | 47,826  |      |                               
|                                                         |  |                                       |         |      |                               
|INCOME BEFORE MINORITY INTEREST                          |  |                                       | 92,839  |      |                               
|Minority interest in net income of subsidiary            |  |                                       | 255     |      |                               
|                                                         |  |                                       |         |      |                               
|NET INCOME                                               |  | $                                     | 92,584  |      | $                             
|                                                         |  |                                       |         |      |                               
|PER SHARE DATA:                                          |  |                                       |         |      |                               
|Basic earnings per share                                 |  | $                                     | 0.19    |      | $                             
|                                                         |  |                                       |         |      |                               
|Diluted earnings per share                               |  | $                                     | 0.19    |      | $                             
|                                                         |  |                                       |         |      |                               
|AVERAGE SHARES OUTSTANDING:                              |  |                                       |         |      |                               
|Basic shares                                             |  |                                       | 475,382 |      |                               
|                                                         |  |                                       |         |      |                               
|Diluted shares                                           |  |                                       | 486,749 |      |                               
|                                                         |  |                                       |         |      |                               



See Notes to
Consolidated Financial Statements.



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##### Table of Contents

CONCORD EFS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                            |  | Nine months endedSeptember 30, |         
|------------------------------------------------------------------------------------------- |  | ------------------------------ | --------
|                                                                                            |  | 2003                           |         
|                                                                                            |  | (in thousands)                 |         
|OPERATING ACTIVITIES                                                                        |  |                                |         
|Net income                                                                                  |  | $                              | 256,417 
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                                |         
|Minority interest in subsidiary                                                             |  |                                | 806     
|Provision for (recovery of) losses on receivables and loans                                 |  |                                | 2,572   
|Depreciation and amortization                                                               |  |                                | 81,093  
|Deferred income taxes                                                                       |  |                                | 2,254   
|Net realized gain on sales of securities available for sale                                 |  |                                | (20,624 
|Restructuring charges                                                                       |  |                                | 190     
|Changes in operating assets and liabilities:                                                |  |                                |         
|Settlement receivables and payables, net                                                    |  |                                | 21,359  
|Accounts receivable                                                                         |  |                                | (5,481  
|Inventories                                                                                 |  |                                | (4,369  
|Prepaid expenses and other assets                                                           |  |                                | (25,279 
|Accounts payable and other liabilities                                                      |  |                                | 33,699  
|Other, net                                                                                  |  |                                | 3,617   
|                                                                                            |  |                                |         
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                                   |  |                                | 346,254 
|INVESTING ACTIVITIES                                                                        |  |                                |         
|Acquisition of securities available for sale                                                |  |                                | (750,249
|Proceeds from sales of securities available for sale                                        |  |                                | 702,529 
|Proceeds from maturity of securities available for sale                                     |  |                                | 229,747 
|Acquisition of alternative investments                                                      |  |                                |        
|Purchases of loans                                                                          |  |                                |        
|Proceeds from sales of loans                                                                |  |                                | 1,918   
|Other net change in loans                                                                   |  |                                | 2,111   
|Acquisition of property and equipment                                                       |  |                                | (79,118 
|Purchase of merchant contracts                                                              |  |                                | (1,036  
|Business acquisitions, net                                                                  |  |                                |        
|                                                                                            |  |                                |         
|NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                         |  |                                | 105,902 
|FINANCING ACTIVITIES                                                                        |  |                                |         
|Net decrease in deposits                                                                    |  |                                | (51,105 
|Proceeds from borrowings                                                                    |  |                                | 41,400  
|Payments on borrowings                                                                      |  |                                | (89,681 
|Purchase and retirement of common stock                                                     |  |                                | (306,343
|Proceeds from exercise of stock options                                                     |  |                                | 3,495   
|Payments on leases payable                                                                  |  |                                |        
|                                                                                            |  |                                |         
|NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                         |  |                                | (402,234
|                                                                                            |  |                                |         
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                   |  |                                | 49,922  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                              |  |                                | 471,825 
|                                                                                            |  |                                |         
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                  |  | $                              | 521,747 
|                                                                                            |  |                                |         



See Notes to
Consolidated Financial Statements.



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##### Table of Contents

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 nine months ended September 30, 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, an 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 the Financial Accounting Standard Boards (FASB) Emerging Issues Task Force (EITF) Issue 99-12.



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##### Table of Contents

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 are reported as both a component of revenue and expense. Payment Services interchange fees amounted to $268.6 million and $220.1 million for the three months ended September 30, 2003 and 2002, respectively. Payment Services
interchange fees amounted to $766.4 million and $580.5 million for the nine months ended September 30, 2003 and 2002, respectively.



In January 2003 the EITF 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
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 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. Prior interim periods presented herein have been reclassified to conform to this change. The adoption of EITF 02-16 had no effect on reported operating income, net income or cash
flows for any periods presented.



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##### Table of Contents

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 (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 title to the equipment passes to the customer. Concord changed its method
of recognizing revenue for product sales in the third quarter of 2003. Prior to the third quarter, Concord had recognized revenue for product sales when the equipment was shipped. This change in accounting policy did not necessitate a restatement of
the financial statements because the impact of the change was not material. Service contracts and related sales include all revenues 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 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.



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##### Table of Contents

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 of POS terminals and related equipment.
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 (SFAS 142), 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 an estimated useful life of nine years.



Other Assets: Other assets, net of accumulated amortization, include $71.9 million as of September 30, 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 represent reimbursement of customer costs to convert to Concords
systems and contract renewal payments.



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##### Table of Contents

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, 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. Concords overall tax rate was reduced to 34.0% for the three months ended September 30, 2003 from 35.0% for the six months ended June 30, 2003. This decrease was due to a reassessment of our effective tax rate based on filing
our 2002 federal and state tax returns in the third quarter of 2003.



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 (APB 25); accordingly, Concord recognizes no compensation expense for the stock option grants.



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##### Table of Contents

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note A - Significant Accounting Policies, continued



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 periods indicated (in thousands, except per share data):



|                                                                                                                                                                                 |  | Three months endedSeptember 30, |        | Nine months endedSeptember 30,
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ------------------------------
|                                                                                                                                                                                 |  | 2003                            |        | 2002                          
|Net income as reported                                                                                                                                                           |  | $                               | 92,584 |                               
|Basic earnings per share as reported                                                                                                                                             |  | $                               | 0.19   |                               
|Diluted earnings per share as reported                                                                                                                                           |  | $                               | 0.19   |                               
|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 |  | $                               | 10,679 |                               
|Pro forma net income                                                                                                                                                             |  | $                               | 81,905 |                               
|Pro forma basic earnings per share                                                                                                                                               |  | $                               | 0.17   |                               
|Pro forma diluted earnings per share                                                                                                                                             |  | $                               | 0.17   |                               



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). 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.



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##### Table of Contents

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note A - Significant Accounting Policies, continued



In October 2002 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 147,
Acquisitions of Certain Financial Institutions (SFAS 147). 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). 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.



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). 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 (FIN 46). 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



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(Unaudited)



Note A - Significant Accounting Policies, continued



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. The consolidation provisions of FIN 46 did not have an effect on Concords financial statements.



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



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 $10.0 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 number of FDC and Concord shares and options outstanding on September 8, 2003, Concord stockholders are expected to own approximately 21% of the outstanding shares of
First Data on a fully diluted basis. On October 28, 2003, at their respective special meetings, the stockholders of First Data and Concord approved of the agreement to merge. The transaction remains, however, subject to various regulatory approvals
and other customary closing conditions. Currently a lawsuit filed by the Antitrust Division of the Department of Justice and the Attorneys General of seven states and the District of Columbia is pending challenging the proposed merger. This case is
set for trial on December 15, 2003.



Professional fees and other costs of $9.5
million and $18.4 million related to the First Data merger were recorded during the three months and nine months ended September 30, 2003, respectively, 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 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



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(Unaudited)



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



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 September 30, 2003, the deferred payments amounted to $3.1 million.



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 $27.9 million. The charge consisted of $16.2
million for contract terminations, $3.8 million for exiting a non-strategic business, $0.6 million for closing and consolidating certain facilities, and $0.9 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 eliminated 24 positions as of June 30, 2003. Compensation and severance costs paid and charged against the restructuring charge accrual were $0.5 million through September 30, 2003. As of September 30, 2003, $0.4 million of the
charges were accrued but unpaid. Concord substantially completed the plan by June 30, 2003.



The following table presents a summary of current year activity through September 30, 2003 related to the second quarter 2002 restructuring charge accrual (in thousands):



|Balance, December 31, 2002                       |  | $ | 3,876  |  
|------------------------------------------------ |  | - | ------ | -
|Changes in estimate                              |  |   | (414   | )
|Cash outlays                                     |  |   | (2,823 | )
|Non-cash writedowns and chargesasset impairment |  |   | (190   | )
|                                                 |  |   |        |  
|Balance, September 30, 2003                      |  | $ | 449    |  
|                                                 |  |   |        |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



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



Substantially all of the changes in estimates noted above are attributable to actual costs to shut down ATM operating
platforms of an existing subsidiary and convert to Core Datas operating platforms being less than expected and lower than anticipated costs related to terminations of Concord contracts.



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 |  | $ | 43 
|------------------------------- |  | - | ---
|Compensation and severance      |  |   | 406
|                                |  |   |    
|Balance, September 30, 2003     |  | $ | 449
|                                |  |   |    



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 $46.1 million. The charge consisted of $7.2 million for closing and consolidating certain facilities, $5.5 million for compensation and severance, and $3.0 million for exiting non-strategic businesses. In addition, asset impairment charges of
$22.5 million were incurred for the write-off of non-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 $5.5 million through September 30, 2003.
As of September 30, 2003, $3.4 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 September 30, 2003 related to the first quarter 2002 restructuring charge accrual (in thousands):



|Balance, December 31, 2002  |  | $ | 6,852  |  
|--------------------------- |  | - | ------ | -
|Changes in estimate         |  |   | (563   | )
|Cash outlays                |  |   | (2,907 | )
|                            |  |   |        |  
|Balance, September 30, 2003 |  | $ | 3,382  |  
|                            |  |   |        |  



Substantially all of the changes in
estimate related to the first quarter 2002 plan are attributable to lower compensation and severance costs than originally estimated.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



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



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) |  | $ | 3,364
|-------------------------------------------------------- |  | - | -----
|Non-strategic business closures                          |  |   | 18   
|                                                         |  |   |      
|Balance, September 30, 2003                              |  | $ | 3,382
|                                                         |  |   |      



Note C - Goodwill and Other Intangible
Assets



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



|                            |  | NetworkServices |         | PaymentServices |   |        | Total | 
|--------------------------- |  | --------------- | ------- | --------------- | - | ------ | ----- | 
|Balance, December 31, 2002  |  | $               | 193,943 |                 | $ | 71,517 |       | 
|Purchase price adjustment   |  |                 |        |                 |   | (420   | )     | 
|                            |  |                 |         |                 |   |        |       | 
|Balance, September 30, 2003 |  | $               | 193,943 |                 | $ | 71,097 |       | 
|                            |  |                 |         |                 |   |        |       | 



The purchase price adjustment
represents the reversal, recorded in the first quarter of 2003, of estimated accrued liabilities in connection with the acquisition of H & F Services.



Note D - Comprehensive Income



Total comprehensive income was $79.9 million and $100.4 million for the three months ended September 30, 2003 and 2002, respectively. Total comprehensive income was $238.6 million and $229.2 million for the nine
months ended September 30, 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



During the second quarter of 2003, Concord entered into amended and restated agreements for
the financing, construction and leasing of a new corporate headquarters in Memphis, Tennessee. These agreements amend the previous agreements entered into during the third quarter of 2002 for the Memphis facility to include leasing existing
facilities in Wilmington, Delaware, and Marietta, Georgia that were covered under other leasing agreements. 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 Concords balance sheet. Upon completion of construction of the Memphis facility, which is



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(Unaudited)



Note E - Commitments and Contingencies, continued



expected in the fourth quarter of 2003, rent payments will begin and will be expensed in Concords statements of income. The minimum annual lease
payments under these agreements are not material to Concord. The following table summarizes certain aspects of these agreements:



|Property Location |  | Lease Expiration |  | Renewal Option at Expiration |  | Value Guaranteed at Expiration |  | Total Cost Financed
|----------------- |  | ---------------- |  | ---------------------------- |  | ------------------------------ |  | -------------------
|Wilmington, DE    |  | Jan. 2010        |  | One five-year term           |  | $12.5 million                  |  | $15.0 million      
|Marietta, GA      |  | Jan. 2010        |  | One five-year term           |  | $16.7 million                  |  | $20.0 million      
|Memphis, TN       |  | Jan. 2010        |  | One five-year term           |  | $45.9 million                  |  | $55.0 million      



The renewals, including economic terms
of the leases during the renewal term, are 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. 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. As of September 30, 2003, the fair value of the guarantee of $1.4 million was recorded as other assets and other
liabilities on Concords balance sheet and will be amortized using the straight-line method over the lease term. Based on current market conditions, Concord does not expect to be required to make payments under these residual value guarantees.



Concord is actively pursuing the renewal of its most significant Network
Services customer contracts that would, if not renewed, terminate on December 31, 2004. These contracts accounted in 2002 for less than $100.0 million in revenue. There can be no assurance that such customer contracts will be renewed. Concord may be
required to make material expenditures in order to secure the renewals. As negotiations of certain contract renewals are ongoing, Concord cannot currently predict the aggregate amount of such expenditures.



Pursuant to the terms of a change of control agreement with an unaffiliated third party,
Concord will be required, upon the consummation of the proposed merger with First Data, to make a payment of $5.0 million to that party, plus an additional $5.0 million depending on the amount of certain revenues during the six-month period
immediately preceding the merger.



In the agreement and plan of merger with
First Data, Concord is obligated to pay a termination fee of $210.0 million under certain terms and conditions in the event the agreement is terminated.



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(Unaudited)



Note E - Commitments and Contingencies, continued



On October 23, 2003 the Antitrust Division of the Department of Justice and the Attorneys General of the states of
Connecticut, Illinois, Louisiana, Massachusetts, New York, Ohio, Texas and the District of Columbia filed a complaint in the United States District Court for the District of Columbia challenging the proposed merger of Concord and First Data. The
complaint alleges that the merger would likely substantially lessen competition in the provision of PIN debit network services in violation of the Clayton Act. The complaint seeks an order permanently enjoining Concord and First Data from
consummating the proposed merger, attorneys fees and costs and other relief the court deems just and proper. This case has been set for trial on December 15, 2003.



As a result of this complaint, Concord may be unable to obtain the regulatory approvals required to complete the merger or, in order to
obtain the necessary approval, the combined company may be required to comply with material restrictions or conditions. Denial or condition of such regulatory approvals could result in loss or disadvantage to Concord. Although this matter is in the
preliminary stages, Concord believes that the claims are without merit and intends to vigorously defend against all claims.



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 April 1, 2003 Concord filed a motion to dismiss the consolidated amended complaint filed
in the shareholder derivative litigation pending in the United States District Court for the Western District of Tennessee. This motion was fully briefed as of May 30, 2003, but has yet to be ruled on by the court.



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(Unaudited)



Note E - Commitments and Contingencies, continued



On May 2, 2003 Concord filed a motion to dismiss the consolidated amended complaint filed by the lead plaintiffs in
the purported securities fraud class action pending in the United States District Court for the Western District of Tennessee. This motion was fully briefed as of June 25, 2003, but has yet to be ruled on by the court.



On June 20, 2003 Concord filed a motion to dismiss the consolidated complaint filed in the
shareholder derivative litigation pending in Tennessee state court. This motion has yet to be ruled on, but the court has permitted the plaintiffs to conduct limited, expedited discovery pertaining to the proposed merger. On October 27, 2003 the
plaintiffs in this matter filed a motion to temporarily enjoin Concords shareholder vote on the proposed merger. This motion was denied by the court the same day.



On July 30, 2003 Concord, National Payment Systems Inc., and Concord Payment Systems (CPS) were named as defendants in a lawsuit in New York
State Supreme Court. The plaintiff was the principal of a business that had contracted to have CPS provide credit card processing services. CPS has unsuccessfully sought to collect $90,000 of the businesss unpaid obligations from the
plaintiff, based upon his personal guaranty. The complaint alleges claims of defamation and tortious interference, asserting that the plaintiff did not sign a guaranty and that CPS wrongfully reported his failure to honor the guaranty to credit
rating agencies. The complaint seeks damages in excess of $10.0 million and to compel CPS to withdraw its report to the credit rating agencies. On October 13, 2003 Concord and CPS answered the complaint, denying the allegations and asserting
counterclaims against the plaintiff. Although this matter is in the preliminary stages, Concord believes that the claims against it are without merit and it intends to vigorously defend against all claims.



On April 30, 2003 CPS was named as a defendant in a lawsuit originally filed in August 2002
in New York State Supreme Court. The plaintiffs allege that CPS engaged in unfair competition and tortious interference by allegedly hiring a former employee of one of the plaintiffs and then allegedly using trade secrets that the employee
misappropriated from that plaintiff. The complaint seeks damages in the amount of $4.0 million for unspecified losses. On July 31, 2003 CPS answered the complaint, denying the allegations, asserting that it had never hired or otherwise had contact
with the individual in question. Although this matter is in the preliminary stages, Concord believes that the claims are without merit and it intends to vigorously defend against all 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 those actions were certain of Concords current and former officers and directors. The complaints generally alleged 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



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(Unaudited)



Note E - Commitments and Contingencies, continued



order to advance the defendants alleged individual interests in obtaining indemnification agreements related to the securities and other derivative
litigation discussed above. The complaints sought 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 were 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.



On or about April 2, 2003 an additional purported class action complaint was
filed in the Chancery Court for Shelby County, Tennessee. The defendants were Concord, certain of its current and former officers and directors, and First Data. This complaint contained allegations regarding the individual defendants alleged
insider trading and alleged violations of securities and other laws and asserted that this alleged misconduct reduced the consideration offered to Concords shareholders in the proposed merger between Concord and First Data. The complaint
sought class certification, attorneys fees, experts fees, costs and other relief the court deems just and proper. Moreover, the complaint also sought 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. On June 25, 2003 this complaint was transferred to the
Shelby County Circuit Court in which the now consolidated class actions filed April 3 and 4 are pending. Through a court-ordered second amended consolidated complaint filed September 19, 2003, this matter was consolidated with that matter. On
October 15, 2003, the plaintiffs moved for leave to file a third amended consolidated complaint similar to the previous complaints but also alleging that the proxy statement disclosures relating to the antitrust regulatory approval process were
inadequate. On October 17, 2003 the plaintiffs filed a motion for preliminary injunction to enjoin the shareholder vote on the proposed merger and/or the merger itself. The court denied the plaintiffs motion on October 20, 2003 but ordered
deposition discovery on an expedited basis. On October 27, 2003 the plaintiffs filed a renewed motion to enjoin the shareholder vote, which was denied by the court the same day. Although this matter is in the preliminary stages, Concord believes
that the claims are without merit and intends to vigorously contest these claims.



In November 2002 Concord EFS National Bank was named one of several defendants in a lawsuit in the Superior Court of California, County of Santa Clara. The plaintiff made several allegations, including breach of contract, fraud and
negligent misrepresentation arising out of business transactions between the plaintiff and Purchase Plus Buyers Group, an entity which formerly processed credit card transactions through Concord EFS National Bank. This lawsuit, sought compensatory
damages in the amount of $55,000 and punitive damages in the amount of $195.0 million. Concord EFS National Bank filed a demurrer seeking dismissal of the



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note E - Commitments and Contingencies, continued



complaint. The court granted the motion on October 10, 2003 with leave to amend. Should the plaintiff file an amended complaint, Concord intends to
vigorously contest the plaintiffs 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. On March 16, 2003, the court entered an order, finding 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 16, 2003 a First 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 preliminary stages, Concord believes that the claims against it are without merit and intends to vigorously defend against all claims.



In June 2002 Concord 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 alleged 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 alleged 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 sought to certify consisted of all merchant customers of Concord 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 sought unspecified compensatory and punitive damages, attorneys fees, and other relief. Concord
moved to dismiss all claims, the motion was granted by the court on August 13, 2003 and judgment was entered in favor of Concord EFS National Bank and Concord on August 19, 2003. On September 11, 2003 the plaintiffs filed a notice of appeal. No
briefing schedule has yet been set. Concord intends to vigorously defend this appeal.



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(Unaudited)



Note E - Commitments and Contingencies, continued



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. This case has been set for trial on
February 2, 2004. On September 22, 2003, the court heard MASIs motion in limine relating to expert testimony and requesting a Frye hearing but has not ruled on this motion. 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



During the third and fourth quarters of 2002, Concords Board of Directors approved the
repurchase of up to $500.0 million of its common stock. On July 29, 2003 Concord announced that its Board of Directors approved the repurchase of an additional $200.0 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. The Boards approvals bring the total potential repurchase to $700.0 million. As of September 30, 2003, a total of 48.6
million shares at an aggregate cost of $699.9 million had been purchased and retired pursuant to the repurchase plan since the plan was initiated. During the third quarter of 2003, a total of 21.8 million shares at an aggregate cost of $306.3
million were repurchased. All repurchases were made in the third and fourth quarters of 2002 and the third quarter of 2003 in the open market without the use of any derivative instruments. Due to the imposition of a blackout period during and
following the negotiation and execution of the merger agreement with First Data and Concords fourth quarter 2002 earnings release, there were no shares repurchased during the first and second quarters of 2003. Concord immediately retires its
common stock when purchased. Upon retirement, Concord reduces retained earnings for the excess of purchase price over par value.



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(Unaudited)



Note G - Earnings Per Share



The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in
thousands, except per share data):



|                                                                                            |  | Three months endedSeptember 30, |         | Nine months endedSeptember 30,
|------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | ------------------------------
|                                                                                            |  | 2003                            |         | 2002                          
|Numerator:                                                                                  |  |                                 |         |                               
|Net income                                                                                  |  | $                               | 92,584  |                               
|                                                                                            |  |                                 |         |                               
|Denominator:                                                                                |  |                                 |         |                               
|Denominator for basic earnings per share, weighted-average shares                           |  |                                 | 475,382 |                               
|Effect of dilutive stock options                                                            |  |                                 | 11,367  |                               
|                                                                                            |  |                                 |         |                               
|Denominator for diluted earnings per share, weighted-average shares and assumed conversions |  |                                 | 486,749 |                               
|                                                                                            |  |                                 |         |                               
|Basic earnings per share                                                                    |  | $                               | 0.19    |                               
|                                                                                            |  |                                 |         |                               
|Diluted earnings per share                                                                  |  | $                               | 0.19    |                               
|                                                                                            |  |                                 |         |                               



The number of anti-dilutive stock
options not included above was 14,403,701 shares and 14,267,401 shares for the three months ended September 30, 2003 and 2002, respectively. The number of anti-dilutive stock options not included above was 15,980,015 shares and 9,282,967 shares for
the nine months ended September 30, 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



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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note H - Operations by Business Segment, continued



services Concord provides, plus the interchange and network fees charged to Concord by the debit networks.



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 agreement and plan
of merger with First Data, it has not yet determined when or if Concord will organize a Risk Management Services segment.



Business segment information for the three months and nine months ended September 30, 2003 and 2002 is presented as follows (in thousands):



|                                                         |  | Three months ended September 30, 2003
|-------------------------------------------------------- |  | -------------------------------------
|                                                         |  | NetworkServices                      
|Revenue                                                  |  | $                                    
|Cost of operations                                       |  |                                      
|Selling, general and administrative expenses             |  |                                      
|Merger, acquisition, restructuring and write-off charges |  |                                      
|Litigation settlement charges (credits)                  |  |                                      
|Investment income                                        |  |                                      
|Interest expense                                         |  |                                      
|Other income, net                                        |  |                                      
|Income taxes                                             |  |                                      
|Minority interest in subsidiary                          |  |                                      
|                                                         |  |                                      
|Net income (loss)                                        |  | $                                    
|                                                         |  |                                      



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note H - Operations by Business Segment, continued



|                                                         |  | Three months ended September 30, 2002 |        
|-------------------------------------------------------- |  | ------------------------------------- | -------
|                                                         |  | NetworkServices                       |        
|Revenue                                                  |  | $                                     | 155,500
|Cost of operations                                       |  |                                       | 61,222 
|Selling, general and administrative expenses             |  |                                       |       
|Merger, acquisition, restructuring and write-off charges |  |                                       |       
|Litigation settlement charges (credits)                  |  |                                       |       
|Investment income                                        |  |                                       |       
|Interest expense                                         |  |                                       |       
|Other income, net                                        |  |                                       |       
|Income taxes                                             |  |                                       |       
|Minority interest in subsidiary                          |  |                                       |       
|                                                         |  |                                       |        
|Net income (loss)                                        |  | $                                     | 94,278 
|                                                         |  |                                       |        
|                                                         | 
|                                                         |  | Nine months ended September 30, 2003  |        
|                                                         |  | NetworkServices                       |        
|Revenue                                                  |  | $                                     | 488,344
|Cost of operations                                       |  |                                       | 198,825
|Selling, general and administrative expenses             |  |                                       |       
|Merger, acquisition, restructuring and write-off charges |  |                                       | 8,154  
|Litigation settlement charges (credits)                  |  |                                       |       
|Investment income                                        |  |                                       |       
|Interest expense                                         |  |                                       |       
|Other income, net                                        |  |                                       |       
|Income taxes                                             |  |                                       |       
|Minority interest in subsidiary                          |  |                                       |       
|                                                         |  |                                       |        
|Net income (loss)                                        |  | $                                     | 281,365
|                                                         |  |                                       |        



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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note H - Operations by Business Segment, continued



|                                                         |  | Nine months ended September 30, 2002
|-------------------------------------------------------- |  | ------------------------------------
|                                                         |  | NetworkServices                     
|Revenue                                                  |  | $                                   
|Cost of operations                                       |  |                                     
|Selling, general and administrative expenses             |  |                                     
|Merger, acquisition, restructuring and write-off charges |  |                                     
|Litigation settlement charges (credits)                  |  |                                     
|Investment income                                        |  |                                     
|Interest expense                                         |  |                                     
|Other income, net                                        |  |                                     
|Income taxes                                             |  |                                     
|Minority interest in subsidiary                          |  |                                     
|                                                         |  |                                     
|Net income (loss)                                        |  | $                                   
|                                                         |  |                                     





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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 receipt of regulatory approvals required for the planned merger with First Data Corporation, as well as the timing of the anticipated completion and possible conditions of the planned merger and
their consequences.



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FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



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 99.1 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), an 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 $10.0 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 number of FDC and Concord shares and options outstanding on September 8, 2003, Concord stockholders are expected to own approximately 21% of the outstanding shares of First Data on a fully diluted basis.
On October 28, 2003, at their respective special meetings, the stockholders of First Data and Concord approved of the agreement to merge. The transaction remains, however, subject to various regulatory approvals and other customary closing
conditions. Currently a lawsuit filed by the Antitrust Division of the Department of Justice and the Attorneys General of seven states and the District of Columbia is pending challenging the proposed merger. This case is set for trial on December
15, 2003.



We organize our business into two segments based upon the different
products and services that we offer to the different industries we serve. Our reportable business segments are 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.



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FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



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 STARsm, 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 are actively pursuing the renewal of our most significant Network Services customer contracts that would, if not renewed, terminate on
December 31, 2004. These contracts accounted in 2002 for less than $100.0 million in revenue. There can be no assurance that such customer contracts will be renewed. We may be required to make material expenditures in order to secure the renewals.
As negotiations of certain contract renewals are ongoing, we cannot currently predict the aggregate amount of such expenditures.



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 agreement and plan of merger with First Data, we have not yet determined when or if we will organize a Risk Management Services segment.



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MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



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 $27.9 million related to this plan. The consolidation activities that were initiated in the
second quarter of 2002 were substantially completed 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 $46.1 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 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.



A principal component of our revenue is derived from Network Services (28.7% and 30.2% in the three months ended September 30, 2003 and 2002, and 29.1% and 32.0% in the nine months ended September 30, 2003 and 2002).
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 (71.3% and 69.8% in the three months ended September 30, 2003 and 2002, and 70.9% and 68.0% in the nine months ended September 30, 2003 and 2002) 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



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FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



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 average 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 periods indicated (in millions):



|                 |  | Three months endedSeptember 30, |       | Nine months endedSeptember 30,
|---------------- |  | ------------------------------- | ----- | ------------------------------
|                 |  | 2003                            |       | 2002                          
|Network Services |  | $                               | 169.2 |                               
|Payment Services |  |                                 | 419.3 |                               
|                 |  |                                 |       |                               
|Total            |  | $                               | 588.5 |                               
|                 |  |                                 |       |                               



Payment Services revenue, net of
interchange fees, is an alternative generally accepted accounting principles (GAAP) revenue recognition method that Concord believes is useful to investors because it enables comparison with certain industry peers. The following table provides the
impact of interchange fees on our reported revenue for the periods indicated (in millions):



|                                     |  | Three months ended September 30, 2003
|------------------------------------ |  | -------------------------------------
|                                     |  | Network Services                     
|Revenue per the income statement     |  | $                                    
|Interchange fees included in revenue |  |                                      
|                                     |  |                                      
|Revenue, net of interchange fees     |  | $                                    
|                                     |  |                                      



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FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



|                                     |  | Three months ended September 30, 2002
|------------------------------------ |  | -------------------------------------
|                                     |  | Network Services                     
|Revenue per the income statement     |  | $                                    
|Interchange fees included in revenue |  |                                      
|                                     |  |                                      
|Revenue, net of interchange fees     |  | $                                    
|                                     |  |                                      
|                                     | 
|                                     |  | Nine months ended September 30, 2003 
|                                     |  | Network Services                     
|Revenue per the income statement     |  | $                                    
|Interchange fees included in revenue |  |                                      
|                                     |  |                                      
|Revenue, net of interchange fees     |  | $                                    
|                                     |  |                                      
|                                     | 
|                                     |  | Nine months ended September 30, 2002 
|                                     |  | Network Services                     
|Revenue per the income statement     |  | $                                    
|Interchange fees included in revenue |  |                                      
|                                     |  |                                      
|Revenue, net of interchange fees     |  | $                                    
|                                     |  |                                      



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 $268.6 million and $220.1 million in the three months ended September
30, 2003 and 2002, and $766.4 million and $580.5 million in the nine months ended September 30, 2003 and 2002. 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.



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MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



The following table lists cost of operations by segment for the periods indicated (in millions):



|                 |  | Three months endedSeptember 30, |       | Nine months endedSeptember 30,
|---------------- |  | ------------------------------- | ----- | ------------------------------
|                 |  | 2003                            |       | 2002                          
|Network Services |  | $                               | 67.2  |                               
|Payment Services |  |                                 | 354.7 |                               
|                 |  |                                 |       |                               
|Total            |  | $                               | 421.9 |                               
|                 |  |                                 |       |                               



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.



Results of Operations



The following table shows the percentage of revenue represented by certain items on our consolidated statements of income for the periods indicated:



|                                                         |  | Three months endedSeptember 30, |   |  | Nine months endedSeptember 30, |  
|-------------------------------------------------------- |  | ------------------------------- | - |  | ------------------------------ | -
|                                                         |  | 2003                            |   |  | 2002                           |  
|Revenue                                                  |  | 100.0                           | % |  | 100.0                          | %
|Cost of operations                                       |  | 71.7                            |   |  | 71.4                           |  
|Selling, general and administrative expenses             |  | 5.8                             |   |  | 6.1                            |  
|Merger, acquisition, restructuring and write-off charges |  | 1.6                             |   |  |                               |  
|Litigation settlement charges (credits)                  |  |                                |   |  | (2.1                           | )
|                                                         |  |                                 |   |  |                                |  
|Operating income                                         |  | 20.9                            |   |  | 24.6                           |  
|Net investment income                                    |  | 1.8                             |   |  | 3.4                            |  
|Other income, net                                        |  | 1.2                             |   |  | 0.2                            |  
|                                                         |  |                                 |   |  |                                |  
|Income before taxes                                      |  | 23.9                            |   |  | 28.2                           |  
|Income taxes                                             |  | 8.2                             |   |  | 9.9                            |  
|                                                         |  |                                 |   |  |                                |  
|Net income                                               |  | 15.7                            | % |  | 18.3                           | %
|                                                         |  |                                 |   |  |                                |  



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CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



Third Quarter 2003 Compared to 2002



Revenue increased 14.4% to $588.5 million in the third quarter of 2003 from $514.4 million in the same period of 2002. In the third quarter
of 2003 Network Services accounted for 28.7% of revenue, and Payment Services accounted for 71.3%. Network Services revenue increased 8.8% over the same period in 2002. This increase was attributable to a 9.3% increase in transaction volumes and
increased non-transaction processing fees, offset by increased amortization of capitalized customer payments. The increased transaction volumes from new and existing network and processing customers resulted from a 15.6% increase in STAR network POS
transactions. Revenue from Payment Services increased 16.8% over the same period in 2002, due to a 22.6% increase in transaction volumes, offset by price compression. Interchange fees in the third quarter of 2003 increased 22.0% or $48.5 million.
Payment Services revenue, net of interchange fees, increased 8.6% or $11.9 million during this period due to transaction growth from the addition of large lower margin merchants and the expansion of relationships with existing lower margin
merchants. Payment Services 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
includes a 20.5% increase in PIN-debit card transactions, a 36.0% increase in EBT card transactions, and an 18.9% increase in credit card and signature debit transactions at new and existing merchants.



Cost of operations increased in the third quarter of 2003 to 71.7% of revenue compared to
71.4% in the same period in 2002. Overall, cost of operations increased to $421.9 million in the third quarter of 2003 from $367.2 million in the same period in 2002.This increase was due to increased transaction volumes that resulted in
increased interchange fees of $48.5 million in Payment Services and increased salary, benefits and depreciation. 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 decreased as a percentage of revenue to 5.8% in the third quarter of 2003 from 6.1% in the same period in 2002. Overall,
selling, general and administrative expenses increased to $34.1 million in the third quarter of 2003 from $31.2 million in the same period in 2002. This increase was attributable to increased salary and sales commissions offset by reduced marketing
expenses.



Merger, acquisition, restructuring and write-off charges were $9.5
million in the third quarter of 2003. There were no such charges in the same period in 2002. The charges incurred in the third quarter of 2003 represent professional fees and other costs related to the First Data merger.



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FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



There were no litigation settlement charges in the third quarter of 2003. We reduced our litigation settlement
charges by $11.0 million in the third quarter of 2002. The charges represent credits and payments to merchants and former merchants, legal expenses, and claims administration expenses in connection with a settlement agreement relating to a purported
class action lawsuit alleging that certain rate and fee charges were improper under Tennessee law due to allegedly deficient notice.



Operating income as a percentage of revenue decreased to 20.9% in the third quarter of 2003 from 24.6% in the same period in 2002. This decrease was due to an increase of
$9.5 million in 2003 merger, acquisition, restructuring, and write-off charges and the reversal of $11.0 million in litigation settlement charges in 2002.



Net investment income decreased as a percentage of revenue to 1.8% in the third quarter of 2003 from 3.4% in the same period in 2002. Overall, net investment income
decreased 40.0% to $10.6 million in the third quarter of 2003 compared to $17.6 million in the same period in 2002. This decrease resulted from lower rates of return and less cash available for investment due to the repurchase of our common stock
during the third quarter in 2003 of $306.3 million and during the third and fourth quarters in 2002 of $393.5 million.



Other income increased as a percentage of revenue to 1.2% in the third quarter of 2003 from 0.2% in the same period in 2002. This increase was due to increased gain on
the sale of securities in the third quarter of 2003.



Our overall tax rate was
34.0% in the third quarter of 2003 compared to 35.0% in 2002. This decrease was due to a reassessment of our effective tax rate based on filing our 2002 federal and state tax returns in the third quarter of 2003.



Net income as a percentage of revenue decreased to 15.7% in the third quarter of 2003 from
18.3% in the same period in 2002. The components of this decrease are explained above.



Nine months ended September 30, 2003 compared to 2002



Revenue
increased 17.8% to $1,678.4 million in the nine months ended September 30, 2003 from $1,424.3 million in the same period of 2002. In the nine months ended September 30, 2003 Network Services accounted for 29.1% of revenue, and Payment Services
accounted for 70.9%. Network Services revenue increased 7.1% over the same period in 2002. This increase was attributable to an 11.7% increase in transaction volumes, the full year impact of prior year acquisitions, increased non-transaction
processing fees, offset by increased amortization of capitalized customer payments. The increased transaction volumes from new and existing network and processing customers resulted from a 17.8% increase in STAR network POS transactions. Revenue
from Payment Services increased 22.9% over the same period in 2002, due to interchange fee price increases and a 27.4% increase in transaction volumes, offset by price



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FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



compression. Interchange fees in the nine months ended September 30, 2003 increased 32.0% or $185.9 million. Payment Services revenue, net of interchange
fees, increased 9.2% or $35.7 million during this period due to transaction growth from the addition of large lower margin merchants and the expansion of relationships with existing lower margin merchants. Payment Services 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 includes a 26.8% increase in PIN-debit card
transactions, a 33.1% increase in EBT card transactions, and a 23.8% increase in credit card and signature debit transactions at new and existing merchants.



Cost of operations increased in the nine months ended September 30, 2003 to 72.7% of revenue compared to 68.9% in the same period in 2002. Overall, cost of operations
increased to $1,220.8 million in the nine months ended September 30, 2003 from $981.0 million in the same period in 2002. This increase was due to increased transaction volumes that resulted in increased interchange fees of $185.9 million in Payment
Services, increased depreciation, increased assessments and other pass through fees, increased salary and benefits, and the write-off of excess supplies inventory. 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 decreased as a percentage of revenue to 6.0% in the nine months ended September 30, 2003 from
6.2% in the same period in 2002. Overall, selling, general and administrative expenses increased to $100.4 million in the nine months ended September 30, 2003 from $88.4 million in the same period in 2002. This increase was attributable to increased
salary, sales commissions and professional fees, offset by reduced marketing expenses.



Merger, acquisition, restructuring and write-off charges decreased to $17.4 million in the nine months ended September 30, 2003 from $76.5 million in the same period in 2002. The charges incurred in the nine months
ended September 30, 2003 included $18.4 million representing professional fees and other costs related to the First Data merger offset by a $1.0 million change in estimate related to our first and second quarter 2002 consolidation plans. The charges
incurred in the same period in 2002 included $24.1 million for the write-off of non-performing purchased merchant contracts, $16.8 million for contract terminations, $7.9 million for the write-off of capitalized software and equipment no longer in
use, and $27.7 million for other activities.



There were no litigation
settlement charges in the nine months ended September 30, 2003. Such charges in the same period in 2002 amounted to $9.8 million and represent credits and payments to merchants and former merchants, legal expenses, and claims administration expenses
in connection with a settlement agreement relating to a purported class action lawsuit alleging that



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CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



certain rate and fee charges were improper under Tennessee law due to allegedly deficient notice.



Operating income as a percentage of revenue increased to 20.2% in the nine months ended
September 30, 2003 from 18.8% in the same period in 2002. This increase was due to a decrease of $59.1 million in merger, acquisition, restructuring, and write-off charges and a decrease of $9.8 million in litigation settlement charges, offset by
the addition of lower margin revenue from large merchants.



Net investment
income decreased as a percentage of revenue to 2.1% in the nine months ended September 30, 2003 from 3.6% in the same period in 2002. Overall, net investment income decreased 30.4% to $35.5 million in the nine months ended September 30, 2003
compared to $50.9 million in the same period in 2002. This decrease resulted from lower rates of return and less cash available for investment due to the repurchase of our common stock during the third quarter in 2003 of $306.3 million and during
the third and fourth quarters in 2002 of $393.5 million.



Other income
increased as a percentage of revenue to 1.1% in the nine months ended September 30, 2003 from 0.6% in the same period in 2002. This increase was due to increased gain on the sale of securities in the nine months ended September 30, 2003.



Our overall tax rate decreased to 34.6% in the nine months ended September 30, 2003
compared to 35.1% in the same period in 2002.



Net income as a percentage of
revenue increased to 15.3% in the nine months ended September 30, 2003 from 14.9% in the same period in 2002. The components of this increase are explained above.



Liquidity and Capital Resources



In the nine months ended September 30, 2003 we generated cash of $346.3 million from operating activities. Included in this amount is $21.4 million from the change in
settlement receivables and payables. Fluctuations in settlement receivable and payable balances are affected 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 GAAP cash flows is not indicative of cash provided by operating activities unless settlement receivable and payable amounts are consistent from period to period.



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CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



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 nine months ended September 30, 2003, we liquidated $182.0 million in securities available for sale, net of
acquisitions due to market conditions and the repurchase of our common stock. As of September 30, 2003, we held securities with a market value of $932.1 million, including $184.2 million pledged as collateral for Federal Home Loan Bank (FHLB)
advances. We invested $79.1 million in the nine months ended September 30, 2003 in capital expenditures, which were for capitalized and purchased software and computer facilities and equipment.



We have historically financed our operations through net cash provided by operating
activities, the issuance of equity, and the exercise of stock options. Our last public offering of common stock occurred in June 2001 when we received $420.6 million, net of underwriting and other expenses, for the 17.8 million shares of common
stock we issued and sold. Proceeds from the exercise of stock options has decreased from historical amounts due to the per share market value of our common stock.



As of September 30, 2003, we had a line of credit with a financial institution totaling $20.0 million and no amounts were outstanding on
this line of credit. As of September 30, 2003, we had $149.8 million of advances outstanding to, and $18.2 million in unused lines of credit with, the FHLB. In the nine months ended September 30, 2003 we paid $48.3 million on FHLB advances, net of
proceeds.



During the third and fourth quarters of 2002, we announced that our
Board of Directors approved the repurchase of up to $500.0 million of our common stock. On July 29, 2003 we announced that our Board of Directors approved the repurchase of an additional $200.0 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. The Boards approvals bring the total approved repurchase to $700.0 million. Due to the imposition of a
blackout period during and following the negotiation and execution of the merger agreement with First Data and our fourth quarter 2002 earnings release, there were no shares repurchased during the first and second quarters of 2003. During the third
quarter of 2003, we repurchased a total of 21.8 million shares at an aggregate cost of $306.3 million.



During the second quarter of 2003, we entered into amended and restated agreements for the financing, construction and leasing of a new corporate headquarters in Memphis, Tennessee. These agreements amend the previous
agreements entered into during the third quarter of 2002 for the Memphis facility to include leasing existing facilities in Wilmington, Delaware, and Marietta, Georgia that were covered under other leasing agreements. 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. Upon completion of construction of
the Memphis facility, which is expected in



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CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



the fourth quarter of 2003, rent payments will begin and will be expensed in our statements of income. The minimum annual lease payments under these
agreements are not material to us. At the end of the lease term, we have options that include the renewal of the leases and fixed-price purchase options on the land and facilities. We have guaranteed the residual value of the land and facilities at
the end of the lease term to the owner / lessor for each facility. Under these guarantees, we would be responsible for a decline in fair value during the lease term up to an estimated maximum amount if we do not exercise our option to acquire the
land and facilities at the end of the term of the leases. The following table summarizes the guarantees and certain aspects of the agreements:



|PropertyLocation |  | LeaseExpiration |  | Renewal Optionat Expiration |  | Value Guaranteedat Expiration |  | Total CostFinanced
|---------------- |  | --------------- |  | --------------------------- |  | ----------------------------- |  | ------------------
|Wilmington, DE   |  | Jan. 2010       |  | One five-year term          |  | $12.5 million                 |  | $15.0 million     
|Marietta, GA     |  | Jan. 2010       |  | One five-year term          |  | $16.7 million                 |  | $20.0 million     
|Memphis, TN      |  | Jan. 2010       |  | One five-year term          |  | $45.9 million                 |  | $55.0 million     



Based on current market conditions, we
do not expect to be required to make payments under these residual value guarantees.



We are actively pursuing the renewal of our most significant Network Services customer contracts that would, if not renewed, terminate on December 31, 2004. These contracts accounted in 2002 for less than $100.0 million in revenue. There
can be no assurance that such customer contracts will be renewed. We may be required to make material expenditures in order to secure the renewals. As negotiations of certain contract renewals are ongoing, we cannot currently predict the aggregate
amount of such expenditures.



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. In addition, the Antitrust Division of the Department of Justice and the Attorneys General of seven states and the
District of Columbia have filed a complaint challenging our proposed merger with First Data. We are also 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.



Pursuant to the terms of a change of control agreement with an unaffiliated third party, we
will be required, upon the consummation of the proposed merger with First Data, to make a payment of $5.0 million to that party, plus an additional $5.0 million depending on the amount of certain revenues during the six-month period immediately
preceding the merger.



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CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



In our agreement and plan of merger with First Data, we are obligated to pay a termination fee of $210.0 million
under certain terms and conditions in the event the agreement is terminated.



We believe that our cash and cash equivalents, securities, available credit (unused lines of credit with the FHLB and the line of credit with a financial institution), 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 September 30, 2003.



Effects of Inflation



Our assets are 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.



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CONCORD EFS, INC. AND SUBSIDIARIES

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk
|------- |  | ----------------------------------------------------------



As of September 30, 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.



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CONCORD EFS, INC. AND SUBSIDIARIES

CONTROLS AND PROCEDURES



|Item 4. |  | Controls and Procedures
|------- |  | -----------------------



Based on their evaluation as of the end of the period covered by 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-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) are effective. There was no change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the period covered by this quarterly report on Form 10-Q that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.



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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. Previously pending matters that are material to us were reported in our Annual Report on Form 10-K for the
year ended December 31, 2002 filed on March 27, 2003, our quarterly report on Form 10-Q for the quarter ended March 31, 2003 filed on May 9, 2003, and our quarterly report on Form 10-Q for the quarter ended June 30, 2003 filed on August 11, 2003.
There were no material developments in the litigation matters previously disclosed except for the developments discussed below.



On October 23, 2003 the Antitrust Division of the Department of Justice and the Attorneys General of the states of Connecticut, Illinois, Louisiana, Massachusetts, New
York, Ohio, Texas and the District of Columbia filed a complaint in the United States District Court for the District of Columbia challenging the proposed merger of Concord and First Data. The complaint alleges that the merger would likely
substantially lessen competition in the provision of PIN debit network services in violation of the Clayton Act. The complaint seeks an order permanently enjoining Concord and First Data from consummating the proposed merger, attorneys fees
and costs and other relief the court deems just and proper. This case has been set for trial on December 15, 2003.



As a result of this complaint, we may be unable to obtain the regulatory approvals required to complete the merger or, in order to obtain the necessary approval, the
combined company may be required to comply with material restrictions or conditions. Denial or condition of such regulatory approvals could result in loss or disadvantage to us. Although this matter is in the preliminary stages, we believe that the
claims are without merit and we intend to vigorously defend against all claims.



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 October 23, 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
|-- | ---------------------------------------------------------------------------------



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CONCORD EFS, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION



|Item 1. |  | Legal Proceedings, continued
|------- |  | ----------------------------



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.



On April 1, 2003 we filed a motion to dismiss the
consolidated amended complaint filed in federal court in In re Concord EFS, Inc. Derivative Litigation. This motion was fully briefed as of May 30, 2003, but has yet to be ruled on by the court.



On May 2, 2003 we filed a motion to dismiss the consolidated amended complaint filed by the
lead plaintiffs in In re Concord EFS, Inc. Securities Litigation. This motion was fully briefed as of June 25, 2003, but has yet to be ruled on by the court.



On June 20, 2003 we filed a motion to dismiss the consolidated complaint filed in Tennessee state court in In re Concord EFS, Inc. Derivative Litigation. This motion has
yet to be ruled on, but the court has permitted the plaintiffs to conduct limited, expedited discovery pertaining to the proposed merger. On October 27, 2003 the plaintiffs in this matter filed a motion to temporarily enjoin our shareholder vote on
the proposed merger. This motion was denied by the court the same day.



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.



On July 30, 2003 John DEri filed a lawsuit against Concord, National Payment Systems
Inc., and Concord Payment Systems (CPS) in New York State Supreme Court. The plaintiff was the principal of a business that had contracted to have CPS provide credit card processing services. CPS has unsuccessfully sought to collect $90,000 of the
businesss unpaid obligations from the plaintiff, based upon his personal guaranty. The complaint alleges claims of defamation and tortious interference, asserting that the plaintiff did not sign a guaranty and that CPS wrongfully reported his
failure to honor the guaranty to credit rating agencies. The complaint seeks damages in excess of $10.0 million and to compel CPS to withdraw its report to the credit rating agencies. On October 13, 2003 we answered the complaint, denying the
allegations and asserting



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CONCORD EFS, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION



|Item 1. |  | Legal Proceedings, continued
|------- |  | ----------------------------



counterclaims against the plaintiff. Although this matter is in the preliminary stages, we believe that the claims against us are without merit and we intend
to vigorously defend against all claims.



On April 30, 2003 Global Marketing,
LLC (Global) and Martin Fischer filed an amended complaint naming CPS as a defendant in a lawsuit first filed on August 28, 2002 in New York State Supreme Court. The plaintiffs allege that CPS engaged in unfair competition and tortious interference
by allegedly hiring a former employee of Global and then allegedly using trade secrets that the employee misappropriated from Global. The complaint seeks damages in the amount of $4.0 million for unspecified losses. On July 31, 2003 CPS answered the
complaint, denying the allegations, asserting that it had never hired or otherwise had contact with the individual in question. Although this matter is in the preliminary stages, we believe that the claims are without merit and we intend to
vigorously defend against all 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 those actions were certain of our current and former officers and
directors. The complaints generally alleged 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 sought 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 were 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.



On or about April 2, 2003 an additional purported
class action complaint was filed in the Chancery Court for Shelby County, Tennessee, by Barton K. OBrien. The defendants were Concord, certain of our current and former officers and directors, and First Data. This complaint contained
allegations regarding the individual defendants alleged insider trading and alleged violations of securities and other laws and asserted that this alleged misconduct reduced the consideration offered to our shareholders in the proposed merger
between Concord and First Data. The complaint sought class certification, attorneys fees, experts fees, costs and other relief the court deems just and proper. Moreover, the complaint also sought an order enjoining consummation of the
merger, rescinding the



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CONCORD EFS, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION



|Item 1. |  | Legal Proceedings, continued
|------- |  | ----------------------------



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. On June 25, 2003 this complaint was transferred to the Shelby County Circuit Court in which In re Concord EFS, Inc. Shareholder Litigation is pending. Through a court-ordered second amended
consolidated complaint filed September 19, 2003, this matter was consolidated with that matter. On October 15, 2003, the plaintiffs moved for leave to file a third amended consolidated complaint similar to the previous complaints but also alleging
that the proxy statement disclosures relating to the antitrust regulatory approval process were inadequate. On October 17, 2003, the plaintiffs filed a motion for preliminary injunction to enjoin the shareholder vote on the proposed merger and/or
the merger itself. The court denied the plaintiffs motion on October 20, 2003 but ordered deposition discovery on an expedited basis. On October 27, 2003 the plaintiffs filed a renewed motion to enjoin the shareholder vote, which was denied by
the court the same day. Although this consolidated matter is still in the preliminary stages, we believe that the claims are without merit and we intend to vigorously contest these claims.



On November 5, 2002 Richard R. Sutherland filed a lawsuit against a number of defendants,
including Concord EFS National Bank, in the Superior Court of California, County of Santa Clara. The plaintiff made several allegations, including breach of contract, fraud and negligent misrepresentation arising out of business transactions between
the plaintiff and Purchase Plus Buyers Group, an entity which formerly processed credit card transactions through Concord EFS National Bank. This lawsuit sought compensatory damages in the amount of $55,000 and punitive damages in the amount of
$195.0 million. Concord EFS National Bank filed a demurrer seeking dismissal of the complaint. The court granted the motion on October 10, 2003 with leave to amend. Should the plaintiff file an amended complaint, we intend to vigorously contest the
plaintiffs claims.



On June 11, 2002 Walter E. Ryan and Ryco Development,
Inc. filed a purported class action lawsuit against Concord EFS National Bank, Concord, and John Doe Corporations in the United States District Court for the Western District of Tennessee. The plaintiffs alleged that we 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 alleged 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 sought to certify consisted of all merchant customers of Concord 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



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CONCORD EFS, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION



|Item 1. |  | Legal Proceedings, continued
|------- |  | ----------------------------



undertook, and/or charges in excess of the amount agreed upon in their contracts. The lawsuit sought unspecified compensatory and punitive damages,
attorneys fees, and other relief. We moved to dismiss all claims, the motion was granted by the court on August 13, 2003 and judgment was entered in favor of Concord EFS National Bank and Concord on August 19, 2003. On September 11, 2003 the
plaintiffs filed a notice of appeal. No briefing schedule has yet been set. We intend to vigorously defend this appeal.



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. This case has been set for trial on February 2, 2004. On September 22, 2003, the court heard our
motion in limine relating to expert testimony and requesting a Frye hearing but has not ruled on this motion. 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 4. |  | Submission of Matters to a Vote of Security Holders
|------- |  | ---------------------------------------------------



At a special meeting of our shareholders held on October 28, 2003, our shareholders elected to adopt the Agreement and Plan of Merger, dated as of April 1, 2003, among
First Data Corporation, Monaco Subsidiary Corporation, a wholly owned subsidiary of First Data, and Concord EFS, Inc., with votes cast as follows: 294,532,600 shares for, 1,749,882 shares against, 2,749,971 abstentions, and no broker non-votes.



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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.                                                                                
|            | 
|31.1        |  | Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                              
|            | 
|31.2        |  | Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                              
|            | 
|31.3        |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                 
|            | 
|32.1        |  | Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                              
|            | 
|32.2        |  | Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                              
|            | 
|32.3        |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                 
|            | 
|99.1        |  | Cautionary Statements                                                                                                                                                                                                                                                              



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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 July 29, 2003 we filed a current report on Form 8-K to furnish, under Item 12 of that form, our press release containing earnings information for our second quarter of
2003 ended June 30, 2003.



On October 23, 2003 we filed a current report on
Form 8-K to furnish, under Item 12 of that form, our press release containing earnings information for our third quarter of 2003 ended September 30, 2003.



On October 23, 2003 we filed a current report on Form 8-K to file, under Item 5 of that form, our press release regarding the proposed merger with First Data Corporation.



On October 24, 2003 we filed a current report on Form 8-K to file, under Item
5 of that form, a press release issued by First Data Corporation and Concord EFS, Inc. regarding the complaint filed by the United States Department of Justice, seven states and the District of Columbia seeking to block the proposed merger of First
Data Corporation and Concord EFS, Inc.



On October 24, 2003 we filed a current
report on Form 8-K to file, under Item 5 of that form, the complaint filed on October 23, 2003 by the United States Department of Justice, seven states and the District of Columbia seeking to block the proposed merger of First Data Corporation and
Concord EFS, Inc.



On October 24, 2003 we filed a current report on Form 8-K to
file, under Item 5 of that form, our financial results for the three- and nine-month periods ended September 30, 2003.



On October 28, 2003 we filed a current report on Form 8-K to furnish, under Item 9 of that form, a press release announcing that our shareholders had approved a proposal
to adopt the merger agreement entered into between Concord EFS, Inc., First Data Corporation and Monaco Subsidiary Corporation, a wholly owned subsidiary of First Data Corporation.



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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: November 7, 2003 |  |  |  | By:              
|                       |  |  |  |                  
|                       |  |  |  |                  



|                       |  |  | 
|---------------------- |  |  | 
|Date: November 7, 2003 |  |  | 
|                       |  |  | 
|                       |  |  | 



|                       |  |  | 
|---------------------- |  |  | 
|Date: November 7, 2003 |  |  | 
|                       |  |  | 
|                       |  |  | 



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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.                                                                                
|            | 
|31.1        |  | Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                              
|            | 
|31.2        |  | Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                              
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|31.3        |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                 
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|32.1        |  | Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                              
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|32.2        |  | Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                              
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|32.3        |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                 
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|99.1        |  | Cautionary Statements