##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

|           |  |                                                                                         
|---------- |  | ----------------------------------------------------------------------------------------
|(CHECKBOX) |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.



| |  | For the quarterly period ended September 30, 2001
| |  | -------------------------------------------------

OR

|      |  |                                                                                          
|----- |  | -----------------------------------------------------------------------------------------
|(BOX) |  | 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 000-13848



CONCORD EFS, INC.

(Exact Name of Registrant as Specified in its Charter)


|                                                               |  |                                    
|-------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                       |  | 04-2462252                         
|                                                               |  |                                    
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (IRS EmployerIdentification Number)

2525 Horizon Lake Drive, Suite 120, Memphis, Tennessee 38133(Address of Principal Executive Offices)

(901) 371-8000(Registrants Telephone Number, Including Area Code)



Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. Yes (CHECKBOX)   No (BOX)

The number of shares of the registrants Common Stock, $0.33 1/3 par value,
outstanding as of October 31, 2001 was 503,743,150.





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TABLE OF CONTENTS



|                                                           |                                                      |  |  |  |  |  |  | 
|---------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  |  | 
|Item 1. Financial Statements                              
|                                                           | Condensed Consolidated Balance Sheets               
|                                                           | Condensed Consolidated Statements of Income         
|                                                           | Condensed Consolidated Statements of Cash Flows     
|                                                           | Notes to Condensed Consolidated Financial Statements
|Managements Discussion & Analysis                        
|Quantitative and Qualitative Disclosures About Market Risk
|Other Information                                         
|Item 1. Legal Proceedings                                 
|Item 6. Exhibits and Reports on Form 8-K                  
|Signatures                                                
|Exhibit Index                                             



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##### Table of Contents



CONCORD EFS, INC. AND SUBSIDIARIES

Index

|                                                                                              |  |                                                                                                                              |    |             |   | 
|--------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------- | -- | ----------- | - | 
|                                                                                              |  |                                                                                                                              |    | Page Number
|                                                                                              |  |                                                                                                                              |    |            
|PART I  Financial Information                                                                |  |                                                                                                                              |    |            
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Financial Statements (Unaudited)                                                      |  |                                                                                                                              |    |            
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  | Condensed Consolidated Balance Sheets as of September 30, 2001
and December 31, 2000                                         |    |             | 1 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  | Condensed Consolidated Statements of Income for Three Months and
Nine Months ended September 30, 2001 and September 30, 2000 |    |             | 2 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  | Condensed Consolidated Statements of Cash Flows for
Nine Months ended September 30, 2001 and September 30, 2000              |    |             | 3 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  | Notes to Condensed Consolidated Financial Statements                                                                         |    |             | 4 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |  |                                                                                                                              | 12 |            
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 3. Quantitative and Qualitative Disclosures About
Market Risk                            |  |                                                                                                                              | 19 |            
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|PART II  Other Information                                                                   |  |                                                                                                                              |    |            
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Legal Proceedings                                                                     |  |                                                                                                                              | 20 |            
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 6. Exhibits and Reports on Form 8-K                                                      |  |                                                                                                                              | 20 |            
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Signatures                                                                                    |  |                                                                                                                              | 21 |            





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##### Table of Contents









CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

|                                           |                                           |   |                |           |              |   |           |           | 
|------------------------------------------ | ----------------------------------------- | - | -------------- | --------- | ------------ | - | --------- | --------- | 
|                                           |                                           |   | September 30,  |           | December 31,
|                                           |                                           |   | 2001           |           | 2000        
|                                           |                                           |   |                |           |             
|                                           |                                           |   | (in thousands)
|ASSETS                                    
|CURRENT ASSETS                            
|                                           | Cash and cash equivalents                 |   | $              | 442,265   |              |   | $         | 231,762   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Securities available for sale             |   |                | 1,114,124 |              |   |           | 649,425   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts receivable, net                  |   |                | 346,424   |              |   |           | 307,756   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Inventories                               |   |                | 19,779    |              |   |           | 15,087    | 
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid expenses and other current assets |   |                | 34,036    |              |   |           | 22,125    | 
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred income taxes                     |   |                | 2,876     |              |   |           | 6,732     | 
|                                           |                                           |   |                |           |              |   |           |          
|TOTAL CURRENT ASSETS                       |                                           |   | 1,959,504      |           |              |   | 1,232,887 |          
|                                          
|                                          
|                                          
|                                          
|Loans, net                                 |                                           |   | 95,117         |           |              |   | 78,654    |          
|                                          
|                                          
|                                          
|                                          
|Property and equipment, net                |                                           |   | 229,972        |           |              |   | 214,662   |          
|                                          
|                                          
|                                          
|                                          
|Goodwill, net                              |                                           |   | 161,433        |           |              |   | 150,049   |          
|                                          
|                                          
|                                          
|                                          
|Other intangible assets, net               |                                           |   | 83,540         |           |              |   | 75,644    |          
|                                          
|                                          
|                                          
|                                          
|Other assets                               |                                           |   | 13,869         |           |              |   | 9,769     |          
|                                           |                                           |   |                |           |              |   |           |          
|TOTAL ASSETS                               |                                           | $ | 2,543,435      |           |              | $ | 1,761,665 |          
|                                           |                                           |   |                |           |              |   |           |          
|LIABILITIES AND STOCKHOLDERS EQUITY      
|CURRENT
LIABILITIES                       
|                                           | Accounts payable and other liabilities    |   | $              | 364,539   |              |   | $         | 296,980   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Deposits                                  |   |                | 164,864   |              |   |           | 125,834   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued liabilities                       |   |                | 39,924    |              |   |           | 48,307    | 
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued restructuring charges             |   |                | 38,417    |              |   |           | 3,410     | 
|                                          
|                                          
|                                          
|                                          
|                                           | Income taxes payable                      |   |                | 64,153    |              |   |           |          | 
|                                          
|                                          
|                                          
|                                          
|                                           | Current maturities of long-term debt      |   |                |          |              |   |           | 3,357     | 
|                                           |                                           |   |                |           |              |   |           |          
|TOTAL CURRENT LIABILITIES                  |                                           |   | 671,897        |           |              |   | 477,888   |          
|                                          
|                                          
|                                          
|                                          
|Long-term debt                             |                                           |   | 119,483        |           |              |   | 109,911   |          
|                                          
|                                          
|                                          
|                                          
|Deferred income taxes                      |                                           |   | 17,020         |           |              |   | 31,871    |          
|                                          
|                                          
|                                          
|                                          
|Other liabilities                          |                                           |   | 4,616          |           |              |   | 6,412     |          
|                                           |                                           |   |                |           |              |   |           |          
|TOTAL LIABILITIES                          |                                           |   | 813,016        |           |              |   | 626,082   |          
|                                           |                                           |   |                |           |              |   |           |          
|Commitments and contingent liabilities     |                                           |   |               |           |              |   |          |          
|                                          
|                                          
|                                          
|                                          
|Minority interest in subsidiary            |                                           |   | 3,195          |           |              |   | 3,052     |          
|                                           |                                           |   |                |           |              |   |           |          
|STOCKHOLDERS EQUITY                      
|                                           | Common stock                              |   |                | 167,913   |              |   |           | 80,485    | 
|                                          
|                                          
|                                          
|                                          
|                                           | Other stockholders equity                |   |                | 1,559,311 |              |   |           | 1,052,046 | 
|                                           |                                           |   |                |           |              |   |           |          
|TOTAL STOCKHOLDERS EQUITY                 |                                           |   | 1,727,224      |           |              |   | 1,132,531 |          
|                                           |                                           |   |                |           |              |   |           |          
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                                           | $ | 2,543,435      |           |              | $ | 1,761,665 |          
|                                           |                                           |   |                |           |              |   |           |          

See Notes to Condensed Consolidated Financial Statements.

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##### Table of Contents






CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

|                                              |                                                  |   |                                       |   |                   |   |         |   |      |   |           |   |  |   |           |   | 
|--------------------------------------------- | ------------------------------------------------ | - | ------------------------------------- | - | ----------------- | - | ------- | - | ---- | - | --------- | - |  | - | --------- | - | 
|                                              |                                                  |   | Three months ended                    |   | Nine months ended
|                                              |                                                  |   | September 30,                         |   | September 30,    
|                                              |                                                  |   |                                       |   |                  
|                                              |                                                  |   | 2001                                  |   | 2000              |   | 2001    |   | 2000
|                                              |                                                  |   |                                       |   |                   |   |         |   |     
|                                              |                                                  |   | (in thousands, except per share data)
|Revenue                                       |                                                  | $ | 437,074                               |   |                   | $ | 363,908 |   |      | $ | 1,233,398 |   |  | $ | 1,005,673 |  
|                                             
|                                             
|                                             
|                                             
|Cost of operations                            |                                                  |   | 304,414                               |   |                   |   | 259,315 |   |      |   | 874,301   |   |  |   | 722,601   |  
|                                             
|                                             
|                                             
|                                             
|Selling, general and
administrative expenses  |                                                  |   | 22,348                                |   |                   |   | 23,633  |   |      |   | 68,874    |   |  |   | 69,515    |  
|                                             
|                                             
|                                             
|                                             
|Acquisition and
restructuring charges         |                                                  |   |                                      |   |                   |   | 10,915  |   |      |   | 125,362   |   |  |   | 11,691    |  
|                                              |                                                  |   |                                       |   |                   |   |         |   |      |   |           |   |  |   |           |  
|OPERATING INCOME                              |                                                  |   | 110,312                               |   |                   |   | 70,045  |   |      |   | 164,861   |   |  |   | 201,866   |  
|                                             
|                                             
|                                             
|                                             
|Other income (expense)                        |                                                  |   |                                       |   |                   |   |         |   |      |   |           |   |  |   |           |  
|                                             
|                                             
|                                             
|                                             
|Interest income                               |                                                  |   | 19,702                                |   |                   |   | 12,866  |   |      |   | 50,424    |   |  |   | 33,866    |  
|                                             
|                                             
|                                             
|                                             
|Interest expense                              |                                                  |   | (3,510                                | ) |                   |   | (2,918  | ) |      |   | (9,890    | ) |  |   | (7,931    | )
|                                              |                                                  |   |                                       |   |                   |   |         |   |      |   |           |   |  |   |           |  
|INCOME BEFORE TAXES AND
MINORITY INTEREST     |                                                  |   | 126,504                               |   |                   |   | 79,993  |   |      |   | 205,395   |   |  |   | 227,801   |  
|                                             
|                                             
|                                             
|                                             
|Income taxes                                  |                                                  |   | 44,910                                |   |                   |   | 29,586  |   |      |   | 78,438    |   |  |   | 83,296    |  
|                                              |                                                  |   |                                       |   |                   |   |         |   |      |   |           |   |  |   |           |  
|INCOME BEFORE MINORITY INTEREST               |                                                  |   | 81,594                                |   |                   |   | 50,407  |   |      |   | 126,957   |   |  |   | 144,505   |  
|                                             
|                                             
|                                             
|                                             
|Minority interest in
net income of subsidiary |                                                  |   | 138                                   |   |                   |   | 161     |   |      |   | 311       |   |  |   | 465       |  
|                                              |                                                  |   |                                       |   |                   |   |         |   |      |   |           |   |  |   |           |  
|NET INCOME                                    |                                                  | $ | 81,456                                |   |                   | $ | 50,246  |   |      | $ | 126,646   |   |  | $ | 144,040   |  
|                                              |                                                  |   |                                       |   |                   |   |         |   |      |   |           |   |  |   |           |  
|Pro forma provision
for income taxes          |                                                  |   |                                      |   |                   |   |        |   |      |   |          |   |  |   | 260       |  
|                                              |                                                  |   |                                       |   |                   |   |         |   |      |   |           |   |  |   |           |  
|PRO FORMA NET INCOME                          |                                                  | $ | 81,456                                |   |                   | $ | 50,246  |   |      | $ | 126,646   |   |  | $ | 143,780   |  
|                                              |                                                  |   |                                       |   |                   |   |         |   |      |   |           |   |  |   |           |  
|PER SHARE DATA:                               |                                                  |   |                                       |   |                   |   |         |   |      |   |           |   |  |   |           |  
|                                             
|                                             
|                                             
|                                             
|                                              | Basic and pro forma basic
earnings per share     | $ | 0.16                                  |   |                   | $ | 0.11    |   |      | $ | 0.26      |   |  | $ | 0.30      |  
|                                              |                                                  |   |                                       |   |                   |   |         |   |      |   |           |   |  |   |           |  
|                                              | Diluted and pro forma diluted
earnings per share | $ | 0.16                                  |   |                   | $ | 0.10    |   |      | $ | 0.25      |   |  | $ | 0.29      |  
|                                              |                                                  |   |                                       |   |                   |   |         |   |      |   |           |   |  |   |           |  
|AVERAGE SHARES OUTSTANDING:                   |                                                  |   |                                       |   |                   |   |         |   |      |   |           |   |  |   |           |  
|                                             
|                                             
|                                             
|                                             
|                                              | Basic shares                                     |   | 503,193                               |   |                   |   | 478,218 |   |      |   | 491,102   |   |  |   | 477,685   |  
|                                              |                                                  |   |                                       |   |                   |   |         |   |      |   |           |   |  |   |           |  
|                                              | Diluted shares                                   |   | 524,510                               |   |                   |   | 497,956 |   |      |   | 512,319   |   |  |   | 493,364   |  
|                                              |                                                  |   |                                       |   |                   |   |         |   |      |   |           |   |  |   |           |  

See Notes to Condensed Consolidated Financial Statements.

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##### Table of Contents






CONCORD EFS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                               |                                                         |   |                   |          |      |   |          |          |  
|---------------------------------------------- | ------------------------------------------------------- | - | ----------------- | -------- | ---- | - | -------- | -------- | -
|                                               |                                                         |   | Nine months ended
|                                               |                                                         |   | September 30,    
|                                               |                                                         |   |                  
|                                               |                                                         |   | 2001              |          | 2000
|                                               |                                                         |   |                   |          |     
|                                               |                                                         |   | (in thousands)   
|OPERATING ACTIVITIES                          
|NET CASH PROVIDED BY OPERATING ACTIVITIES      |                                                         | $ | 317,020           |          |      | $ | 229,058  |         
|                                              
|                                              
|                                              
|                                              
|INVESTING ACTIVITIES                          
|                                               | Acquisition of securities
available for sale            |   |                   | (948,255 | )    |   |          | (182,531 | )
|                                              
|                                              
|                                              
|                                              
|                                               | Proceeds from sales of securities
available for sale    |   |                   | 374,553  |      |   |          | 39,209   |  
|                                              
|                                              
|                                              
|                                              
|                                               | Proceeds from maturity of securities
available for sale |   |                   | 127,391  |      |   |          | 20,528   |  
|                                              
|                                              
|                                              
|                                              
|                                               | Purchases of loans                                      |   |                   | (30,915  | )    |   |          | (53,657  | )
|                                              
|                                              
|                                              
|                                              
|                                               | Acquisition of property and equipment                   |   |                   | (82,881  | )    |   |          | (59,830  | )
|                                              
|                                              
|                                              
|                                              
|                                               | Purchased merchant contracts                            |   |                   | (22,581  | )    |   |          | (25,471  | )
|                                              
|                                              
|                                              
|                                              
|                                               | Business acquisition                                    |   |                   | (19,700  | )    |   |          |         |  
|                                              
|                                              
|                                              
|                                              
|                                               | Other investing activity                                |   |                   | 7,952    |      |   |          | 10,003   |  
|                                               |                                                         |   |                   |          |      |   |          |         
|NET CASH USED IN INVESTING ACTIVITIES          |                                                         |   | (594,436          | )        |      |   | (251,749 | )       
|                                              
|                                              
|                                              
|                                              
|FINANCING ACTIVITIES                           |                                                         |   |                   |          |      |   |          |         
|                                               | Net increase in deposits                                |   |                   | 39,030   |      |   |          | 18,940   |  
|                                              
|                                              
|                                              
|                                              
|                                               | Proceeds from notes payable                             |   |                   | 21,000   |      |   |          | 24,000   |  
|                                              
|                                              
|                                              
|                                              
|                                               | Payments on notes payable                               |   |                   | (14,444  | )    |   |          | (21,487  | )
|                                              
|                                              
|                                              
|                                              
|                                               | Proceeds from offering of common stock                  |   |                   | 421,930  |      |   |          |         |  
|                                              
|                                              
|                                              
|                                              
|                                               | Proceeds from exercise of stock options                 |   |                   | 21,620   |      |   |          | 7,326    |  
|                                              
|                                              
|                                              
|                                              
|                                               | Payments on leases payable                              |   |                   | (1,217   | )    |   |          | (2,392   | )
|                                              
|                                              
|                                              
|                                              
|                                               | Activity by pooled subsidiaries                         |   |                   |         |      |   |          | (2,901   | )
|                                               |                                                         |   |                   |          |      |   |          |         
|NET CASH PROVIDED BY FINANCING ACTIVITIES      |                                                         |   | 487,919           |          |      |   | 23,486   |         
|                                               |                                                         |   |                   |          |      |   |          |         
|NET INCREASE IN CASH AND CASH EQUIVALENTS      |                                                         |   | 210,503           |          |      |   | 795      |         
|                                              
|                                              
|                                              
|                                              
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |                                                         |   | 231,762           |          |      |   | 173,099  |         
|                                               |                                                         |   |                   |          |      |   |          |         
|CASH AND CASH EQUIVALENTS AT END OF PERIOD     |                                                         | $ | 442,265           |          |      | $ | 173,894  |         
|                                               |                                                         |   |                   |          |      |   |          |         

See Notes to Condensed Consolidated Financial Statements.

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##### Table of Contents






CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note A  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of 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, 2001 are not necessarily indicative of the results that may
be expected for the year ended December 31, 2001. For further information,
refer to the consolidated financial statements and footnotes thereto included
in Amendment No. 1 to the Concord EFS, Inc. and Subsidiaries (Concord) current
report on Form 8-K filed April 16, 2001 for the year ended December 31, 2000.

Nature of Operations: Concord is a vertically integrated electronic
transaction processor. 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 payment processing for supermarkets, major
retailers, petroleum dealers, convenience stores, trucking companies and
independent retailers.

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

Business Combinations: The condensed consolidated financial statements have
been restated for all transactions accounted for as poolings-of-interests to
combine the financial position, results of operations and cash flows of the
respective companies for all periods presented. 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 since the date of
acquisition.

Reclassification: Certain 2000 amounts have been reclassified to conform to the
2001 presentation.

Recent Pronouncements: In June 2001 the Financial Accounting Standards Board
issued Statements of Financial Accounting Standards No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for
fiscal years beginning after December 15, 2001. Under the new rules, goodwill
will no longer be amortized but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will continue to be
amortized over their useful lives. Furthermore, pooling-of-interests
accounting will be prohibited for business combinations initiated subsequent to
June 30, 2001.

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##### Table of Contents



CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note A  Basis of Presentation, continued

Concord will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. The effect of the
application of the non-amortization provisions of the Statement will be
reviewed during the remainder of the year. During 2002, Concord will perform
the first of the required impairment tests of goodwill as of January 1, 2002.
Concord has not yet determined what the effect of these tests will be on its
earnings and financial position.

Note B  Business Combinations

On February 1, 2001 Concord acquired Star
Systems, Inc. (STARSM), a debit
network. The acquisition was accounted for as a pooling-of-interests
transaction in which Concord issued approximately 48.0 million shares of
its common stock.

On August 21, 2000 Concord acquired Cash
Station, Inc. (Cash Station®), a
debit network. The acquisition was accounted for as a pooling-of-interests
transaction in which Concord issued approximately 5.0 million shares of its
common stock.

On January 31, 2000 Concord acquired National Payment Systems Inc. d/b/a
Card Payment Systems, a reseller of payment processing services. The
acquisition was accounted for as a pooling-of-interests transaction in
which Concord issued approximately 12.5 million shares of its common stock.

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##### Table of Contents



CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note B  Business Combinations, continued

The following table presents selected financial information split among
Concord, Card Payment Systems, Cash Station and STAR:

|                                              |                                                               |   |                                       |         |                   |   |      |         |      |   |      |           |   |   |      |           |  
|--------------------------------------------- | ------------------------------------------------------------- | - | ------------------------------------- | ------- | ----------------- | - | ---- | ------- | ---- | - | ---- | --------- | - | - | ---- | --------- | -
|                                              |                                                               |   | Three months ended                    |         | Nine months ended
|                                              |                                                               |   | September 30,                         |         | September 30,    
|                                              |                                                               |   |                                       |         |                  
|                                              |                                                               |   | 2001                                  |         | 2000              |   | 2001 |         | 2000
|                                              |                                                               |   |                                       |         |                   |   |      |         |     
|                                              |                                                               |   | (in thousands, except per share data)
|Revenue:                                      |                                                               |   |                                       |         |                   |   |      |         |      |   |      |           |   |   |      |          
|                                             
|                                             
|                                             
|                                             
|                                              | Concord                                                       |   | $                                     | 437,074 |                   |   | $    | 318,700 |      |   | $    | 1,218,526 |   |   | $    | 862,543   |  
|                                             
|                                             
|                                             
|                                             
|                                              | Card Payment Systems (1)                                      |   |                                       |        |                   |   |      |        |      |   |      |          |   |   |      | 4,047     |  
|                                             
|                                             
|                                             
|                                             
|                                              | Cash Station (2)                                              |   |                                       |        |                   |   |      |        |      |   |      |          |   |   |      | 9,495     |  
|                                             
|                                             
|                                             
|                                             
|                                              | STAR (3)                                                      |   |                                       |        |                   |   |      | 47,066  |      |   |      | 15,396    |   |   |      | 134,856   |  
|                                             
|                                             
|                                             
|                                             
|                                              | Intercompany eliminations (4)                                 |   |                                       |        |                   |   |      | (1,858  | )    |   |      | (524      | ) |   |      | (5,268    | )
|                                              |                                                               |   |                                       |         |                   |   |      |         |      |   |      |           |   |   |      |          
|                                              | Combined revenue                                              |   | $                                     | 437,074 |                   |   | $    | 363,908 |      |   | $    | 1,233,398 |   |   | $    | 1,005,673 |  
|                                              |                                                               |   |                                       |         |                   |   |      |         |      |   |      |           |   |   |      |          
|Pro forma net income:                         |                                                               |   |                                       |         |                   |   |      |         |      |   |      |           |   |   |      |          
|                                             
|                                             
|                                             
|                                             
|                                              | Concord                                                       |   | $                                     | 81,456  |                   |   | $    | 44,053  |      |   | $    | 123,718   |   |   | $    | 126,979   |  
|                                             
|                                             
|                                             
|                                             
|                                              | Card Payment Systems (1)                                      |   |                                       |        |                   |   |      |        |      |   |      |          |   |   |      | 650       |  
|                                             
|                                             
|                                             
|                                             
|                                              | Cash Station (2)                                              |   |                                       |        |                   |   |      |        |      |   |      |          |   |   |      | 816       |  
|                                             
|                                             
|                                             
|                                             
|                                              | STAR (3)                                                      |   |                                       |        |                   |   |      | 6,193   |      |   |      | 2,928     |   |   |      | 15,595    |  
|                                             
|                                             
|                                             
|                                             
|                                              | Pro forma provision
for Card Payment Systems
income taxes (5) |   |                                       |        |                   |   |      |        |      |   |      |          |   |   |      | (260      | )
|                                              |                                                               |   |                                       |         |                   |   |      |         |      |   |      |           |   |   |      |          
|                                              | Combined pro forma net income                                 |   | $                                     | 81,456  |                   |   | $    | 50,246  |      |   | $    | 126,646   |   |   | $    | 143,780   |  
|                                              |                                                               |   |                                       |         |                   |   |      |         |      |   |      |           |   |   |      |          
|Pro forma basic earnings
per share combined   |                                                               | $ | 0.16                                  |         |                   | $ | 0.11 |         |      | $ | 0.26 |           |   | $ | 0.30 |          
|                                              |                                                               |   |                                       |         |                   |   |      |         |      |   |      |           |   |   |      |          
|Pro forma diluted earnings
per share combined |                                                               | $ | 0.16                                  |         |                   | $ | 0.10 |         |      | $ | 0.25 |           |   | $ | 0.29 |          
|                                              |                                                               |   |                                       |         |                   |   |      |         |      |   |      |           |   |   |      |          



|(1) |  | The 2000 amounts reflect the results of Card Payment Systems operations
from January 1, 2000 through January 31, 2000. Results of operations from
February 1, 2000 are included in Concord amounts.                                                                                                                                                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The 2000 amounts reflect the results of Cash Station operations from
January 1, 2000 through June 30, 2000. Results of operations from July 1,
2000 are included in Concord amounts.                                                                                                                                                                                                                                                                               
|   
|(3) |  | The three months ended September 30, 2000 amounts reflect the results of
STAR operations from July 1, 2000 through September 30, 2000. The nine
months ended September 30, 2000 amounts reflect the results of STAR
operations from January 1, 2000 through September 30, 2000.
The 2001 amounts reflect the results of STAR operations from January 1,
2001 through January 31, 2001. Results of operations from February 1, 2001
are included in Concord amounts.

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##### Table of Contents



CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note B  Business Combinations, continued



|(4) |  | All material activity between Concord and STAR has been eliminated.                                                                                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(5) |  | The results of operations include pro forma income taxes that would
have been required if Card Payment Systems had been a taxable
corporation. The former owners of Card Payment Systems were responsible
for income taxes for the periods prior to the merger.

Concord owns a majority interest in Primary Payment Systems, Inc., a deposit
risk management company. In April 2001 Concord increased its ownership
position in Primary Payment Systems to 85% through the purchase of newly issued
shares, which largely funded Primary Payment Systems acquisition of Wally
Industries, Inc. d/b/a WJM Technologies. Primary Payment Systems is immaterial
to Concords financial statements.

On February 7, 2000 Concord acquired Virtual Cyber Systems, Inc., an
Internet software development company. The acquisition of Virtual Cyber
Systems, for which Concord paid approximately $2.0 million, was accounted for
as a purchase transaction and was immaterial to Concords financial statements.

Acquisition and restructuring charges were $125.4 million ($86.4 million, net
of taxes) for the three months ended March 31, 2001. The expenses and charges
were a result of a company-wide consolidation plan to address areas of
operating redundancies created by recent acquisitions. The plan includes
consolidation of data centers and other facilities to eliminate redundancies,
the reassignment or termination of certain employees timed to coincide with the
integration of redundant processing platforms and the functional integration of
the STAR organization into Concord. The charges included $63.9 million for
combining various processing platforms, $16.0 million for the consolidation of
duplicate products and internal systems, $15.6 million for accounting, legal
and advisory fees, $19.1 million for the termination of certain data center
services contracts, $9.8 million for compensation and severance costs and $1.0
million for other expenses. In connection with the consolidation plan, Concord
expects to eliminate approximately 250 positions, 200 of which were eliminated
as of September 30, 2001. Compensation and severance costs paid and charged
against the restructuring charge accrual were $5.7 million through September
30, 2001. As of September 30, 2001, $38.4 million of the acquisition and
restructuring expenses were accrued but unpaid.

As of September 30, 2001, there was no remaining balance related to the 2000
Cash Station restructuring charge accrual.

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##### Table of Contents



CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note B  Business Combinations, continued

The following table presents a summary of activity in the 2001 restructuring
charge accrual, in thousands:

|                                      |  |   |         | 
|------------------------------------- |  | - | ------- | 
|Balance, December 31, 2000            |  | $ |        | 
|                                     
|                                     
|                                     
|                                     
|Acquisition and restructuring charges |  |   | 125,362 | 
|                                     
|                                     
|                                     
|                                     
|Cash outlays                          |  |   | 67,029  | 
|                                     
|                                     
|                                     
|                                     
|Non-cash writedowns and charges       |  |   | 19,916  | 
|                                      |  |   |         | 
|Balance, September 30, 2001           |  | $ | 38,417  | 
|                                      |  |   |         | 

The following table presents a summary of the components of the 2001
restructuring charge accrual, in thousands:

|                                               |  |   |        | 
|---------------------------------------------- |  | - | ------ | 
|Office closings and operational de-conversions |  | $ | 25,305 | 
|                                              
|                                              
|                                              
|                                              
|Contract terminations                          |  |   | 7,905  | 
|                                              
|                                              
|                                              
|                                              
|Compensation and severance                     |  |   | 4,050  | 
|                                              
|                                              
|                                              
|                                              
|Other                                          |  |   | 1,157  | 
|                                               |  |   |        | 
|Balance, September 30, 2001                    |  | $ | 38,417 | 
|                                               |  |   |        | 

Note C  Stock Split

The Board of Directors approved a two-for-one stock split on August 30, 2001.
Shareholders of record as of September 14, 2001 were distributed additional
shares on September 28, 2001. All share data, earnings per share and per share
data have been restated to reflect the stock split.

Note D  Offering of Common Stock

In June 2001, Concord issued and sold 17,758,000 shares of its common stock
pursuant to a registration statement filed with the Securities and Exchange
Commission. Pursuant to the same registration statement, the selling
stockholders named in the registration statement sold 34,063,698 shares of
Concord common stock. Most of the selling stockholders were the previous
owners of STAR who received unregistered common stock of Concord in connection
with the February 1, 2001 acquisition. Net of the underwriting discount of the
offering, Concord received $421.9 million for the common stock it issued and
sold. Concord did not receive any proceeds from the sale of shares by the
selling stockholders.

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##### Table of Contents



CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note E  Comprehensive Income

Total comprehensive income was $84.4 million and $53.4 million for the three
months ended September 30, 2001 and 2000, respectively. Total comprehensive
income was $135.9 million and $148.8 million for the nine months ended
September 30, 2001 and 2000, 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 F  Earnings Per Share

The following table sets forth the computation of basic and diluted earnings
per share:

|                           |                                                                                                      |   |                                       |         |                   |   |      |         |      |   |      |         |  |   |      |         | 
|-------------------------- | ---------------------------------------------------------------------------------------------------- | - | ------------------------------------- | ------- | ----------------- | - | ---- | ------- | ---- | - | ---- | ------- |  | - | ---- | ------- | 
|                           |                                                                                                      |   | Three months ended                    |         | Nine months ended
|                           |                                                                                                      |   | September 30,                         |         | September 30,    
|                           |                                                                                                      |   |                                       |         |                  
|                           |                                                                                                      |   | 2001                                  |         | 2000              |   | 2001 |         | 2000
|                           |                                                                                                      |   |                                       |         |                   |   |      |         |     
|                           |                                                                                                      |   | (in thousands, except per share data)
|Numerator:                 |                                                                                                      |   |                                       |         |                   |   |      |         |      |   |      |         |  |   |      |        
|                          
|                          
|                          
|                          
|                           | Net income                                                                                           |   | $                                     | 81,456  |                   |   | $    | 50,246  |      |   | $    | 126,646 |  |   | $    | 144,040 | 
|                           |                                                                                                      |   |                                       |         |                   |   |      |         |      |   |      |         |  |   |      |        
|Denominator:               |                                                                                                      |   |                                       |         |                   |   |      |         |      |   |      |         |  |   |      |        
|                          
|                          
|                          
|                          
|                           | Denominator for basic earnings
per share, weighted-average shares                                    |   |                                       | 503,193 |                   |   |      | 478,218 |      |   |      | 491,102 |  |   |      | 477,685 | 
|                          
|                          
|                          
|                          
|                           | Effect of dilutive employee
stock options                                                            |   |                                       | 21,317  |                   |   |      | 19,738  |      |   |      | 21,217  |  |   |      | 15,679  | 
|                           |                                                                                                      |   |                                       |         |                   |   |      |         |      |   |      |         |  |   |      |        
|                           | Denominator for diluted earnings per
share, adjusted weighted-average
shares and assumed conversions |   |                                       | 524,510 |                   |   |      | 497,956 |      |   |      | 512,319 |  |   |      | 493,364 | 
|                           |                                                                                                      |   |                                       |         |                   |   |      |         |      |   |      |         |  |   |      |        
|Basic earnings per share   |                                                                                                      | $ | 0.16                                  |         |                   | $ | 0.11 |         |      | $ | 0.26 |         |  | $ | 0.30 |        
|                           |                                                                                                      |   |                                       |         |                   |   |      |         |      |   |      |         |  |   |      |        
|Diluted earnings per share |                                                                                                      | $ | 0.16                                  |         |                   | $ | 0.10 |         |      | $ | 0.25 |         |  | $ | 0.29 |        
|                           |                                                                                                      |   |                                       |         |                   |   |      |         |      |   |      |         |  |   |      |        

Excluding acquisition costs and restructuring charges and related taxes,
diluted earnings per share for the nine months ended September 30, 2001 and
2000 were $0.42 and $0.31, respectively. Earnings per share and related per
share data have been restated to reflect all stock splits.

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##### Table of Contents



CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note G  Operations by Business Segment

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

Concords revenue from Network Services consists of processing fees for driving
and monitoring ATMs, processing fees for managing debit card records, access
and switching fees for network access and fees and other surcharges charged for
proprietary ATMs.

Payment Services revenue results from processing payment transactions made by
credit cards (such as VISA, MasterCard, Discover, American Express and Diners
Club) and debit cards (such as STAR, Pulse and NYCE). Payment Services also
includes providing payment cards that enable drivers of trucking companies to
purchase fuel and obtain cash advances at truck stops.

Industry segment information for the three months and nine months ended
September 30, 2001 and 2000 is presented below, in thousands.

|                                             |  |                                       |         |          |  |       |         |       |  |   |         |   |  |   |         | 
|-------------------------------------------- |  | ------------------------------------- | ------- | -------- |  | ----- | ------- | ----- |  | - | ------- | - |  | - | ------- | 
|                                             |  | Three months ended September 30, 2001
|                                             |  |                                      
|                                             |  | Network                               |         | Payment  |  |       |         |       |  |   |         |  
|                                             |  | Services                              |         | Services |  | Other |         | Total
|                                             |  |                                       |         |          |  |       |         |      
|Revenue                                      |  | $                                     | 165,188 |          |  | $     | 271,886 |       |  | $ |        |   |  | $ | 437,074 | 
|                                            
|                                            
|                                            
|                                            
|Cost of operations                           |  |                                       | 84,239  |          |  |       | 220,175 |       |  |   |        |   |  |   | 304,414 | 
|                                            
|                                            
|                                            
|                                            
|Selling, general and
administrative expenses |  |                                       |        |          |  |       |        |       |  |   | 22,348  |   |  |   | 22,348  | 
|                                            
|                                            
|                                            
|                                            
|Acquisition and
restructuring charges        |  |                                       |        |          |  |       |        |       |  |   |        |   |  |   |        | 
|                                            
|                                            
|                                            
|                                            
|Taxes and interest, net                      |  |                                       |        |          |  |       |        |       |  |   | 28,718  |   |  |   | 28,718  | 
|                                            
|                                            
|                                            
|                                            
|Minority interest
in subsidiary              |  |                                       |        |          |  |       |        |       |  |   | 138     |   |  |   | 138     | 
|                                             |  |                                       |         |          |  |       |         |       |  |   |         |   |  |   |         | 
|Net income (loss)                            |  | $                                     | 80,949  |          |  | $     | 51,711  |       |  | $ | (51,204 | ) |  | $ | 81,456  | 
|                                             |  |                                       |         |          |  |       |         |       |  |   |         |   |  |   |         | 

|                                             |  |                                       |         |          |  |       |         |       |  |   |         |   |  |   |         | 
|-------------------------------------------- |  | ------------------------------------- | ------- | -------- |  | ----- | ------- | ----- |  | - | ------- | - |  | - | ------- | 
|                                             |  | Three months ended September 30, 2000
|                                             |  |                                      
|                                             |  | Network                               |         | Payment  |  |       |         |       |  |   |         |  
|                                             |  | Services                              |         | Services |  | Other |         | Total
|                                             |  |                                       |         |          |  |       |         |      
|Revenue                                      |  | $                                     | 130,717 |          |  | $     | 233,191 |       |  | $ |        |   |  | $ | 363,908 | 
|                                            
|                                            
|                                            
|                                            
|Cost of operations                           |  |                                       | 72,594  |          |  |       | 186,721 |       |  |   |        |   |  |   | 259,315 | 
|                                            
|                                            
|                                            
|                                            
|Selling, general and
administrative expenses |  |                                       |        |          |  |       |        |       |  |   | 23,633  |   |  |   | 23,633  | 
|                                            
|                                            
|                                            
|                                            
|Acquisition and
restructuring charges        |  |                                       | 10,915  |          |  |       |        |       |  |   |        |   |  |   | 10,915  | 
|                                            
|                                            
|                                            
|                                            
|Taxes and interest, net                      |  |                                       |        |          |  |       |        |       |  |   | 19,638  |   |  |   | 19,638  | 
|                                            
|                                            
|                                            
|                                            
|Minority interest
in subsidiary              |  |                                       |        |          |  |       |        |       |  |   | 161     |   |  |   | 161     | 
|                                             |  |                                       |         |          |  |       |         |       |  |   |         |   |  |   |         | 
|Net income (loss)                            |  | $                                     | 47,208  |          |  | $     | 46,470  |       |  | $ | (43,432 | ) |  | $ | 50,246  | 
|                                             |  |                                       |         |          |  |       |         |       |  |   |         |   |  |   |         | 

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##### Table of Contents



CONCORD EFS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note G  Operations by Business Segment, continued

|                                             |  |                                      |         |          |  |       |         |       |  |   |          |   |  |   |           | 
|-------------------------------------------- |  | ------------------------------------ | ------- | -------- |  | ----- | ------- | ----- |  | - | -------- | - |  | - | --------- | 
|                                             |  | Nine months ended September 30, 2001
|                                             |  |                                     
|                                             |  | Network                              |         | Payment  |  |       |         |       |  |   |          |  
|                                             |  | Services                             |         | Services |  | Other |         | Total
|                                             |  |                                      |         |          |  |       |         |      
|Revenue                                      |  | $                                    | 469,795 |          |  | $     | 763,603 |       |  | $ |         |   |  | $ | 1,233,398 | 
|                                            
|                                            
|                                            
|                                            
|Cost of operations                           |  |                                      | 254,288 |          |  |       | 620,013 |       |  |   |         |   |  |   | 874,301   | 
|                                            
|                                            
|                                            
|                                            
|Selling, general and
administrative expenses |  |                                      |        |          |  |       |        |       |  |   | 68,874   |   |  |   | 68,874    | 
|                                            
|                                            
|                                            
|                                            
|Acquisition and
restructuring charges        |  |                                      | 103,575 |          |  |       | 21,787  |       |  |   |         |   |  |   | 125,362   | 
|                                            
|                                            
|                                            
|                                            
|Taxes and interest, net                      |  |                                      |        |          |  |       |        |       |  |   | 37,904   |   |  |   | 37,904    | 
|                                            
|                                            
|                                            
|                                            
|Minority interest
in subsidiary              |  |                                      |        |          |  |       |        |       |  |   | 311      |   |  |   | 311       | 
|                                             |  |                                      |         |          |  |       |         |       |  |   |          |   |  |   |           | 
|Net income (loss)                            |  | $                                    | 111,932 |          |  | $     | 121,803 |       |  | $ | (107,089 | ) |  | $ | 126,646   | 
|                                             |  |                                      |         |          |  |       |         |       |  |   |          |   |  |   |           | 

|                                             |  |                                      |         |          |  |       |         |       |  |   |          |   |  |   |           | 
|-------------------------------------------- |  | ------------------------------------ | ------- | -------- |  | ----- | ------- | ----- |  | - | -------- | - |  | - | --------- | 
|                                             |  | Nine months ended September 30, 2000
|                                             |  |                                     
|                                             |  | Network                              |         | Payment  |  |       |         |       |  |   |          |  
|                                             |  | Services                             |         | Services |  | Other |         | Total
|                                             |  |                                      |         |          |  |       |         |      
|Revenue                                      |  | $                                    | 366,700 |          |  | $     | 638,973 |       |  | $ |         |   |  | $ | 1,005,673 | 
|                                            
|                                            
|                                            
|                                            
|Cost of operations                           |  |                                      | 213,794 |          |  |       | 508,807 |       |  |   |         |   |  |   | 722,601   | 
|                                            
|                                            
|                                            
|                                            
|Selling, general and
administrative expenses |  |                                      |        |          |  |       |        |       |  |   | 69,515   |   |  |   | 69,515    | 
|                                            
|                                            
|                                            
|                                            
|Acquisition and
restructuring charges        |  |                                      | 10,915  |          |  |       | 776     |       |  |   |         |   |  |   | 11,691    | 
|                                            
|                                            
|                                            
|                                            
|Taxes and interest, net                      |  |                                      |        |          |  |       |        |       |  |   | 57,361   |   |  |   | 57,361    | 
|                                            
|                                            
|                                            
|                                            
|Minority interest
in subsidiary              |  |                                      |        |          |  |       |        |       |  |   | 465      |   |  |   | 465       | 
|                                             |  |                                      |         |          |  |       |         |       |  |   |          |   |  |   |           | 
|Net income (loss)                            |  | $                                    | 141,991 |          |  | $     | 129,390 |       |  | $ | (127,341 | ) |  | $ | 144,040   | 
|                                             |  |                                      |         |          |  |       |         |       |  |   |          |   |  |   |           | 

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##### Table of Contents






CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with our condensed
consolidated financial statements and the notes to those financial statements,
which are included in this report. This report contains 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. Forward-looking statements are not guarantees of
future performance and involve risks, uncertainties and other factors,
including those set forth in this paragraph. 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 plan, (ii) the loss of key personnel or
inability to attract additional qualified personnel, (iii) the loss of key
customers, (iv) increasing competition, (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) susceptibility to fraud at
the merchant level, (xiv) changes in card association fees, products or
practices, (xv) restrictions on surcharging, (xvi) changes in rules and
regulations governing financial institutions and (xvii) volatility of the price
of our common stock. 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 our current report on
Form 8-K filed on July 18, 2001 for a more detailed discussion of the foregoing
and other factors.

Overview

Concord EFS, Inc. (Concord) is a leading, vertically integrated electronic
transaction processor. We acquire, route, authorize, capture and settle
virtually all types of electronic payment and deposit access transactions for
financial institutions and merchants nationwide. Our primary activities
consist of Network Services, which provides automatic 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 payment processing for supermarkets, major retailers,
petroleum dealers, convenience stores, trucking companies and independent
retailers.

Network Services includes terminal driving and monitoring for ATMs,
transaction
routing and authorization via the combined STARSM
MAC® and Cash Station®
debit network as well as other debit networks, deposit risk management and
real-time card management and authorization for personal identification number
(PIN)-secured debit and signature debit cards. In addition, we operate the
network switch that connects a coast-to-coast network of ATMs and
point-of-sale (POS) locations that accept debit cards issued by our member
financial institutions. Our network access services include transaction
switching and settlement.

We recently expanded our debit network in our Network Services area through
two
acquisitions. On February 1, 2001 we completed our acquisition of Star Systems,
Inc. (STAR), the nations largest PIN-secured debit network, based in Maitland,
Florida. The merger was accounted for as a pooling-of-interests
transaction in which we exchanged approximately 48.0 million
shares of our common stock for

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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview, continued

all of STARs outstanding common stock. On August 21, 2000 we completed our
acquisition of Cash Station, Inc. (Cash Station), a leading Midwest PIN-secured
debit network based in Chicago, Illinois. This acquisition was accounted for
as a pooling-of-interests transaction in which we exchanged approximately 5.0
million shares of our stock for all of the outstanding common stock of Cash
Station.

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 focus
on providing payment processing services to selected segments, with
specialized systems designed for supermarkets, gas stations, convenience
stores and restaurants. Payment Services also includes providing payment
cards that enable drivers of trucking companies to purchase fuel and obtain
cash advances at truck stops. Our services are completely 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).

Early in 2000 we completed two acquisitions in the Payment Services area. On
February 7, 2000 we completed our acquisition of Virtual Cyber Systems, Inc.,
an Internet software development company. This acquisition, for which we paid
approximately $2.0 million, was accounted for as a purchase transaction and was
immaterial to our financial statements. On January 31, 2000 we completed our
acquisition of National Payment Systems Inc. d/b/a/ Card Payment Systems, a New
York-based reseller of payment processing services. Card Payment Systems
provides card-based payment processing services to independent sales
organizations, which in turn sell those services to merchants. The acquisition
was accounted for as a pooling-of-interests transaction in which we exchanged
approximately 12.5 million shares of our stock for all the outstanding shares
of Card Payment Systems common stock.

Restatement of Historical Financial Information

The financial information for prior periods presented below and elsewhere in
this report has been restated for the results of STAR, Cash Station and Card
Payment Systems in accordance with the pooling-of-interests method of
accounting for business combinations. The financial information includes the
financial position, operating results and cash flows for all periods presented.

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 in the
United States, and no single customer of Concord accounts for a material
portion of our revenue. Over 75% percent of our total revenue is tied to
contracts with terms of between three and five years.

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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Components of Revenue and Expenses, continued

A principal component of our revenue is derived from Network Services (37.8%
and 35.9% for the three months ended September 30, 2001 and 2000 and 38.1% and
36.5% for the nine months ended September 30, 2001 and 2000). Network Services
revenue consists of processing fees for driving and monitoring ATMs, processing
fees for managing debit card records and access and switching fees for network
access. We recognize this revenue at the time of the transaction.

The majority of our revenue (62.2% and 64.1% for the three months ended
September 30, 2001 and 2000 and 61.9% and 63.5% for the nine months ended
September 30, 2001 and 2000) is generated from fee income related to Payment
Services. Revenue from Payment Services primarily includes discount fees
charged to merchants, which are a percentage of the dollar amount of each
credit card transaction we process, as well as a flat fee per transaction. The
discount fee is negotiated with each merchant and typically constitutes a
bundled rate for the transaction authorization, processing, settlement and
funds transfer services we provide. The balance of Payment Services revenue is
derived from transaction fees for processing debit card and EBT card
transactions, check verification and authorization services and sales of POS
terminals. We recognize this revenue at the time of the transaction.

The following table is a listing of revenue by segment for the
periods indicated:

|                 |  |                     |       |                     |  |      |       |      |  |   |         |  |  |   |         | 
|---------------- |  | ------------------- | ----- | ------------------- |  | ---- | ----- | ---- |  | - | ------- |  |  | - | ------- | 
|                 |  | Three months        |       | Nine months        
|                 |  | ended September 30, |       | ended September 30,
|                 |  |                     |       |                    
|                 |  | 2001                |       | 2000                |  | 2001 |       | 2000
|                 |  |                     |       |                     |  |      |       |     
|                 |  | (in millions)       |       | (in millions)      
|                
|Network Services |  | $                   | 165.2 |                     |  | $    | 130.7 |      |  | $ | 469.8   |  |  | $ | 366.7   | 
|                
|                
|                
|                
|Payment Services |  |                     | 271.9 |                     |  |      | 233.2 |      |  |   | 763.6   |  |  |   | 639.0   | 
|                 |  |                     |       |                     |  |      |       |      |  |   |         |  |  |   |         | 
|Total            |  | $                   | 437.1 |                     |  | $    | 363.9 |      |  | $ | 1,233.4 |  |  | $ | 1,005.7 | 
|                 |  |                     |       |                     |  |      |       |      |  |   |         |  |  |   |         | 

Cost of operations includes all costs directly attributable to providing
services to our customers. The most significant component of cost of operations
is interchange and assessment fees, which are amounts charged by the credit and
debit networks. Interchange and assessment fees are billed primarily as a
percentage of dollar volume processed and, to a lesser extent, as a transaction
fee. Cost of operations also includes telecommunications costs, personnel
costs, occupancy costs, depreciation, the cost of equipment leased and sold,
the cost of operating our debit network and other miscellaneous merchant
supplies and services expenses. We strive to maintain a highly efficient
operational structure, which includes volume purchasing arrangements with
equipment and communications vendors and direct membership by our subsidiary,
EFS National Bank, in bank card associations and major debit networks.

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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Components of Revenue and Expenses, continued

The following table lists cost of operations by segment for the
periods indicated:

|                 |  |                     |       |                     |  |      |       |      |  |   |       |  |  |   |       | 
|---------------- |  | ------------------- | ----- | ------------------- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                 |  | Three months        |       | Nine months        
|                 |  | ended September 30, |       | ended September 30,
|                 |  |                     |       |                    
|                 |  | 2001                |       | 2000                |  | 2001 |       | 2000
|                 |  |                     |       |                     |  |      |       |     
|                 |  | (in millions)       |       | (in millions)      
|                
|Network Services |  | $                   | 84.2  |                     |  | $    | 72.6  |      |  | $ | 254.3 |  |  | $ | 213.8 | 
|                
|                
|                
|                
|Payment Services |  |                     | 220.2 |                     |  |      | 186.7 |      |  |   | 620.0 |  |  |   | 508.8 | 
|                 |  |                     |       |                     |  |      |       |      |  |   |       |  |  |   |       | 
|Total            |  | $                   | 304.4 |                     |  | $    | 259.3 |      |  | $ | 874.3 |  |  | $ | 722.6 | 
|                 |  |                     |       |                     |  |      |       |      |  |   |       |  |  |   |       | 

Our selling, general and administrative expenses include certain salaries and
wages and other general administrative expenses. These costs are not allocated
to the reportable segments.

Results of Operations

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

|                                             |  |                    |       |                   |  |      |       |      |  |  |       |   |  |  |       |  
|-------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|                                             |  | Three months ended |       | Nine months ended
|                                             |  | September 30,      |       | September 30,    
|                                             |  |                    |       |                  
|                                             |  | 2001               |       | 2000              |  | 2001 |       | 2000
|                                             |  |                    |       |                   |  |      |       |     
|Revenue                                      |  |                    | 100.0 | %                 |  |      | 100.0 | %    |  |  | 100.0 | % |  |  | 100.0 | %
|                                            
|                                            
|                                            
|                                            
|Cost of operations                           |  |                    | 69.7  |                   |  |      | 71.3  |      |  |  | 70.9  |   |  |  | 71.9  |  
|                                            
|                                            
|                                            
|                                            
|Selling, general and
administrative expenses |  |                    | 5.1   |                   |  |      | 6.5   |      |  |  | 5.6   |   |  |  | 6.9   |  
|                                            
|                                            
|                                            
|                                            
|Acquisition and
restructuring charges        |  |                    |      |                   |  |      | 3.0   |      |  |  | 10.1  |   |  |  | 1.2   |  
|                                             |  |                    |       |                   |  |      |       |      |  |  |       |   |  |  |       |  
|Operating income                             |  |                    | 25.2  |                   |  |      | 19.2  |      |  |  | 13.4  |   |  |  | 20.0  |  
|                                            
|                                            
|                                            
|                                            
|Interest income, net                         |  |                    | 3.7   |                   |  |      | 2.7   |      |  |  | 3.3   |   |  |  | 2.6   |  
|                                             |  |                    |       |                   |  |      |       |      |  |  |       |   |  |  |       |  
|Income before taxes                          |  |                    | 28.9  |                   |  |      | 21.9  |      |  |  | 16.7  |   |  |  | 22.6  |  
|                                            
|                                            
|                                            
|                                            
|Income taxes                                 |  |                    | 10.3  |                   |  |      | 8.1   |      |  |  | 6.4   |   |  |  | 8.3   |  
|                                             |  |                    |       |                   |  |      |       |      |  |  |       |   |  |  |       |  
|Net income                                   |  |                    | 18.6  | %                 |  |      | 13.8  | %    |  |  | 10.3  | % |  |  | 14.3  | %
|                                             |  |                    |       |                   |  |      |       |      |  |  |       |   |  |  |       |  

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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Third Quarter 2001 Compared to 2000

Revenue in the third quarter 2001 increased 20.1% to $437.1 million from $363.9
million in 2000. In the third quarter 2001 Network Services accounted for 37.8%
of revenue, and Payment Services accounted for 62.2%. Network Services revenue
in the third quarter 2001 increased 26.4% compared to 2000 as a result of the
addition of new network and processing customers and increases in transaction
volumes. The increased transaction volumes resulted primarily from increased
use of our network debit cards for payment at the point of sale. Revenue from
Payment Services in the third quarter 2001 increased 16.6% compared to 2000,
due primarily to increased transaction volumes. The increased volumes resulted
from the addition of new merchants and the widening acceptance of debit and EBT
card transactions at new and existing merchants.

Cost of operations decreased in the third quarter 2001 to 69.7% of revenue
compared to 71.3% in 2000. This decrease was due primarily to a decrease, as a
percentage of revenue, in certain operating costs such as telecommunications,
payroll expenses and depreciation and amortization expenses.

In the third quarter 2001 selling, general and administrative expenses
decreased, as a percentage of revenue, to 5.1% from 6.5% in 2000. Overall,
selling, general and administrative expenses decreased to $22.3 million in the
third quarter 2001 from $23.6 million in 2000. This decrease is primarily
attributable to less direct marketing expense and reduced headcount.

There were no acquisition and restructuring charges in the third quarter 2001
compared to $10.9 million in 2000 related to the acquisition of Cash Station.

Excluding acquisition and restructuring charges, operating income as a
percentage of revenue increased to 25.2% in the third quarter 2001 from 22.3%
in 2000. This increase in operating income resulted from our company-wide
consolidation activities and continuing focus on cost control.

Net interest income improved as a percentage of revenue to 3.7% in the third
quarter 2001 compared to 2.7% in 2000. The improvement was the result of
returns we received from investing available cash, which increased the third
quarter interest income by 53.1% over 2000.

Our overall tax rate decreased to 35.5% in the third quarter 2001 compared to
37.0% in 2000. Excluding acquisition and restructuring charges, the tax rate
was 36.3% in 2000.

Net income, as a percentage of revenue, increased to 18.6% in the third quarter
2001 from 13.8% in 2000. Excluding acquisition and restructuring charges, net
income as a percentage of revenue was 15.9% in 2000. This increase is the
result of improved margins, reduced selling, general and administrative
expenses and increased interest income.

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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Nine Months Ended September 30, 2001 Compared to 2000

Revenue in the nine months ended September 30, 2001 increased 22.6% to $1,233.4
million from $1,005.7 million in 2000. In the nine months ended September 30,
2001 Network Services accounted for 38.1% of revenue, and Payment Services
accounted for 61.9%. Network Services revenue in the nine months ended
September 30, 2001 increased 28.1% compared to 2000 as a result of the addition
of new network and processing customers and increases in transaction volumes.
The increased transaction volumes resulted primarily from increased use of our
network debit cards for payment at the point of sale. Revenue from Payment
Services in the nine months ended September 30, 2001 increased 19.5% compared
to 2000, due primarily to increased transaction volumes. The increased volumes
resulted from the addition of new merchants and the widening acceptance of
debit and EBT card transactions at new and existing merchants.

Cost of operations in the nine months ended September 30, 2001 decreased to
70.9% of revenue compared to 71.9% in 2000. This decrease was due primarily to
a decrease, as a percentage of revenue, in certain operating costs such as
telecommunications, payroll expenses and depreciation and amortization
expenses.

In the nine months ended September 30, 2001 selling, general and administrative
expenses decreased, as a percentage of revenue, to 5.6% from 6.9% in 2000.
Overall, selling, general and administrative expenses decreased to $68.9
million in the nine months ended September 30, 2001 from $69.5 million in 2000.
This decrease is primarily attributable to less direct marketing expense and
reduced headcount.

Acquisition and restructuring charges in the nine months ended September 30,
2001 were $125.4 million compared to $11.7 million in 2000. In the first
quarter of 2001, we initiated a company-wide consolidation plan to address
areas of operating redundancies created by our recent acquisitions. The plan
includes consolidation of data centers and other facilities to eliminate
redundancies, the reassignment or termination of certain employees timed to
coincide with the integration of redundant processing platforms and the
functional integration of the STAR organization into Concord. During the next
six months we intend to take steps to capture synergies within our network
operations and align our resources across the enterprise for greater efficiency
and improved service delivery. During the first quarter of 2001, we incurred a
charge of $125.4 million ($86.4 million, net of taxes) related to our
consolidation plan, including costs incurred in combining operating platforms
and facilities, communications conversion costs, asset write-offs, severance
and compensation costs, as well as investment banking fees and advisory, legal
and accounting fees incurred in the acquisition of STAR.

We accrued charges of $63.9 million for combining various STAR processing
platforms and facilities that will be closed and consolidated. We also accrued
$16.0 million for duplicate products and systems such as abandoned products and
internal systems that do not support our new network strategy. Various data
center services contracts were terminated as part of the overall restructuring,
for which we accrued $19.1 million. The consolidation of products, services,
processing platforms and facilities created personnel duplications. As a
result, we accrued compensation and severance costs of $9.8 million to diminish
redundancies and consolidate operational groups. In addition to these charges,
we also incurred other expenses of $1.0 million and legal, accounting and
advisory fees totaling $15.6 million in connection with the STAR merger.

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CONCORD EFS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Nine Months Ended September 30, 2001 Compared to 2000, continued

In the nine months ended September 30, 2001, $86.9 million of expenses were
charged against the restructuring accrual. These expenses were primarily
related to combining processing platforms and facilities, duplicate products
and systems, legal, accounting and advisory fees and data center services
contract terminations.

Excluding acquisition and restructuring charges, operating income as a
percentage of revenue increased in the nine months ended September 30, 2001 to
23.5% from 21.2% in 2000. This increase in operating income resulted from our
company-wide consolidation activities and continuing focus on cost control.

Net interest income improved as a percentage of revenue to 3.3% in the nine
months ended September 30, 2001 compared to 2.6% in 2000. The improvement was
the result of returns we received from investing available cash, which
increased interest income in the nine months ended September 30, 2001 by 48.9%
compared to 2000.

Our overall tax rate increased to 38.2% in the nine months ended September 30,
2001 compared to 36.6% in 2000. Excluding acquisition and restructuring
charges, the tax rate was 35.5% in the nine months ended September 30, 2001
compared to 36.2% in 2000.

Net income, as a percentage of revenue, decreased to 10.3% in the nine months
ended September 30, 2001 from 14.3% in 2000, due primarily to the acquisition
and restructuring charges. Excluding these charges and related tax items, net
income, as a percentage of revenue, increased to 17.3% for the nine months
ended September 30, 2001 compared to 15.1% in 2000. This increase is the
result of improved margins, reduced selling, general and administrative
expenses and increased interest income.

Liquidity and Capital Resources

In the nine months ended September 30, 2001, we generated $317.0 million from
operating activities. We also received $421.9 million from our stock offering,
$21.0 million in proceeds from Federal Home Loan Bank advances, and $21.6
million from stock issued for exercises of options under our stock option plan.
From cash provided by operating and financing activities, we invested $446.3
million in securities, net of sales and maturities. We also spent $82.9 million
on capital additions, $19.7 million for a business acquisition and $22.6
million to purchase merchant contracts. Additionally, we reduced debt by $14.4
million. Our capital additions were primarily for communications equipment, POS
terminals, new computer equipment and capitalized software.

Our assets are primarily monetary, consisting of cash, assets convertible
into cash, securities owned and receivables. Because of their liquidity,
these assets are not significantly affected by inflation. We believe that
anticipated replacement costs of equipment, furniture and leasehold
improvements 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
services offered by us.

We believe that our available credit and cash generated from operations are
adequate to meet our capital and operating needs. EFS National Bank and EFS
Federal Savings Bank, our wholly owned financial institution subsidiaries,
exceed required regulatory capital ratios.

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CONCORD EFS, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures About Market Risk

Since December 31, 2000, there have been 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
ending December 31, 2000, refer to Exhibit 99.3 to Amendment No. 1 to our
current report on Form 8-K, filed April 16, 2001.

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CONCORD EFS, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION




Item 1. Legal Proceedings

Pending proceedings and developments that may be considered material were
reported in our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2001 and June 30, 2001, filed with the Securities and Exchange Commission on
May 15, 2001 and August 7, 2001, respectively. 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.




Item 6. Exhibits and Reports on Form 8-K



|(a) |  | Exhibits
|--- |  | --------

|        |  |                                                                                                                                                                                                                                                                                  
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                  
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                  
|2.1     |  | Agreement and Plan of Merger, dated as of October 6, 2000, among Concord
EFS, Inc., Orion Acquisition Corp. and Star Systems, Inc. is incorporated
herein by reference to Exhibit 10 to Concords quarterly report on Form
10-Q (File No. 000-13848), filed on November 14, 2000.
|       
|       
|       
|       
|3.1     |  | Restated Certificate of Incorporation of Concord EFS, Inc. is incorporated
herein by reference to Exhibit 4.4 to Amendment No. 1 to Concords registration
statement on Form S-3 (File No. 333-61084), filed on June 4, 2001.                                                    
|       
|       
|       
|       
|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.                                                                              



|(b) |  | Reports on Form 8-K
|--- |  | -------------------

None

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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 9, 2001 |  | By: |  | /s/ Dan M. PalmerDan M. Palmer
Chairman of the Board and
Chief Executive Officer                 
|                      
|Date: November 9, 2001 |  | By: |  | /s/ Edward T. HaslamEdward T. Haslam
Senior Vice President,
Chief Financial Officer and Treasurer

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CONCORD EFS, INC. AND SUBSIDIARIES
FORM 10-Q LISTING OF EXHIBITS

|        |  |                                                                                                                                                                                                                                                                                  
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                  
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                  
|2.1     |  | Agreement and Plan of Merger, dated as of October 6, 2000, among Concord
EFS, Inc., Orion Acquisition Corp. and Star Systems, Inc. is incorporated
herein by reference to Exhibit 10 to Concords quarterly report on Form
10-Q (File No. 000-13848), filed on November 14, 2000.
|       
|       
|       
|       
|3.1     |  | Restated Certificate of Incorporation of Concord EFS, Inc. is incorporated
herein by reference to Exhibit 4.4 to Amendment No. 1 to Concords registration
statement on Form S-3 (File No. 333-61084), filed on June 4, 2001.                                                    
|       
|       
|       
|       
|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.