##### 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 March 31, 2002                                           

OR

|           |  |                                                                                          
|---------- |  | -----------------------------------------------------------------------------------------
|(CHECKBOX) |  | 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) |  | (I.R.S. Employer
Identification 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
x No o

The number of shares of the registrants Common Stock, $0.33 1/3 par value,
outstanding as of April 30, 2002 was 510,523,433.





---

TABLE OF CONTENTS



|                                                                                    |                                          |  |  |  |  |  |  | 
|----------------------------------------------------------------------------------- | ---------------------------------------- |  |  |  |  |  |  | 
|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 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                         
|PART II OTHER INFORMATION                                                          
|                                                                                    | Item 1. Legal Proceedings               
|                                                                                    | Item 6. Exhibits and Reports on Form 8-K
|SIGNATURES                                                                         
|AMENDMENT TO 1993 INCENTIVE STOCK OPTION PLAN                                      



---



##### Table of Contents



CONCORD EFS, INC. AND SUBSIDIARIES

|                                                                                              |                                                                                                          |  |    |   | 
|--------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- |  | -- | - | 
|PART I  Financial Information                                                                |                                                                                                          |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                          |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Financial Statements (Unaudited)                                                      |                                                                                                          |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                          |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Balance Sheets as of March 31, 2002
and December 31, 2001                         |  |    | 1 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                          |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Income for Three Months
Ended March 31, 2002 and March 31, 2001     |  |    | 2 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                          |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Cash Flows for
Three Months Ended March 31, 2002 and March 31, 2001 |  |    | 3 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                          |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Notes to Condensed Consolidated Financial Statements                                                     |  |    | 4 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                          |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |                                                                                                          |  | 13 |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                          |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 3. Quantitative and Qualitative Disclosures About
Market Risk                            |                                                                                                          |  | 20 |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                          |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|PART II  Other Information                                                                   |                                                                                                          |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                          |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Legal Proceedings                                                                     |                                                                                                          |  | 21 |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                          |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                          |  | 22 |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                          |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Signatures                                                                                    |                                                                                                          |  | 23 |  





---



##### Table of Contents






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

|                                           |  |                |           |              |  |   |           | 
|------------------------------------------ |  | -------------- | --------- | ------------ |  | - | --------- | 
|                                           |  | March 31,      |           | December 31,
|                                           |  | 2002           |           | 2001        
|                                           |  |                |           |             
|                                           |  | (in thousands)
|ASSETS                                     |  |                |           |              |  |   |           | 
|                                          
|                                          
|                                          
|                                          
|CURRENT ASSETS                             |  |                |           |              |  |   |           | 
|                                          
|                                          
|                                          
|                                          
|Cash and cash equivalents                  |  | $              | 496,273   |              |  | $ | 682,906   | 
|                                          
|                                          
|                                          
|                                          
|Securities available for sale              |  |                | 1,200,563 |              |  |   | 1,228,805 | 
|                                          
|                                          
|                                          
|                                          
|Accounts receivable, net                   |  |                | 391,541   |              |  |   | 134,496   | 
|                                          
|                                          
|                                          
|                                          
|Inventories                                |  |                | 21,643    |              |  |   | 20,971    | 
|                                          
|                                          
|                                          
|                                          
|Prepaid expenses and other current assets  |  |                | 43,583    |              |  |   | 34,346    | 
|                                          
|                                          
|                                          
|                                          
|Deferred income taxes                      |  |                | 14,821    |              |  |   | 13,054    | 
|                                           |  |                |           |              |  |   |           | 
|TOTAL CURRENT ASSETS                       |  |                | 2,168,424 |              |  |   | 2,114,578 | 
|                                          
|                                          
|                                          
|                                          
|                                           |  |                |           |              |  |   |           | 
|                                          
|                                          
|                                          
|                                          
|Loans, net                                 |  |                | 86,473    |              |  |   | 89,038    | 
|                                          
|                                          
|                                          
|                                          
|Property and equipment, net                |  |                | 282,205   |              |  |   | 267,451   | 
|                                          
|                                          
|                                          
|                                          
|Goodwill, net                              |  |                | 213,736   |              |  |   | 158,632   | 
|                                          
|                                          
|                                          
|                                          
|Other intangible assets, net               |  |                | 61,608    |              |  |   | 85,712    | 
|                                          
|                                          
|                                          
|                                          
|Other assets                               |  |                | 20,179    |              |  |   | 14,034    | 
|                                           |  |                |           |              |  |   |           | 
|TOTAL ASSETS                               |  | $              | 2,832,625 |              |  | $ | 2,729,445 | 
|                                           |  |                |           |              |  |   |           | 
|                                           |  |                |           |              |  |   |           | 
|                                          
|                                          
|                                          
|                                          
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |                |           |              |  |   |           | 
|                                          
|                                          
|                                          
|                                          
|CURRENT LIABILITIES                        |  |                |           |              |  |   |           | 
|                                          
|                                          
|                                          
|                                          
|Accounts payable and other liabilities     |  | $              | 435,935   |              |  | $ | 488,789   | 
|                                          
|                                          
|                                          
|                                          
|Deposits                                   |  |                | 177,223   |              |  |   | 162,972   | 
|                                          
|                                          
|                                          
|                                          
|Accrued liabilities                        |  |                | 42,403    |              |  |   | 29,837    | 
|                                          
|                                          
|                                          
|                                          
|Accrued restructuring charges              |  |                | 15,441    |              |  |   | 5,315     | 
|                                          
|                                          
|                                          
|                                          
|Income taxes payable                       |  |                | 9,213     |              |  |   | 1,438     | 
|                                          
|                                          
|                                          
|                                          
|Current maturities of long-term debt       |  |                | 10,000    |              |  |   |          | 
|                                           |  |                |           |              |  |   |           | 
|TOTAL CURRENT LIABILITIES                  |  |                | 690,215   |              |  |   | 688,351   | 
|                                          
|                                          
|                                          
|                                          
|                                           |  |                |           |              |  |   |           | 
|                                          
|                                          
|                                          
|                                          
|Long-term debt                             |  |                | 109,297   |              |  |   | 119,458   | 
|                                          
|                                          
|                                          
|                                          
|Deferred income taxes                      |  |                | 59,335    |              |  |   | 55,437    | 
|                                          
|                                          
|                                          
|                                          
|Other liabilities                          |  |                | 7,188     |              |  |   | 4,202     | 
|                                           |  |                |           |              |  |   |           | 
|TOTAL LIABILITIES                          |  |                | 866,035   |              |  |   | 867,448   | 
|                                           |  |                |           |              |  |   |           | 
|                                           |  |                |           |              |  |   |           | 
|                                          
|                                          
|                                          
|                                          
|Commitments and contingent liabilities     |  |                |          |              |  |   |          | 
|                                          
|                                          
|                                          
|                                          
|Minority interest in subsidiary            |  |                | 4,429     |              |  |   | 3,410     | 
|                                           |  |                |           |              |  |   |           | 
|STOCKHOLDERS EQUITY                       |  |                |           |              |  |   |           | 
|                                          
|                                          
|                                          
|                                          
|Common stock                               |  |                | 170,174   |              |  |   | 169,352   | 
|                                          
|                                          
|                                          
|                                          
|Other stockholders equity                 |  |                | 1,791,987 |              |  |   | 1,689,235 | 
|                                           |  |                |           |              |  |   |           | 
|TOTAL STOCKHOLDERS EQUITY                 |  |                | 1,962,161 |              |  |   | 1,858,587 | 
|                                           |  |                |           |              |  |   |           | 
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |  | $              | 2,832,625 |              |  | $ | 2,729,445 | 
|                                           |  |                |           |              |  |   |           | 

See Notes to Condensed Consolidated Financial Statements.

-1-



---



##### Table of Contents






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

|                                                 |                                   |   |                                       |         |      |   |         |         |  
|------------------------------------------------ | --------------------------------- | - | ------------------------------------- | ------- | ---- | - | ------- | ------- | -
|                                                 |                                   |   | Three months ended                   
|                                                 |                                   |   | March 31,                            
|                                                 |                                   |   |                                      
|                                                 |                                   |   | 2002                                  |         | 2001
|                                                 |                                   |   |                                       |         |     
|                                                 |                                   |   | (in thousands, except per share data)
|                                                 |                                   |   |                                       |         |      |   |         |        
|                                                
|                                                
|                                                
|                                                
|Revenue                                          |                                   | $ | 462,143                               |         |      | $ | 375,638 |        
|                                                
|                                                
|                                                
|                                                
|Cost of operations                               |                                   |   | 321,855                               |         |      |   | 270,268 |        
|                                                
|                                                
|                                                
|                                                
|Selling, general and
administrative expenses     |                                   |   | 24,782                                |         |      |   | 23,812  |        
|                                                
|                                                
|                                                
|                                                
|Acquisition, restructuring and
write-off charges |                                   |   | 47,500                                |         |      |   | 125,362 |        
|                                                 |                                   |   |                                       |         |      |   |         |        
|OPERATING INCOME (LOSS)                          |                                   |   | 68,006                                |         |      |   | (43,804 | )      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                   |   |                                       |         |      |   |         |        
|                                                
|                                                
|                                                
|                                                
|Other income (expense):                          |                                   |   |                                       |         |      |   |         |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Interest income                   |   |                                       | 19,572  |      |   |         | 15,482  |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Interest expense                  |   |                                       | (3,106  | )    |   |         | (3,123  | )
|                                                 |                                   |   |                                       |         |      |   |         |        
|INCOME (LOSS) BEFORE TAXES
AND MINORITY INTEREST |                                   |   | 84,472                                |         |      |   | (31,445 | )      
|                                                
|                                                
|                                                
|                                                
|Income taxes (benefit)                           |                                   |   | 29,988                                |         |      |   | (5,626  | )      
|                                                 |                                   |   |                                       |         |      |   |         |        
|INCOME (LOSS) BEFORE MINORITY INTEREST           |                                   |   | 54,484                                |         |      |   | (25,819 | )      
|                                                
|                                                
|                                                
|                                                
|Minority interest in
net income of subsidiary    |                                   |   | 275                                   |         |      |   | 173     |        
|                                                 |                                   |   |                                       |         |      |   |         |        
|NET INCOME (LOSS)                                |                                   | $ | 54,209                                |         |      | $ | (25,992 | )      
|                                                 |                                   |   |                                       |         |      |   |         |        
|PER SHARE DATA:                                  |                                   |   |                                       |         |      |   |         |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Basic earnings (loss) per share   |   | $                                     | 0.11    |      |   | $       | (0.05   | )
|                                                 |                                   |   |                                       |         |      |   |         |        
|                                                 | Diluted earnings (loss) per share |   | $                                     | 0.10    |      |   | $       | (0.05   | )
|                                                 |                                   |   |                                       |         |      |   |         |        
|AVERAGE SHARES OUTSTANDING:                      |                                   |   |                                       |         |      |   |         |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Basic shares                      |   |                                       | 508,699 |      |   |         | 483,329 |  
|                                                 |                                   |   |                                       |         |      |   |         |        
|                                                 | Diluted shares                    |   |                                       | 530,272 |      |   |         | 483,329 |  
|                                                 |                                   |   |                                       |         |      |   |         |        

See Notes to Condensed Consolidated Financial Statements.

-2-



---



##### Table of Contents






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

|                                                    |                                                         |   |                    |          |      |   |         |          |  
|--------------------------------------------------- | ------------------------------------------------------- | - | ------------------ | -------- | ---- | - | ------- | -------- | -
|                                                    |                                                         |   | Three months ended
|                                                    |                                                         |   | March 31,         
|                                                    |                                                         |   |                   
|                                                    |                                                         |   | 2002               |          | 2001
|                                                    |                                                         |   |                    |          |     
|                                                    |                                                         |   | (in thousands)    
|OPERATING ACTIVITIES                                |                                                         |   |                    |          |      |   |         |         
|                                                   
|                                                   
|                                                   
|                                                   
|NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |                                                         | $ | (181,189           | )        |      | $ | 69,213  |         
|                                                   
|                                                   
|                                                   
|                                                   
|INVESTING ACTIVITIES                                |                                                         |   |                    |          |      |   |         |         
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Acquisition of securities
available for sale            |   |                    | (232,020 | )    |   |         | (172,411 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from sales of securities
available for sale    |   |                    | 205,155  |      |   |         | 110,784  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from maturity of securities
available for sale |   |                    | 47,499   |      |   |         | 15,532   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchases of loans                                      |   |                    | (15,828  | )    |   |         | (9,417   | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Net change in loans                                     |   |                    | 18,952   |      |   |         | 3,522    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Acquisition of property and equipment                   |   |                    | (36,981  | )    |   |         | (23,843  | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchased merchant contracts                            |   |                    |         |      |   |         | (7,490   | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Business acquisitions, net                              |   |                    | (15,509  | )    |   |         |         |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other investing activity                                |   |                    | (6,681   | )    |   |         | (1,893   | )
|                                                    |                                                         |   |                    |          |      |   |         |         
|NET CASH USED IN INVESTING ACTIVITIES               |                                                         |   | (35,413            | )        |      |   | (85,216 | )       
|                                                   
|                                                   
|                                                   
|                                                   
|FINANCING ACTIVITIES                                |                                                         |   |                    |          |      |   |         |         
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Net increase (decrease) in deposits                     |   |                    | 14,251   |      |   |         | (1,109   | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from borrowings                                |   |                    |         |      |   |         | 13,000   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Payments on borrowings                                  |   |                    | (161     | )    |   |         | (14,268  | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from exercise of stock options                 |   |                    | 15,938   |      |   |         | 11,085   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Payments on leases payable                              |   |                    | (59      | )    |   |         | (438     | )
|                                                    |                                                         |   |                    |          |      |   |         |         
|NET CASH PROVIDED BY FINANCING ACTIVITIES           |                                                         |   | 29,969             |          |      |   | 8,270   |         
|                                                    |                                                         |   |                    |          |      |   |         |         
|NET DECREASE IN CASH AND CASH EQUIVALENTS           |                                                         |   | (186,633           | )        |      |   | (7,733  | )       
|                                                   
|                                                   
|                                                   
|                                                   
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR      |                                                         |   | 682,906            |          |      |   | 298,383 |         
|                                                    |                                                         |   |                    |          |      |   |         |         
|CASH AND CASH EQUIVALENTS AT END OF PERIOD          |                                                         | $ | 496,273            |          |      | $ | 290,650 |         
|                                                    |                                                         |   |                    |          |      |   |         |         

See Notes to Condensed Consolidated Financial Statements.

-3-



---



##### 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 three months
ended March 31, 2002 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Concord EFS, Inc. and Subsidiaries (Concord) annual report on Form 10-K filed
February 26, 2002 for the year ended December 31, 2001.

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, restaurants, 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 net assets is recorded as goodwill. The
results of operations of the purchased company are included in Concords
results of operations since the date of acquisition.

Reclassification: Certain 2001 amounts have been reclassified to conform to the
2002 presentation.

Note B  Business Combinations

In June 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 141, Business Combinations. SFAS 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. SFAS 141 also includes guidance on the initial
recognition and measurement of goodwill and other intangible assets arising
from business combinations completed after June 30, 2001.

-4-



---



##### Table of Contents



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

Note B  Business Combinations, continued

On March 1, 2002 Concord acquired The Logix Companies, LLC, an electronic
transaction processor. The acquisition, for which Concord issued approximately
0.9 million shares of its common stock and $6.3 million in cash, was accounted
for as a purchase transaction and is immaterial to Concords financial
statements. The allocation of the purchase price is preliminary because a
valuation study has not yet been completed.

On January 1, 2002 Concord acquired H & F Services, Inc., an independent sales
organization, for $8.9 million in cash. Prior to the acquisition, Concord had
purchased merchant contracts through H & F Services. The acquisition was
accounted for as a purchase transaction and is immaterial to Concords
financial statements.

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 85.5% through the purchase of newly
issued shares, which largely funded Primary Payment Systems acquisition of
Wally Industries, Inc. d/b/a WJM Technologies. The acquisition of WJM, for
which Primary Payment Systems paid approximately $20.0 million, was accounted
for as a purchase transaction and is immaterial to Concords financial
statements.

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.

-5-



---



##### 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 between
Concord and STAR (in thousands, except per share data):

|                                           |                               |   |                    |         |      |   |         |         |  
|------------------------------------------ | ----------------------------- | - | ------------------ | ------- | ---- | - | ------- | ------- | -
|                                           |                               |   | Three months ended
|                                           |                               |   | March 31,         
|                                           |                               |   |                   
|                                           |                               |   | 2002               |         | 2001
|                                           |                               |   |                    |         |     
|Revenue:                                   |                               |   |                    |         |      |   |         |        
|                                          
|                                          
|                                          
|                                          
|                                           | Concord                       |   | $                  | 462,143 |      |   | $       | 360,766 |  
|                                          
|                                          
|                                          
|                                          
|                                           | STAR (1)                      |   |                    |        |      |   |         | 15,396  |  
|                                          
|                                          
|                                          
|                                          
|                                           | Intercompany eliminations (2) |   |                    |        |      |   |         | (524    | )
|                                           |                               |   |                    |         |      |   |         |        
|Combined revenue                           |                               | $ | 462,143            |         |      | $ | 375,638 |        
|                                           |                               |   |                    |         |      |   |         |        
|Net income (loss):                         |                               |   |                    |         |      |   |         |        
|                                          
|                                          
|                                          
|                                          
|                                           | Concord                       |   | $                  | 54,209  |      |   | $       | (28,920 | )
|                                          
|                                          
|                                          
|                                          
|                                           | STAR (1)                      |   |                    |        |      |   |         | 2,928   |  
|                                           |                               |   |                    |         |      |   |         |        
|Combined net income (loss)                 |                               | $ | 54,209             |         |      | $ | (25,992 | )      
|                                           |                               |   |                    |         |      |   |         |        
|Basic earnings (loss) per share combined   |                               | $ | 0.11               |         |      | $ | (0.05   | )      
|                                           |                               |   |                    |         |      |   |         |        
|Diluted earnings (loss) per share combined |                               | $ | 0.10               |         |      | $ | (0.05   | )      
|                                           |                               |   |                    |         |      |   |         |        



---

|(1) |  | 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.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | All material activity between Concord and STAR has been eliminated.                                                                                                                

-6-



---



##### Table of Contents



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

Note B  Business Combinations, continued

Acquisition, restructuring and write-off charges were $47.5 million ($30.6
million, net of taxes) for the three months ended March 31, 2002. During the
first quarter, management approved a corporate consolidation plan initiated to
continue improvements in overall operating efficiency and integrate recent
acquisitions. The charge consisted of $6.7 million for closing and
consolidating certain facilities, $5.9 million for compensation and severance,
and $4.5 million for exiting non-strategic businesses. In addition, asset
impairment charges of $22.5 million were incurred for the write-off of
non-performing purchased merchant contracts identified in the first quarter and
$7.9 million was incurred for the write-off of capitalized software and
computer and communications equipment no longer in use. In connection with the
consolidation plan, Concord expects to eliminate approximately 165 positions,
76 of which were eliminated as of March 31, 2002. Compensation and severance
costs paid and charged against the restructuring charge accrual were $0.7
million through March 31, 2002. As of March 31, 2002, $15.4 million of the
charges were accrued but unpaid. Concord expects to complete the consolidation
plan by March 31, 2003.

The following table presents a summary of activity in the 2002 restructuring
charge accrual (in thousands):

|                                                   |  |   |        | 
|-------------------------------------------------- |  | - | ------ | 
|Acquisition, restructuring and write-off charges   |  | $ | 47,500 | 
|                                                  
|                                                  
|                                                  
|                                                  
|Cash outlays                                       |  |   | 1,623  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Non-cash writedowns and charges  asset impairment |  |   | 30,436 | 
|                                                   |  |   |        | 
|Balance, March 31, 2002                            |  | $ | 15,441 | 
|                                                   |  |   |        | 

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

|                                     |  |   |        | 
|------------------------------------ |  | - | ------ | 
|Facility closings and consolidations |  | $ | 6,260  | 
|                                    
|                                    
|                                    
|                                    
|Compensation and severance           |  |   | 5,255  | 
|                                    
|                                    
|                                    
|                                    
|Non-strategic business closures      |  |   | 3,926  | 
|                                     |  |   |        | 
|Balance, March 31, 2002              |  | $ | 15,441 | 
|                                     |  |   |        | 

-7-



---



##### Table of Contents



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

Note B  Business Combinations, continued

Acquisition, restructuring and write-off charges were $125.4 million ($86.4
million, net of taxes) for the three months ended March 31, 2001. The charges
were a result of a company-wide consolidation plan to address areas of
operating redundancies created by recent acquisitions. The plan included
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 consisted of $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
expected to eliminate approximately 250 positions, all of which were eliminated
as of March 31, 2002. Compensation and severance costs paid and charged against
the restructuring charge accrual were $9.8 million through March 31, 2002. As
of March 31, 2002, the consolidation activities have been completed and there
was no remaining balance related to the 2001 restructuring charge accrual.

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

|                                                   |  |   |       | 
|-------------------------------------------------- |  | - | ----- | 
|Balance, December 31, 2001                         |  | $ | 5,315 | 
|                                                  
|                                                  
|                                                  
|                                                  
|Cash outlays                                       |  |   | 5,286 | 
|                                                  
|                                                  
|                                                  
|                                                  
|Non-cash writedowns and charges  asset impairment |  |   | 29    | 
|                                                   |  |   |       | 
|Balance, March 31, 2002                            |  | $ |      | 
|                                                   |  |   |       | 

Note C  Goodwill and Other Intangible Assets

In June 2001 the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards 142, Goodwill and Other Intangible Assets.
SFAS 142 prohibits the amortization of goodwill and intangible assets with
indefinite useful lives. SFAS 142 requires that these assets be reviewed for
impairment at least annually. Intangible assets with finite lives will
continue to be amortized over their estimated useful lives.

Concord adopted SFAS 142 effective January 1, 2002. Application of the
nonamortization provisions of SFAS 142 is immaterial to Concords financial
statements. Concord has tested goodwill for impairment using the two-step
process prescribed in SFAS 142. The first step is a screen for potential
impairment, while the second step measures the amount of the impairment, if
any. Concord has performed the first of the required impairment tests for
goodwill as of January 1, 2002 and has determined that the carrying amount of
goodwill is not impaired.

-8-



---



##### Table of Contents



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

Note C  Goodwill and Other Intangible Assets, continued

The following table presents a reconciliation of net income adjusted to exclude
amortization expense of goodwill with indefinite useful lives (in thousands,
except per share data):

|                                           |  |                    |        |      |  |   |         |  
|------------------------------------------ |  | ------------------ | ------ | ---- |  | - | ------- | -
|                                           |  | Three months ended
|                                           |  | March 31,         
|                                           |  |                   
|                                           |  | 2002               |        | 2001
|                                           |  |                    |        |     
|Reported net income (loss)                 |  | $                  | 54,209 |      |  | $ | (25,992 | )
|                                          
|                                          
|                                          
|                                          
|Goodwill amortization, net of tax          |  |                    |       |      |  |   | 2,275   |  
|                                           |  |                    |        |      |  |   |         |  
|Adjusted net income (loss)                 |  | $                  | 54,209 |      |  | $ | (23,717 | )
|                                           |  |                    |        |      |  |   |         |  
|Adjusted basic earnings (loss) per share   |  | $                  | 0.11   |      |  | $ | (0.05   | )
|                                           |  |                    |        |      |  |   |         |  
|Adjusted diluted earnings (loss) per share |  | $                  | 0.10   |      |  | $ | (0.05   | )
|                                           |  |                    |        |      |  |   |         |  

The following table presents the allocation of unamortized goodwill to
Concords reporting units (in thousands):

|                           |  |   |         | 
|-------------------------- |  | - | ------- | 
|Network Services           |  | $ | 124,982 | 
|                          
|                          
|                          
|                          
|Payment Services           |  |   | 33,650  | 
|                           |  |   |         | 
|Balance, December 31, 2001 |  | $ | 158,632 | 
|                           |  |   |         | 

The following table presents Concords amortization expense for the periods
listed for other intangible assets, net of the write-off of non-performing
purchased merchant contracts of $22,496 (in thousands):

|           |  |   |        | 
|---------- |  | - | ------ | 
|2002       |  | $ | 10,098 | 
|          
|          
|          
|          
|2003       |  |   | 8,790  | 
|          
|          
|          
|          
|2004       |  |   | 8,738  | 
|          
|          
|          
|          
|2005       |  |   | 8,738  | 
|          
|          
|          
|          
|2006       |  |   | 8,465  | 
|          
|          
|          
|          
|Thereafter |  |   | 18,387 | 
|           |  |   |        | 
|Total      |  | $ | 63,216 | 
|           |  |   |        | 

Note D  Comprehensive Income

Total comprehensive income (loss) was $49.4 million and $(18.9) million for the
three months ended March 31, 2002 and 2001, respectively. Comprehensive income
includes net income and the change in the unrealized gain or loss on securities
available for sale arising during the period.

-9-



---



##### Table of Contents



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

Note E  Earnings Per Share

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

|                                                                                                     |                                                                   |   |                    |         |      |   |         |         |  
|---------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | - | ------------------ | ------- | ---- | - | ------- | ------- | -
|                                                                                                     |                                                                   |   | Three months ended
|                                                                                                     |                                                                   |   | March 31,         
|                                                                                                     |                                                                   |   |                   
|                                                                                                     |                                                                   |   | 2002               |         | 2001
|                                                                                                     |                                                                   |   |                    |         |     
|Numerator:                                                                                           |                                                                   |   |                    |         |      |   |         |        
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Net income (loss)                                                 |   | $                  | 54,209  |      |   | $       | (25,992 | )
|                                                                                                     |                                                                   |   |                    |         |      |   |         |        
|Denominator:                                                                                         |                                                                   |   |                    |         |      |   |         |        
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Denominator for basic earnings
per share, weighted-average shares |   |                    | 508,699 |      |   |         | 483,329 |  
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Effect of dilutive stock options                                                                     |                                                                   |   | 21,573             |         |      |   |        |        
|                                                                                                     |                                                                   |   |                    |         |      |   |         |        
|Denominator for diluted earnings per
share, adjusted weighted-average
shares and assumed conversions |                                                                   |   | 530,272            |         |      |   | 483,329 |        
|                                                                                                     |                                                                   |   |                    |         |      |   |         |        
|Basic earnings (loss) per share                                                                      |                                                                   | $ | 0.11               |         |      | $ | (0.05   | )      
|                                                                                                     |                                                                   |   |                    |         |      |   |         |        
|Diluted earnings (loss) per share                                                                    |                                                                   | $ | 0.10               |         |      | $ | (0.05   | )      
|                                                                                                     |                                                                   |   |                    |         |      |   |         |        

Excluding acquisition, restructuring and write-off charges and related taxes,
diluted earnings per share for the three months ended March 31, 2002 and 2001
were $0.16 and $0.12, respectively. Earnings (loss) per share and related per
share data have been restated to reflect all stock splits.

Note F  Operations by Business Segment

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

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.

Revenue from Payment Services primarily includes discount fees charged to
merchants, which are a percentage of the dollar amount of each credit card
transaction Concord processes, as well as a flat fee per transaction. The
discount fee, primarily charged to smaller merchants, is negotiated with each
merchant and typically constitutes a bundled rate for the transaction
authorization, processing, settlement, and funds transfer services Concord
provides, plus the interchange fees charged by the credit card associations and
collected by Concord. The balance of Payment Services revenue is derived from
transaction fees for processing debit card and electronic benefits transfer
card transactions, check verification and authorization services, and sales of
POS terminals.

-10-



---



##### Table of Contents



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

Note F  Operations by Business Segment, continued

Business segment information for the three months ended March 31, 2002 and 2001
is presented below (in thousands):

|     |                                                  |  |          |         |          |  |       |         |       |  |   |         |   |  |   |         | 
|---- | ------------------------------------------------ |  | -------- | ------- | -------- |  | ----- | ------- | ----- |  | - | ------- | - |  | - | ------- | 
|     |                                                  |  | Network  |         | Payment  |  |       |         |       |  |   |         |  
|     |                                                  |  | Services |         | Services |  | Other |         | Total
|     |                                                  |  |          |         |          |  |       |         |      
|2002 |                                                  |  |          |         |          |  |       |         |       |  |   |         |   |  |   |        
|    
|    
|    
|    
|     | Revenue                                          |  | $        | 185,657 |          |  | $     | 276,486 |       |  | $ |        |   |  | $ | 462,143 | 
|    
|    
|    
|    
|     | Cost of operations                               |  |          | 94,607  |          |  |       | 227,248 |       |  |   |        |   |  |   | 321,855 | 
|    
|    
|    
|    
|     | Selling, general and
administrative expenses     |  |          |        |          |  |       |        |       |  |   | 24,782  |   |  |   | 24,782  | 
|    
|    
|    
|    
|     | Acquisition, restructuring
and write-off charges |  |          |        |          |  |       |        |       |  |   | 47,500  |   |  |   | 47,500  | 
|    
|    
|    
|    
|     | Taxes and interest, net                          |  |          |        |          |  |       |        |       |  |   | 13,522  |   |  |   | 13,522  | 
|    
|    
|    
|    
|     | Minority interest
in subsidiary                  |  |          |        |          |  |       |        |       |  |   | 275     |   |  |   | 275     | 
|     |                                                  |  |          |         |          |  |       |         |       |  |   |         |   |  |   |        
|     | Net income (loss)                                |  | $        | 91,050  |          |  | $     | 49,238  |       |  | $ | (86,079 | ) |  | $ | 54,209  | 
|     |                                                  |  |          |         |          |  |       |         |       |  |   |         |   |  |   |        



|     |                                                  |  |          |         |          |  |       |         |       |  |   |          |   |  |   |         |  
|---- | ------------------------------------------------ |  | -------- | ------- | -------- |  | ----- | ------- | ----- |  | - | -------- | - |  | - | ------- | -
|     |                                                  |  | Network  |         | Payment  |  |       |         |       |  |   |          |  
|     |                                                  |  | Services |         | Services |  | Other |         | Total
|     |                                                  |  |          |         |          |  |       |         |      
|2001 |                                                  |  |          |         |          |  |       |         |       |  |   |          |   |  |   |        
|    
|    
|    
|    
|     | Revenue                                          |  | $        | 147,778 |          |  | $     | 227,860 |       |  | $ |         |   |  | $ | 375,638 |  
|    
|    
|    
|    
|     | Cost of operations                               |  |          | 84,429  |          |  |       | 185,839 |       |  |   |         |   |  |   | 270,268 |  
|    
|    
|    
|    
|     | Selling, general and
administrative expenses     |  |          |        |          |  |       |        |       |  |   | 23,812   |   |  |   | 23,812  |  
|    
|    
|    
|    
|     | Acquisition, restructuring
and write-off charges |  |          |        |          |  |       |        |       |  |   | 125,362  |   |  |   | 125,362 |  
|    
|    
|    
|    
|     | Taxes and interest,
net (benefit)                |  |          |        |          |  |       |        |       |  |   | (17,985  | ) |  |   | (17,985 | )
|    
|    
|    
|    
|     | Minority interest
in subsidiary                  |  |          |        |          |  |       |        |       |  |   | 173      |   |  |   | 173     |  
|     |                                                  |  |          |         |          |  |       |         |       |  |   |          |   |  |   |        
|     | Net income (loss)                                |  | $        | 63,349  |          |  | $     | 42,021  |       |  | $ | (131,362 | ) |  | $ | (25,992 | )
|     |                                                  |  |          |         |          |  |       |         |       |  |   |          |   |  |   |        

Note G  Contingencies

In September 2000 EFS National Bank was named as a defendant in a purported
class action lawsuit filed in the Circuit Court of Tennessee for the Thirtieth
Judicial District at Memphis alleging that certain of EFS National Banks rate
and fee changes were improper under Tennessee law due to allegedly deficient
notice. The plaintiffs filed an amended complaint alleging that the class
consists of at least 60,000 merchants who were subjected to the allegedly
improper rate and fee changes over a several-year period. The amended
complaint seeks damages in excess of $15.0 million as well as injunctive relief
and unspecified punitive damages, treble damages, attorney fees, and costs.

-11-



---



##### Table of Contents



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

Note G  Contingencies, continued

The parties are currently engaged in settlement discussions and have advised
the Tennessee Court that they have made significant progress towards and are
close to resolving this matter. The parties have reached an agreement in
principle to settle the case, subject to the completion of mutually
satisfactory documentation by the parties and approval by the Court. The
maximum amount of credits and payments by EFS National Bank under the proposed
settlement would be $37.6 million, payable over a five-year period. A portion
of such amount would be used to pay plaintiffs counsel and certain claims
administration expenses. Concord believes the actual amount of credits and
payments if the proposed settlement becomes final will be less than the $37.6
million because credits and payments are contingent upon merchant retention and
submission of claims.

A number of procedural steps must now be undertaken before the proposed
settlement becomes final. Those steps include, without limitation, finalizing
and executing the proposed settlement agreement and related documentation,
presenting the proposed settlement agreement and related documentation to the
Court and seeking preliminary approval from the Court, sending notices to all
potential class members, and allowing time for potential class members (a) to
opt out of the class or to remain in the class and (b) to object to the
proposed settlement and to attempt to persuade the court not to approve the
proposed settlement.

There can be no assurance that the foregoing steps will be completed or that
the proposed settlement will become final, on the terms described above or
otherwise.

A purported class action complaint with similar allegations and requests for
relief has been filed in St. Charles County, Missouri, but there has not been a
substantial amount of activity in the Missouri case. The proposed settlement
would also resolve the issues in the Missouri case.

Although these matters are in the preliminary stages, EFS National Bank
believes it has various defenses to the claims against it, and if these matters
cannot be resolved by settlement, EFS National Bank intends to vigorously
defend against all claims. Due to the current status of the claims, EFS
National Bank cannot predict the outcome of the proposed settlement, and
accordingly, no amounts have been accrued in the financial statements relating
to these contingencies.

-12-



---



##### 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 may contain 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) rules and regulations governing financial institutions and changes in
such rules and regulations, 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 99.2 to our annual report on
Form 10-K filed on February 26, 2002 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 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, restaurants, 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.

-13-



---



##### Table of Contents



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

In March 2002 we announced that we had reached an agreement to acquire Core
Data Resources, a privately held electronic transaction processor based in
Amarillo, Texas. Core Data provides ATM processing and related services to
financial institutions, retailers, and independent sales organizations
nationwide. We expect to close the Core Data transaction in the second quarter
of 2002, subject to various conditions, including regulatory approval.

On March 1, 2002 we completed our acquisition of The Logix Companies, LLC, an
electronic transaction processor based in Longmont, Colorado. A private
limited liability company, Logix provides financial institutions, retailers,
and independent sales organizations with ATM processing, electronic check
conversion, identification and authentication services, database development
and reporting, and merchant processing services. This acquisition was
accounted for as a purchase transaction in which we exchanged approximately 0.9
million shares of our common stock and $6.3 million in cash for all of the
outstanding membership units of Logix.

In 2001 we expanded our debit network in our Network Services area. 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 all of STARs
outstanding common stock.

As a result of our acquisition of STAR and subsequent purchase of shares, we
acquired a majority interest in Primary Payment Systems, Inc., a company
providing deposit risk management services to merchants and financial
institutions. We own an 85.5% interest in Primary Payment Systems, with the
remainder owned by certain financial institutions and a credit union service
provider. Primary Payment Systems deposit risk management services provide
advance notification of potential losses associated with fraudulent checks or
high risk accounts utilizing a national database.

In 2001 Primary Payment Systems expanded its operations in the deposit risk
management area through its acquisition of Wally Industries, Inc. d/b/a WJM
Technologies. WJMs front-end tools, which screen new deposit accounts before
they are opened, increase the breadth of Primary Payment Systems deposit risk
management services. Primary Payment Systems believes that the addition of WJM
will enable it to develop more powerful fraud filters that can be extended to
other markets, as well as provide additional cross-selling opportunities and
augment customer retention.

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 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).

-14-



---



##### Table of Contents



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

On January 1, 2002 we acquired H & F Services, Inc., an independent sales
organization. Prior to the acquisition, we had purchased merchant contracts
through H & F Services. We believe that this acquisition will increase our
control over the sales channel, including pricing and compensation. We expect
the acquisition to reduce the average cost of acquiring merchant contracts,
reduce the cost of operations, and increase selling, general and administrative
expenses.

In the first quarter of 2002 we initiated a consolidation plan to continue
improvements in overall operating efficiency and integrate recent acquisitions.
The plan includes closing and consolidating certain facilities, exiting
several non-strategic businesses, eliminating approximately 165 positions, and
writing off impaired assets. We incurred a charge of $30.6 million, net of
taxes, related to the consolidation plan. During the next 12 months, we will
implement the plan and focus on consolidation activities for operational
improvements in our Payment Services segment.

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 included 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. We incurred a
charge of $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, and severance and
compensation costs, as well as investment banking fees and advisory, legal, and
accounting fees incurred in connection with the acquisition of STAR. Our
consolidation activities to capture synergies within our network operations and
align our resources across the enterprise for greater efficiency and improved
service delivery were completed as of March 31, 2002.

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 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. The majority of our revenue is tied to contracts with
terms of between three and five years.

A principal component of our revenue is derived from Network Services (40.2%
and 39.3% for the three months ended March 31, 2002 and 2001). 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.

-15-



---



##### Table of Contents



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

Components of Revenue and Expenses, continued

The majority of our revenue (59.8% and 60.7% for the three months ended March
31, 2002 and 2001) 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, primarily charged to smaller merchants, is negotiated with each merchant
and typically constitutes a bundled rate for the transaction authorization,
processing, settlement, and funds transfer services we provide, plus the
interchange fees charged by the credit card associations and collected by us.
The balance of Payment Services revenue is derived from transaction fees for
processing credit card transactions for larger merchants, 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. One
result of basing revenue on the total dollar volume processed is that lower
ticket size or other reduction in total purchases causes a reduction in our
revenue. However, net income is not correspondingly affected because the
majority of our transactions are priced on a fixed fee per transaction basis.

The following table lists revenue by segment for the periods indicated
(in millions):

|                 |  |                    |       |      |  |   |       | 
|---------------- |  | ------------------ | ----- | ---- |  | - | ----- | 
|                 |  | Three months ended
|                 |  | March 31,         
|                 |  |                   
|                 |  | 2002               |       | 2001
|                 |  |                    |       |     
|Network Services |  | $                  | 185.6 |      |  | $ | 147.8 | 
|                
|                
|                
|                
|Payment Services |  |                    | 276.5 |      |  |   | 227.8 | 
|                 |  |                    |       |      |  |   |       | 
|Total            |  | $                  | 462.1 |      |  | $ | 375.6 | 
|                 |  |                    |       |      |  |   |       | 

Cost of operations includes all costs directly attributable to our providing
services to our customers. The most significant component of cost of
operations is interchange and network fees, which represent amounts charged by
the credit and debit networks. Interchange and network fees are billed
primarily as a percentage of dollar volume processed and, to a lesser extent,
as a transaction fee. This amount is a direct expense of the revenue component
described above, so that when total dollar volume processed declines, due to
lower ticket size or other reduction in total purchases, there is a
corresponding decline in cost of operations. 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.

-16-



---



##### Table of Contents



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 (in millions):

|                 |  |                    |       |      |  |   |       | 
|---------------- |  | ------------------ | ----- | ---- |  | - | ----- | 
|                 |  | Three months ended
|                 |  | March 31,         
|                 |  |                   
|                 |  | 2002               |       | 2001
|                 |  |                    |       |     
|Network Services |  | $                  | 94.6  |      |  | $ | 84.4  | 
|                
|                
|                
|                
|Payment Services |  |                    | 227.2 |      |  |   | 185.9 | 
|                 |  |                    |       |      |  |   |       | 
|Total            |  | $                  | 321.8 |      |  | $ | 270.3 | 
|                 |  |                    |       |      |  |   |       | 

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
|                                                 |  | March 31,         
|                                                 |  |                   
|                                                 |  | 2002               |       | 2001
|                                                 |  |                    |       |     
|Revenue                                          |  |                    | 100.0 | %    |  |  | 100.0 | % 
|                                                
|                                                
|                                                
|                                                
|Cost of operations                               |  |                    | 69.6  |      |  |  | 71.9  |   
|                                                
|                                                
|                                                
|                                                
|Selling, general and
administrative expenses     |  |                    | 5.4   |      |  |  | 6.3   |   
|                                                
|                                                
|                                                
|                                                
|Acquisition, restructuring
and write-off charges |  |                    | 10.3  |      |  |  | 33.5  |   
|                                                 |  |                    |       |      |  |  |       |   
|Operating income (loss)                          |  |                    | 14.7  |      |  |  | (11.7 | ) 
|                                                
|                                                
|                                                
|                                                
|Interest income, net                             |  |                    | 3.5   |      |  |  | 3.3   |   
|                                                 |  |                    |       |      |  |  |       |   
|Income (loss) before taxes                       |  |                    | 18.2  |      |  |  | (8.4  | ) 
|                                                
|                                                
|                                                
|                                                
|Income taxes (benefit)                           |  |                    | 6.5   |      |  |  | (1.5  | ) 
|                                                 |  |                    |       |      |  |  |       |   
|Net income (loss)                                |  |                    | 11.7  | %    |  |  | (6.9  | )%
|                                                 |  |                    |       |      |  |  |       |   

-17-



---



##### Table of Contents



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

First Quarter 2002 Compared to 2001

Revenue in the first quarter 2002 increased 23.0% to $462.1 million from $375.6
million in 2001. In the first quarter 2002 Network Services accounted for 40.2%
of revenue, and Payment Services accounted for 59.8%. Network Services revenue
in the first quarter 2002 increased 25.6% compared to 2001 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 first quarter 2002 increased 21.3% compared to 2001,
due primarily to increased transaction volumes. The increased volumes resulted
from the addition of new merchants and the increased use of debit and EBT card
transactions at new and existing merchants.

Cost of operations decreased in the first quarter 2002 to 69.6% of revenue
compared to 71.9% in 2001. This percentage decrease was due primarily to a
decrease in depreciation and amortization expenses, improvements in operating
efficiencies and economies of scale.

In the first quarter 2002 selling, general and administrative expenses
decreased as a percentage of revenue to 5.4% from 6.3% in 2001. Overall,
selling, general and administrative expenses increased to $24.8 million in the
first quarter 2002 from $23.8 million in 2001. This increase is primarily
attributable to the expenses related to the acquisition of H & F Services, Inc.
sales force.

Acquisition, restructuring and write-off charges decreased to $47.5 million in
2002 from $125.4 million in 2001. In the first quarter of 2002 we initiated a
consolidation plan to continue improvements in overall operating efficiency and
integrate recent acquisitions. The plan includes closing and consolidating
certain facilities, exiting several non-strategic businesses, eliminating
approximately 165 positions, and writing off impaired assets. The charge of
$47.5 million ($30.6 million, net of tax) consisted of $6.7 million for closing
and consolidating certain facilities, $5.9 million for compensation and
severance, and $4.5 million for exiting non-strategic businesses. In addition,
asset impairment charges of $22.5 million were incurred for the write-off of
non-performing purchased merchant contracts identified in the first quarter and
$7.9 million was incurred for the write-off of capitalized software and
computer and communications equipment no longer in use.

Excluding acquisition, restructuring and write-off charges, operating income as
a percentage of revenue increased to 25.0% in the first quarter 2002 from 21.7%
in 2001. This increase in operating income resulted from improved operating
efficiencies and economies of scale.

Net interest income improved as a percentage of revenue to 3.5% in the first
quarter 2002 compared to 3.3% in 2001. This improvement resulted primarily
from our increased investment in various securities of available cash flow from
operations plus approximately $420.6 million in proceeds from our June 2001
stock offering, which increased interest income by 26.4% compared to 2001.

Our overall tax rate increased to 35.5% in the first quarter 2002 compared to
(17.9%) in 2001. Excluding acquisition, restructuring and write-off charges,
the tax rate was 35.5% in 2002 and 2001.

-18-



---



##### Table of Contents



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

First Quarter 2002 Compared to 2001, continued

Net income as a percentage of revenue increased to 11.7% in the first quarter
2002 from (6.9%) in 2001. Excluding acquisition, restructuring and write-off
charges, net income as a percentage of revenue was 18.4% in 2002 compared to
16.1% in 2001. This increase is the result of improved margins, reduced
selling, general and administrative expenses as a percentage of revenue and
increased interest income.

Liquidity and Capital Resources

In the first quarter 2002 we used $181.2 million in operating activities due
primarily to the timing of settlement operations. We received $15.9 million
from stock issued for exercises of options under our stock option plan and
deposits increased $14.3 million. We liquidated $20.6 million in securities,
net of purchases and maturities. We spent $37.0 million on capital additions
and $15.5 million for business acquisitions. Our capital additions were
primarily for capitalized and purchased software and computer facilities and
equipment.

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

We believe that our cash and cash equivalents, securities, 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.

-19-



---



##### Table of Contents






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

Quantitative and Qualitative Disclosures About Market Risk

Since December 31, 2001, 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, 2001, refer to Exhibit 13 to our annual report on Form
10-K, filed on February 26, 2002.

-20-



---



##### Table of Contents






CONCORD EFS, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION




Item 1. Legal Proceedings

From time to time Concord is involved in various litigation matters arising out
of the conduct of its business. Pending matters that are currently material to
Concord were reported in Concords Annual Report on Form 10-K for the year
ended December 31, 2001. There were no material developments in the litigation
matter previously disclosed except for the developments discussed below.

As previously disclosed, in September 2000, EFS National Bank was named as a
defendant in a purported class action lawsuit filed in the Circuit Court of
Tennessee for the Thirtieth Judicial District at Memphis alleging that certain
of EFS National Banks rate and fee changes were improper under Tennessee law
due to allegedly deficient notice. The plaintiffs filed an amended complaint
alleging that the class consists of at least 60,000 merchants who were
subjected to the allegedly improper rate and fee changes over a several-year
period. The amended complaint seeks damages in excess of $15.0 million as well
as injunctive relief and unspecified punitive damages, treble damages, attorney
fees, and costs.

The parties are currently engaged in settlement discussions and have advised
the Tennessee Court that they have made significant progress towards and are
close to resolving this matter. The parties have reached an agreement in
principle to settle the case, subject to the completion of mutually
satisfactory documentation by the parties and approval by the Court. The
maximum amount of credits and payments by EFS National Bank under the proposed
settlement would be $37.6 million, payable over a five-year period. A portion
of such amount would be used to pay plaintiffs counsel and certain claims
administration expenses. Concord believes the actual amount of credits and
payments if the proposed settlement becomes final will be less than the $37.6
million because credits and payments are contingent upon merchant retention and
submission of claims.

A number of procedural steps must now be undertaken before the proposed
settlement becomes final. Those steps include, without limitation, finalizing
and executing the proposed settlement agreement and related documentation,
presenting the proposed settlement agreement and related documentation to the
Court and seeking preliminary approval from the Court, sending notices to all
potential class members, and allowing time for potential class members (a) to
opt out of the class or to remain in the class and (b) to object to the
proposed settlement and to attempt to persuade the court not to approve the
proposed settlement.

There can be no assurance that the foregoing steps will be completed or that
the proposed settlement will become final, on the terms described above or
otherwise.

A purported class action complaint with similar allegations and requests for
relief has been filed in St. Charles County, Missouri, but there has not been a
substantial amount of activity in the Missouri case. The proposed settlement
would also resolve the issues in the Missouri case.

Although these matters are in the preliminary stages, EFS National Bank
believes it has various defenses to the claims against it, and if these matters
cannot be resolved by settlement, EFS National Bank intends to vigorously
defend against all claims.

-21-



---



##### Table of Contents



CONCORD EFS, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K



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

|        |  |                                                                                                                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                              
|Number  |  | Description of Exhibit                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                              
|       
|       
|       
|       
|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.                          
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                              
|       
|       
|       
|       
|10.1    |  | Amendment, dated November 16, 2000, to Concord EFS, Inc. 1993 Incentive
Stock Option Plan (Second 1999 Restatement)                                                                                                          



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

On January 22, 2002, we filed a current report on Form 8-K to report, under
Item 5 of that form, developments with regard to pending legal proceedings.

-22-



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



|                  |  |                   |  |                                                                                                  
|----------------- |  | ----------------- |  | -------------------------------------------------------------------------------------------------
|                  |  | CONCORD EFS, INC.
|                 
|                 
|Date: May 9, 2002 |  | By:               |  | /s/ Dan M. PalmerDan M. Palmer
Chairman of the Board and
Chief Executive Officer                 
|                 
|                 
|Date: May 9, 2002 |  | By:               |  | /s/ Edward T. HaslamEdward T. Haslam
Senior Vice President,
Chief Financial Officer and Treasurer

-23-



---



##### Table of Contents



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

|        |  |                                                                                                                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                              
|Number  |  | Description of Exhibit                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                              
|       
|       
|       
|       
|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.                          
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                              
|       
|       
|       
|       
|10.1    |  | Amendment, dated November 16, 2000, to Concord EFS, Inc. 1993 Incentive
Stock Option Plan (Second 1999 Restatement)