##### 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

|       |  |                                                                                          
|------ |  | -----------------------------------------------------------------------------------------
|(XBox) |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. 
|      
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|       |  | For the quarterly period ended June 30, 2002                                             
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|OR    
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|(Box)  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
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|       |  | For the transition period from  to                                                       

Commission file number 000-13848



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CONCORD EFS, INC.
(Exact Name of Registrant as Specified in its Charter)

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

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

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



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

The number of shares of the registrants Common Stock, $0.33 1/3 par value,
outstanding as of July 31, 2002 was 513,035,052.





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TABLE OF CONTENTS



|                                                                                              |                                                      |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  |  | 
|PART 1 Financial Information                                                                 
|Item 1. Financial Statements (Unaudited)                                                     
|                                                                                              | Condensed Consolidated Balance Sheets               
|                                                                                              | Condensed Consolidated Statements of Income         
|                                                                                              | Condensed Consolidated Statements of Cash Flows     
|                                                                                              | Notes to Condensed Consolidated Financial Statements
|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|PART II Other Information                                                                    
|Item 1. Legal Proceedings                                                                    
|Item 2. Changes in Securities and Use of Proceeds                                            
|Item 4. Submission of Matters to a Vote of Security Holders                                  
|Item 6. Exhibits and Reports on Form 8-K                                                     
|Signatures                                                                                   
|CERTIFICATION OF CHIEF EXECUTIVE OFFICER                                                     
|CERTIFICATION OF CHIEF FINANCIAL OFFICER                                                     



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##### Table of Contents



CONCORD EFS, INC. AND SUBSIDIARIES

|                                                                                              |                                                                                                                   |  |    |   | 
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- |  | -- | - | 
|PART I  Financial Information                                                                |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Financial Statements (Unaudited)                                                      |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Balance Sheets as of June 30, 2002
and December 31, 2001                                   |  |    | 1 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Income for Three Months and Six
Months Ended June 30, 2002 and June 30, 2001 |  |    | 2 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Cash Flows for
Six Months Ended June 30, 2002 and June 30, 2001              |  |    | 3 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Notes to Condensed Consolidated Financial Statements                                                              |  |    | 4 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |                                                                                                                   |  | 16 |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                   |  | 25 |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|PART II  Other Information                                                                   |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Legal Proceedings                                                                     |                                                                                                                   |  | 26 |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Changes in Securities and Use of Proceeds                                             |                                                                                                                   |  | 27 |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                                   |  | 28 |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                   |  | 29 |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                   |  |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Signatures                                                                                    |                                                                                                                   |  | 30 |  





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##### Table of Contents












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

|                                           |                                           |   |                |           |              |   |           |           | 
|------------------------------------------ | ----------------------------------------- | - | -------------- | --------- | ------------ | - | --------- | --------- | 
|                                           |                                           |   | June 30,       |           | December 31,
|                                           |                                           |   | 2002           |           | 2001        
|                                           |                                           |   |                |           |             
|                                           |                                           |   | (in thousands)
|ASSETS                                     |                                           |   |                |           |              |   |           |          
|                                          
|                                          
|                                          
|                                          
|CURRENT ASSETS                             |                                           |   |                |           |              |   |           |          
|                                          
|                                          
|                                          
|                                          
|                                           | Cash and cash equivalents                 |   | $              | 755,751   |              |   | $         | 682,906   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Securities available for sale             |   |                | 1,097,361 |              |   |           | 1,228,805 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts receivable, net                  |   |                | 412,823   |              |   |           | 134,496   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Inventories                               |   |                | 22,048    |              |   |           | 20,971    | 
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid expenses and other current assets |   |                | 41,633    |              |   |           | 34,346    | 
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred income taxes                     |   |                | 4,196     |              |   |           | 13,054    | 
|                                           |                                           |   |                |           |              |   |           |          
|TOTAL CURRENT ASSETS                       |                                           |   | 2,333,812      |           |              |   | 2,114,578 |          
|                                          
|                                          
|                                          
|                                          
|                                           |                                           |   |                |           |              |   |           |          
|                                          
|                                          
|                                          
|                                          
|Loans, net                                 |                                           |   | 82,522         |           |              |   | 89,038    |          
|                                          
|                                          
|                                          
|                                          
|Property and equipment, net                |                                           |   | 301,819        |           |              |   | 267,451   |          
|                                          
|                                          
|                                          
|                                          
|Goodwill, net                              |                                           |   | 282,644        |           |              |   | 158,632   |          
|                                          
|                                          
|                                          
|                                          
|Other intangible assets, net               |                                           |   | 59,280         |           |              |   | 85,712    |          
|                                          
|                                          
|                                          
|                                          
|Other assets                               |                                           |   | 25,796         |           |              |   | 14,034    |          
|                                           |                                           |   |                |           |              |   |           |          
|TOTAL ASSETS                               |                                           | $ | 3,085,873      |           |              | $ | 2,729,445 |          
|                                           |                                           |   |                |           |              |   |           |          
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                           |   |                |           |              |   |           |          
|                                          
|                                          
|                                          
|                                          
|CURRENT LIABILITIES                        |                                           |   |                |           |              |   |           |          
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts payable and other liabilities    |   | $              | 442,605   |              |   | $         | 488,789   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Deposits                                  |   |                | 159,126   |              |   |           | 162,972   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued liabilities                       |   |                | 46,024    |              |   |           | 29,837    | 
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued restructuring charges             |   |                | 35,289    |              |   |           | 5,315     | 
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued litigation settlement             |   |                | 18,753    |              |   |           |          | 
|                                          
|                                          
|                                          
|                                          
|                                           | Income taxes payable                      |   |                | 16,588    |              |   |           | 1,438     | 
|                                          
|                                          
|                                          
|                                          
|                                           | Current maturities of long-term debt      |   |                | 43,021    |              |   |           |          | 
|                                           |                                           |   |                |           |              |   |           |          
|TOTAL CURRENT LIABILITIES                  |                                           |   | 761,406        |           |              |   | 688,351   |          
|                                          
|                                          
|                                          
|                                          
|                                           |                                           |   |                |           |              |   |           |          
|                                          
|                                          
|                                          
|                                          
|Long-term debt                             |                                           |   | 126,244        |           |              |   | 119,458   |          
|                                          
|                                          
|                                          
|                                          
|Deferred income taxes                      |                                           |   | 64,686         |           |              |   | 55,437    |          
|                                          
|                                          
|                                          
|                                          
|Other liabilities                          |                                           |   | 8,348          |           |              |   | 4,202     |          
|                                           |                                           |   |                |           |              |   |           |          
|TOTAL LIABILITIES                          |                                           |   | 960,684        |           |              |   | 867,448   |          
|                                           |                                           |   |                |           |              |   |           |          
|                                           |                                           |   |                |           |              |   |           |          
|                                          
|                                          
|                                          
|                                          
|Commitments and contingent liabilities     |                                           |   |               |           |              |   |          |          
|                                          
|                                          
|                                          
|                                          
|Minority interest in subsidiary            |                                           |   | 4,514          |           |              |   | 3,410     |          
|                                           |                                           |   |                |           |              |   |           |          
|STOCKHOLDERS EQUITY                       |                                           |   |                |           |              |   |           |          
|                                          
|                                          
|                                          
|                                          
|                                           | Common stock                              |   |                | 171,011   |              |   |           | 169,352   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Other stockholders equity                |   |                | 1,949,664 |              |   |           | 1,689,235 | 
|                                           |                                           |   |                |           |              |   |           |          
|TOTAL STOCKHOLDERS EQUITY                 |                                           |   | 2,120,675      |           |              |   | 1,858,587 |          
|                                           |                                           |   |                |           |              |   |           |          
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                                           | $ | 3,085,873      |           |              | $ | 2,729,445 |          
|                                           |                                           |   |                |           |              |   |           |          

See Notes to Condensed Consolidated Financial Statements.

-1-



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##### Table of Contents






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

|                                                 |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |         | 
|------------------------------------------------ | -------------------------- | - | ------------------------------------- | ------- | ---------------- | - | ------- | ------- | ---- | - | --------- | ------- |  | - | ------- | ------- | 
|                                                 |                            |   | Three months ended                    |         | Six months ended
|                                                 |                            |   | June 30,                              |         | June 30,        
|                                                 |                            |   |                                       |         |                 
|                                                 |                            |   | 2002                                  |         | 2001             |   | 2002    |         | 2001
|                                                 |                            |   |                                       |         |                  |   |         |         |     
|                                                 |                            |   | (in thousands, except per share data)
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                 |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|Revenue                                          |                            | $ | 538,177                               |         |                  | $ | 419,841 |         |      | $ | 1,000,320 |         |  | $ | 794,708 |        
|                                                
|                                                
|                                                
|                                                
|Cost of operations                               |                            |   | 381,894                               |         |                  |   | 299,619 |         |      |   | 704,275   |         |  |   | 569,887 |        
|                                                
|                                                
|                                                
|                                                
|Selling, general and
administrative expenses     |                            |   | 32,357                                |         |                  |   | 22,714  |         |      |   | 57,139    |         |  |   | 47,102  |        
|                                                
|                                                
|                                                
|                                                
|Acquisition, restructuring and
write-off charges |                            |   | 29,006                                |         |                  |   |        |         |      |   | 76,506    |         |  |   | 125,362 |        
|                                                
|                                                
|                                                
|                                                
|Litigation settlement charges                    |                            |   | 20,761                                |         |                  |   |        |         |      |   | 20,761    |         |  |   |        |        
|                                                 |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|OPERATING INCOME                                 |                            |   | 74,159                                |         |                  |   | 97,508  |         |      |   | 141,639   |         |  |   | 52,357  |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|                                                
|                                                
|                                                
|                                                
|Other income and expense:                        |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Other income               |   |                                       | 6,388   |                  |   |         | 845     |      |   |           | 6,914   |  |   |         | 2,192   | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Interest income            |   |                                       | 19,498  |                  |   |         | 15,240  |      |   |           | 39,070  |  |   |         | 30,722  | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Interest expense           |   |                                       | 2,656   |                  |   |         | 3,257   |      |   |           | 5,762   |  |   |         | 6,380   | 
|                                                 |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|INCOME BEFORE TAXES AND
MINORITY INTEREST        |                            |   | 97,389                                |         |                  |   | 110,336 |         |      |   | 181,861   |         |  |   | 78,891  |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|                                                
|                                                
|                                                
|                                                
|Income taxes                                     |                            |   | 34,086                                |         |                  |   | 39,154  |         |      |   | 64,074    |         |  |   | 33,528  |        
|                                                 |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|INCOME BEFORE MINORITY INTEREST                  |                            |   | 63,303                                |         |                  |   | 71,182  |         |      |   | 117,787   |         |  |   | 45,363  |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|                                                
|                                                
|                                                
|                                                
|Minority interest in
net income of subsidiary    |                            |   | 85                                    |         |                  |   |        |         |      |   | 360       |         |  |   | 173     |        
|                                                 |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|NET INCOME                                       |                            | $ | 63,218                                |         |                  | $ | 71,182  |         |      | $ | 117,427   |         |  | $ | 45,190  |        
|                                                 |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|                                                 |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|                                                
|                                                
|                                                
|                                                
|PER SHARE DATA:                                  |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Basic earnings per share   |   | $                                     | 0.12    |                  |   | $       | 0.15    |      |   | $         | 0.23    |  |   | $       | 0.09    | 
|                                                 |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|                                                 | Diluted earnings per share |   | $                                     | 0.12    |                  |   | $       | 0.14    |      |   | $         | 0.22    |  |   | $       | 0.09    | 
|                                                 |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|AVERAGE SHARES OUTSTANDING:                      |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Basic shares               |   |                                       | 511,673 |                  |   |         | 486,785 |      |   |           | 510,186 |  |   |         | 485,057 | 
|                                                 |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        
|                                                 | Diluted shares             |   |                                       | 532,638 |                  |   |         | 508,569 |      |   |           | 531,455 |  |   |         | 506,472 | 
|                                                 |                            |   |                                       |         |                  |   |         |         |      |   |           |         |  |   |         |        

See Notes to Condensed Consolidated Financial Statements.

-2-



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##### Table of Contents






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

|                                                    |                                                                                             |                                                             |         |                  |          |      |          |          |         |  
|--------------------------------------------------- | ------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------- | ---------------- | -------- | ---- | -------- | -------- | ------- | -
|                                                    |                                                                                             |                                                             |         | Six months ended
|                                                    |                                                                                             |                                                             |         | June 30,        
|                                                    |                                                                                             |                                                             |         |                 
|                                                    |                                                                                             |                                                             |         | 2002             |          | 2001
|                                                    |                                                                                             |                                                             |         |                  |          |     
|                                                    |                                                                                             |                                                             |         | (in thousands)  
|OPERATING ACTIVITIES                                |                                                                                             |                                                             |         |                  |          |      |          |         
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Net income                                                                                  |                                                             | $       | 117,427          |          |      | $        | 45,190   |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Adjustments to reconcile net income to net cash
provided by (used in) operating activities: |                                                             |         |                  |          |      |          |          |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             | Minority interest in subsidiary                             |         |                  | 360      |      |          |          | 173     |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             | Provision for losses on accounts receivable
and loans       |         |                  | 116      |      |          |          | 3,962   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             | Depreciation and amortization                               |         |                  | 39,612   |      |          |          | 45,517  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             | Deferred income taxes                                       |         |                  | 11,979   |      |          |          | (21,051 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             | Net realized gain on sales of securities
available for sale |         |                  | (1,013   | )    |          |          | (1,616  | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             | Restructuring charges                                       |         | 38,338           |          |      |          | 13,081   |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             | Changes in operating assets and liabilities:                |         |                  |          |      |          |          |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             | Settlement receivables and payables, net                    |         |                  | (303,577 | )    |          |          | 1,214   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             | Accounts receivable                                         |         |                  | (27,031  | )    |          |          | (11,652 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             | Inventories                                                 |         |                  | (843     | )    |          |          | (6,046  | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             | Prepaid expenses and other current assets                   |         |                  | (6,818   | )    |          |          | (2,565  | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             | Accounts payable and other liabilities                      |         |                  | 79,714   |      |          |          | 97,036  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             | Other, net                                                  |         | 2,338            |          |      |          | 2,048    |        
|                                                    |                                                                                             |                                                             |         |                  |          |      |          |         
|NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |                                                                                             |                                                             | (49,398 | )                |          |      | 165,291  |         
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             |                                                             |         |                  |          |      |          |         
|                                                   
|                                                   
|                                                   
|                                                   
|INVESTING ACTIVITIES                                |                                                                                             |                                                             |         |                  |          |      |          |         
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Acquisition of securities available for sale                                                |                                                             |         | (423,762         | )        |      |          | (521,316 | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from sales of securities available for sale                                        |                                                             |         | 487,336          |          |      |          | 242,123  |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from maturity of securities available for sale                                     |                                                             |         | 85,528           |          |      |          | 79,755   |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchases of loans                                                                          |                                                             |         | (17,716          | )        |      |          | (23,490  | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Net change in loans                                                                         |                                                             |         | 25,281           |          |      |          | 7,625    |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Acquisition of property and equipment                                                       |                                                             |         | (70,904          | )        |      |          | (48,332  | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchased merchant contracts                                                                |                                                             |         |                 |          |      |          | (16,423  | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Business acquisitions, net                                                                  |                                                             |         | (17,240          | )        |      |          | (19,700  | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other investing activity                                                                    |                                                             |         | (13,443          | )        |      |          | (2,938   | )      
|                                                    |                                                                                             |                                                             |         |                  |          |      |          |         
|NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |                                                                                             |                                                             | 55,080  |                  |          |      | (302,696 | )       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             |                                                             |         |                  |          |      |          |         
|                                                   
|                                                   
|                                                   
|                                                   
|FINANCING ACTIVITIES                                |                                                                                             |                                                             |         |                  |          |      |          |         
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Net increase (decrease) in deposits                                                         |                                                             |         | (3,846           | )        |      |          | 13,644   |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from borrowings                                                                    |                                                             |         | 50,000           |          |      |          | 21,000   |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Payments on borrowings                                                                      |                                                             |         | (193             | )        |      |          | (14,268  | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from offering of common stock                                                      |                                                             |         |                 |          |      |          | 420,630  |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from exercise of stock options                                                     |                                                             |         | 21,445           |          |      |          | 16,591   |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Payments on leases payable                                                                  |                                                             |         | (243             | )        |      |          | (871     | )      
|                                                    |                                                                                             |                                                             |         |                  |          |      |          |         
|NET CASH PROVIDED BY FINANCING ACTIVITIES           |                                                                                             |                                                             | 67,163  |                  |          |      | 456,726  |         
|                                                    |                                                                                             |                                                             |         |                  |          |      |          |         
|NET INCREASE IN CASH AND CASH EQUIVALENTS           |                                                                                             |                                                             | 72,845  |                  |          |      | 319,321  |         
|                                                   
|                                                   
|                                                   
|                                                   
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR      |                                                                                             |                                                             | 682,906 |                  |          |      | 298,383  |         
|                                                    |                                                                                             |                                                             |         |                  |          |      |          |         
|CASH AND CASH EQUIVALENTS AT END OF PERIOD          |                                                                                             | $                                                           | 755,751 |                  |          | $    | 617,704  |         
|                                                    |                                                                                             |                                                             |         |                  |          |      |          |         

See Notes to Condensed Consolidated Financial Statements.

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##### Table of Contents






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

Note A  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring accruals, considered necessary for
a fair presentation have been included. Operating results for the six months
ended June 30, 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
on 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.

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

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-



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##### Table of Contents



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

Note B  Business Combinations, continued

On May 17, 2002 Concord acquired Core Data Resources, Inc., an electronic
transaction processor. The acquisition, for which Concord issued approximately
2.0 million shares of its common stock, 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 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 paid approximately $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-



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##### Table of Contents



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

Note B  Business Combinations, continued

The following table presents selected financial information split between
Concord and STAR (in thousands, except per share data):

|                                    |                               |   |                    |         |                  |   |      |         |      |   |      |           |  |   |      |         |  
|----------------------------------- | ----------------------------- | - | ------------------ | ------- | ---------------- | - | ---- | ------- | ---- | - | ---- | --------- |  | - | ---- | ------- | -
|                                    |                               |   | Three months ended |         | Six months ended
|                                    |                               |   | June 30,           |         | June 30,        
|                                    |                               |   |                    |         |                 
|                                    |                               |   | 2002               |         | 2001             |   | 2002 |         | 2001
|                                    |                               |   |                    |         |                  |   |      |         |     
|Revenue:                            |                               |   |                    |         |                  |   |      |         |      |   |      |           |  |   |      |        
|                                   
|                                   
|                                   
|                                   
|                                    | Concord                       |   | $                  | 538,177 |                  |   | $    | 419,841 |      |   | $    | 1,000,320 |  |   | $    | 779,836 |  
|                                   
|                                   
|                                   
|                                   
|                                    | STAR (1)                      |   |                    |        |                  |   |      |        |      |   |      |          |  |   |      | 15,396  |  
|                                   
|                                   
|                                   
|                                   
|                                    | Intercompany eliminations (2) |   |                    |        |                  |   |      |        |      |   |      |          |  |   |      | (524    | )
|                                    |                               |   |                    |         |                  |   |      |         |      |   |      |           |  |   |      |        
|                                    | Combined revenue              |   | $                  | 538,177 |                  |   | $    | 419,841 |      |   | $    | 1,000,320 |  |   | $    | 794,708 |  
|                                    |                               |   |                    |         |                  |   |      |         |      |   |      |           |  |   |      |        
|Net income:                         |                               |   |                    |         |                  |   |      |         |      |   |      |           |  |   |      |        
|                                   
|                                   
|                                   
|                                   
|                                    | Concord                       |   | $                  | 63,218  |                  |   | $    | 71,182  |      |   | $    | 117,427   |  |   | $    | 42,262  |  
|                                   
|                                   
|                                   
|                                   
|                                    | STAR (1)                      |   |                    |        |                  |   |      |        |      |   |      |          |  |   |      | 2,928   |  
|                                    |                               |   |                    |         |                  |   |      |         |      |   |      |           |  |   |      |        
|                                    | Combined net income           |   | $                  | 63,218  |                  |   | $    | 71,182  |      |   | $    | 117,427   |  |   | $    | 45,190  |  
|                                    |                               |   |                    |         |                  |   |      |         |      |   |      |           |  |   |      |        
|Basic earnings
per share combined   |                               | $ | 0.12               |         |                  | $ | 0.15 |         |      | $ | 0.23 |           |  | $ | 0.09 |        
|                                    |                               |   |                    |         |                  |   |      |         |      |   |      |           |  |   |      |        
|Diluted earnings
per share combined |                               | $ | 0.12               |         |                  | $ | 0.14 |         |      | $ | 0.22 |           |  | $ | 0.09 |        
|                                    |                               |   |                    |         |                  |   |      |         |      |   |      |           |  |   |      |        



---

|(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.                                                                                                                

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##### 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 $29.0 million ($18.9
million, net of taxes) for the three months ended June 30, 2002. During the
second quarter, management approved a plan in conjunction with the Core Data
acquisition and continued consolidation initiatives to improve overall
operating efficiencies. The charge consisted of $16.8 million for contract
terminations, $4.1 million for exiting a non-strategic business, $1.0 million
for closing and consolidating certain facilities and $0.7 million for
compensation and severance. In addition, the charge included stock
compensation charges of $4.8 million related to the modification of stock
options of terminated employees and asset impairment charges of $1.6 million
recorded as an adjustment to the write-off of non-performing purchased merchant
contracts. In connection with the plan, Concord expects to eliminate 24
positions, none of which were eliminated as of June 30, 2002. As of June 30,
2002, $22.3 million of the charges were accrued but unpaid. Concord expects to
complete the plan by June 30, 2003.

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

|                                                   |  |   |        | 
|-------------------------------------------------- |  | - | ------ | 
|Acquisition, restructuring and write-off charges   |  | $ | 29,006 | 
|                                                  
|                                                  
|                                                  
|                                                  
|Cash outlays                                       |  |   | 211    | 
|                                                  
|                                                  
|                                                  
|                                                  
|Non-cash writedowns and charges  asset impairment |  |   | 6,536  | 
|                                                   |  |   |        | 
|Balance, June 30, 2002                             |  | $ | 22,259 | 
|                                                   |  |   |        | 

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

|                                     |  |   |        | 
|------------------------------------ |  | - | ------ | 
|Contract terminations                |  | $ | 16,800 | 
|                                    
|                                    
|                                    
|                                    
|Non-strategic business closures      |  |   | 3,846  | 
|                                    
|                                    
|                                    
|                                    
|Facility closings and consolidations |  |   | 930    | 
|                                    
|                                    
|                                    
|                                    
|Compensation and severance           |  |   | 683    | 
|                                     |  |   |        | 
|Balance, June 30, 2002               |  | $ | 22,259 | 
|                                     |  |   |        | 

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##### 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 ($0.03 basic and diluted earnings per
share) 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 plan, Concord expects to eliminate
approximately 165 positions, 109 of which were eliminated as of June 30, 2002.
Compensation and severance costs paid and charged against the restructuring
charge accrual were $1.8 million through June 30, 2002. As of June 30, 2002,
$13.0 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 first quarter 2002
restructuring charge accrual (in thousands):

|                                                   |  |   |        | 
|-------------------------------------------------- |  | - | ------ | 
|Acquisition, restructuring and write-off charges   |  | $ | 47,500 | 
|                                                  
|                                                  
|                                                  
|                                                  
|Cash outlays                                       |  |   | 2,696  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Non-cash writedowns and charges  asset impairment |  |   | 31,774 | 
|                                                   |  |   |        | 
|Balance, June 30, 2002                             |  | $ | 13,030 | 
|                                                   |  |   |        | 

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

|                                     |  |   |        | 
|------------------------------------ |  | - | ------ | 
|Facility closings and consolidations |  | $ | 5,963  | 
|                                    
|                                    
|                                    
|                                    
|Compensation and severance           |  |   | 4,131  | 
|                                    
|                                    
|                                    
|                                    
|Non-strategic business closures      |  |   | 2,936  | 
|                                     |  |   |        | 
|Balance, June 30, 2002               |  | $ | 13,030 | 
|                                     |  |   |        | 

-8-



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##### 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 advisory, legal,
and accounting 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 were 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 Statement 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.

-9-



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##### 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 |        | Six months ended
|                                    |  | June 30,           |        | June 30,        
|                                    |  |                    |        |                 
|                                    |  | 2002               |        | 2001             |  | 2002 |        | 2001
|                                    |  |                    |        |                  |  |      |        |     
|Reported net income                 |  | $                  | 63,218 |                  |  | $    | 71,182 |      |  | $ | 117,427 |  |  | $ | 45,190 | 
|                                   
|                                   
|                                   
|                                   
|Goodwill amortization,
net of tax   |  |                    |       |                  |  |      | 2,415  |      |  |   |        |  |  |   | 4,691  | 
|                                    |  |                    |        |                  |  |      |        |      |  |   |         |  |  |   |        | 
|Adjusted net income                 |  | $                  | 63,218 |                  |  | $    | 73,597 |      |  | $ | 117,427 |  |  | $ | 49,881 | 
|                                    |  |                    |        |                  |  |      |        |      |  |   |         |  |  |   |        | 
|Adjusted basic earnings
per share   |  | $                  | 0.12   |                  |  | $    | 0.15   |      |  | $ | 0.23    |  |  | $ | 0.10   | 
|                                    |  |                    |        |                  |  |      |        |      |  |   |         |  |  |   |        | 
|Adjusted diluted earnings
per share |  | $                  | 0.12   |                  |  | $    | 0.14   |      |  | $ | 0.22    |  |  | $ | 0.10   | 
|                                    |  |                    |        |                  |  |      |        |      |  |   |         |  |  |   |        | 

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 relating to other
intangible assets as of December 31, 2001 for the periods indicated, 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 | 
|           |  |   |        | 

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##### Table of Contents



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

Note D  Comprehensive Income

Total comprehensive income was $79.5 million and $70.4 million for the three
months ended June 30, 2002 and 2001, respectively. Total comprehensive income
was $128.9 million and $51.5 million for the six months ended June 30, 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.

Note E  Offering of Common Stock

In June 2001 Concord issued and sold approximately 17.8 million shares of its
common stock pursuant to a registration statement filed with the Securities and
Exchange Commission. Pursuant to the same registration statement, the selling
stockholders named in the registration statement sold approximately 34.1
million shares of Concord common stock. Most of the selling stockholders were
the previous owners of STAR who received unregistered common stock of Concord
in connection with the February 1, 2001 acquisition. Net of the underwriting
discount and other expenses of the offering, Concord received $420.6 million
for the common stock it issued and sold. Concord did not receive any proceeds
from the sale of shares by the selling stockholders.

Note F  Earnings Per Share

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

|                           |                                                                                                       |   |                    |         |                  |   |      |         |      |   |      |         |  |   |      |         | 
|-------------------------- | ----------------------------------------------------------------------------------------------------- | - | ------------------ | ------- | ---------------- | - | ---- | ------- | ---- | - | ---- | ------- |  | - | ---- | ------- | 
|                           |                                                                                                       |   | Three months ended |         | Six months ended
|                           |                                                                                                       |   | June 30,           |         | June 30,        
|                           |                                                                                                       |   |                    |         |                 
|                           |                                                                                                       |   | 2002               |         | 2001             |   | 2002 |         | 2001
|                           |                                                                                                       |   |                    |         |                  |   |      |         |     
|Numerator:                 |                                                                                                       |   |                    |         |                  |   |      |         |      |   |      |         |  |   |      |        
|                          
|                          
|                          
|                          
|                           | Net income                                                                                            |   | $                  | 63,218  |                  |   | $    | 71,182  |      |   | $    | 117,427 |  |   | $    | 45,190  | 
|                           |                                                                                                       |   |                    |         |                  |   |      |         |      |   |      |         |  |   |      |        
|Denominator:               |                                                                                                       |   |                    |         |                  |   |      |         |      |   |      |         |  |   |      |        
|                          
|                          
|                          
|                          
|                           | Denominator for basic earnings
per share, weighted-average shares                                     |   |                    | 511,673 |                  |   |      | 486,785 |      |   |      | 510,186 |  |   |      | 485,057 | 
|                          
|                          
|                          
|                          
|                           | Effect of dilutive stock options                                                                      |   |                    | 20,965  |                  |   |      | 21,784  |      |   |      | 21,269  |  |   |      | 21,415  | 
|                           |                                                                                                       |   |                    |         |                  |   |      |         |      |   |      |         |  |   |      |        
|                          
|                          
|                          
|                          
|                           | Denominator for diluted earnings per
share, adjusted weighted-average
shares, and assumed conversions |   |                    | 532,638 |                  |   |      | 508,569 |      |   |      | 531,455 |  |   |      | 506,472 | 
|                           |                                                                                                       |   |                    |         |                  |   |      |         |      |   |      |         |  |   |      |        
|Basic earnings per share   |                                                                                                       | $ | 0.12               |         |                  | $ | 0.15 |         |      | $ | 0.23 |         |  | $ | 0.09 |        
|                           |                                                                                                       |   |                    |         |                  |   |      |         |      |   |      |         |  |   |      |        
|Diluted earnings per share |                                                                                                       | $ | 0.12               |         |                  | $ | 0.14 |         |      | $ | 0.22 |         |  | $ | 0.09 |        
|                           |                                                                                                       |   |                    |         |                  |   |      |         |      |   |      |         |  |   |      |        

Excluding acquisition, restructuring, write-off, and litigation settlement
charges and related taxes, diluted earnings per share for the six months ended
June 30, 2002 and 2001 were $0.34 and $0.26, respectively. Earnings per share
and related per share data have been restated to reflect all stock splits.

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##### Table of Contents



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

Note G  Operations by Business Segment

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

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.

Business segment information for the three months and six months ended June 30,
2002 and 2001 is presented below (in thousands):

|                                                 |  |                                  |         |          |  |       |         |       |  |   |         |   |  |   |         | 
|------------------------------------------------ |  | -------------------------------- | ------- | -------- |  | ----- | ------- | ----- |  | - | ------- | - |  | - | ------- | 
|                                                 |  | Three months ended June 30, 2002
|                                                 |  |                                 
|                                                 |  | Network                          |         | Payment  |  |       |         |       |  |   |         |  
|                                                 |  | Services                         |         | Services |  | Other |         | Total
|                                                 |  |                                  |         |          |  |       |         |      
|Revenue                                          |  | $                                | 205,149 |          |  | $     | 333,028 |       |  | $ |        |   |  | $ | 538,177 | 
|                                                
|                                                
|                                                
|                                                
|Cost of operations                               |  |                                  | 108,950 |          |  |       | 272,944 |       |  |   |        |   |  |   | 381,894 | 
|                                                
|                                                
|                                                
|                                                
|Selling, general and
administrative expenses     |  |                                  |        |          |  |       |        |       |  |   | 32,357  |   |  |   | 32,357  | 
|                                                
|                                                
|                                                
|                                                
|Acquisition, restructuring
and write-off charges |  |                                  |        |          |  |       |        |       |  |   | 29,006  |   |  |   | 29,006  | 
|                                                
|                                                
|                                                
|                                                
|Litigation settlement charges                    |  |                                  |        |          |  |       |        |       |  |   | 20,761  |   |  |   | 20,761  | 
|                                                
|                                                
|                                                
|                                                
|Other income                                     |  |                                  |        |          |  |       |        |       |  |   | 6,388   |   |  |   | 6,388   | 
|                                                
|                                                
|                                                
|                                                
|Interest income                                  |  |                                  |        |          |  |       |        |       |  |   | 19,498  |   |  |   | 19,498  | 
|                                                
|                                                
|                                                
|                                                
|Interest expense                                 |  |                                  |        |          |  |       |        |       |  |   | 2,656   |   |  |   | 2,656   | 
|                                                
|                                                
|                                                
|                                                
|Income taxes                                     |  |                                  |        |          |  |       |        |       |  |   | 34,086  |   |  |   | 34,086  | 
|                                                
|                                                
|                                                
|                                                
|Minority interest
in subsidiary                  |  |                                  |        |          |  |       |        |       |  |   | 85      |   |  |   | 85      | 
|                                                 |  |                                  |         |          |  |       |         |       |  |   |         |   |  |   |         | 
|Net income (loss)                                |  | $                                | 96,199  |          |  | $     | 60,084  |       |  | $ | (93,065 | ) |  | $ | 63,218  | 
|                                                 |  |                                  |         |          |  |       |         |       |  |   |         |   |  |   |         | 

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##### Table of Contents



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

Note G  Operations by Business Segment, continued

|                                                 |  |                                  |         |          |  |       |         |       |  |   |         |   |  |   |         | 
|------------------------------------------------ |  | -------------------------------- | ------- | -------- |  | ----- | ------- | ----- |  | - | ------- | - |  | - | ------- | 
|                                                 |  | Three months ended June 30, 2001
|                                                 |  |                                 
|                                                 |  | Network                          |         | Payment  |  |       |         |       |  |   |         |  
|                                                 |  | Services                         |         | Services |  | Other |         | Total
|                                                 |  |                                  |         |          |  |       |         |      
|Revenue                                          |  | $                                | 156,829 |          |  | $     | 263,012 |       |  | $ |        |   |  | $ | 419,841 | 
|                                                
|                                                
|                                                
|                                                
|Cost of operations                               |  |                                  | 85,620  |          |  |       | 213,999 |       |  |   |        |   |  |   | 299,619 | 
|                                                
|                                                
|                                                
|                                                
|Selling, general and
administrative expenses     |  |                                  |        |          |  |       |        |       |  |   | 22,714  |   |  |   | 22,714  | 
|                                                
|                                                
|                                                
|                                                
|Acquisition, restructuring
and write-off charges |  |                                  |        |          |  |       |        |       |  |   |        |   |  |   |        | 
|                                                
|                                                
|                                                
|                                                
|Litigation settlement charges                    |  |                                  |        |          |  |       |        |       |  |   |        |   |  |   |        | 
|                                                
|                                                
|                                                
|                                                
|Other income                                     |  |                                  |        |          |  |       |        |       |  |   | 845     |   |  |   | 845     | 
|                                                
|                                                
|                                                
|                                                
|Interest income                                  |  |                                  |        |          |  |       |        |       |  |   | 15,240  |   |  |   | 15,240  | 
|                                                
|                                                
|                                                
|                                                
|Interest expense                                 |  |                                  |        |          |  |       |        |       |  |   | 3,257   |   |  |   | 3,257   | 
|                                                
|                                                
|                                                
|                                                
|Income taxes                                     |  |                                  |        |          |  |       |        |       |  |   | 39,154  |   |  |   | 39,154  | 
|                                                
|                                                
|                                                
|                                                
|Minority interest
in subsidiary                  |  |                                  |        |          |  |       |        |       |  |   |        |   |  |   |        | 
|                                                 |  |                                  |         |          |  |       |         |       |  |   |         |   |  |   |         | 
|Net income (loss)                                |  | $                                | 71,209  |          |  | $     | 49,013  |       |  | $ | (49,040 | ) |  | $ | 71,182  | 
|                                                 |  |                                  |         |          |  |       |         |       |  |   |         |   |  |   |         | 

|                                                 |  |                                |         |          |  |       |         |       |  |   |          |   |  |   |           | 
|------------------------------------------------ |  | ------------------------------ | ------- | -------- |  | ----- | ------- | ----- |  | - | -------- | - |  | - | --------- | 
|                                                 |  | Six months ended June 30, 2002
|                                                 |  |                               
|                                                 |  | Network                        |         | Payment  |  |       |         |       |  |   |          |  
|                                                 |  | Services                       |         | Services |  | Other |         | Total
|                                                 |  |                                |         |          |  |       |         |      
|Revenue                                          |  | $                              | 390,806 |          |  | $     | 609,514 |       |  | $ |         |   |  | $ | 1,000,320 | 
|                                                
|                                                
|                                                
|                                                
|Cost of operations                               |  |                                | 203,889 |          |  |       | 500,386 |       |  |   |         |   |  |   | 704,275   | 
|                                                
|                                                
|                                                
|                                                
|Selling, general and
administrative expenses     |  |                                |        |          |  |       |        |       |  |   | 57,139   |   |  |   | 57,139    | 
|                                                
|                                                
|                                                
|                                                
|Acquisition, restructuring
and write-off charges |  |                                |        |          |  |       |        |       |  |   | 76,506   |   |  |   | 76,506    | 
|                                                
|                                                
|                                                
|                                                
|Litigation settlement charges                    |  |                                |        |          |  |       |        |       |  |   | 20,761   |   |  |   | 20,761    | 
|                                                
|                                                
|                                                
|                                                
|Other income                                     |  |                                |        |          |  |       |        |       |  |   | 6,914    |   |  |   | 6,914     | 
|                                                
|                                                
|                                                
|                                                
|Interest income                                  |  |                                |        |          |  |       |        |       |  |   | 39,070   |   |  |   | 39,070    | 
|                                                
|                                                
|                                                
|                                                
|Interest expense                                 |  |                                |        |          |  |       |        |       |  |   | 5,762    |   |  |   | 5,762     | 
|                                                
|                                                
|                                                
|                                                
|Income taxes                                     |  |                                |        |          |  |       |        |       |  |   | 64,074   |   |  |   | 64,074    | 
|                                                
|                                                
|                                                
|                                                
|Minority interest
in subsidiary                  |  |                                |        |          |  |       |        |       |  |   | 360      |   |  |   | 360       | 
|                                                 |  |                                |         |          |  |       |         |       |  |   |          |   |  |   |           | 
|Net income (loss)                                |  | $                              | 186,917 |          |  | $     | 109,128 |       |  | $ | (178,618 | ) |  | $ | 117,427   | 
|                                                 |  |                                |         |          |  |       |         |       |  |   |          |   |  |   |           | 

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##### Table of Contents



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

Note G  Operations by Business Segment, continued

|                                                 |  |                                |         |          |  |       |         |       |  |   |          |   |  |   |         | 
|------------------------------------------------ |  | ------------------------------ | ------- | -------- |  | ----- | ------- | ----- |  | - | -------- | - |  | - | ------- | 
|                                                 |  | Six months ended June 30, 2001
|                                                 |  |                               
|                                                 |  | Network                        |         | Payment  |  |       |         |       |  |   |          |  
|                                                 |  | Services                       |         | Services |  | Other |         | Total
|                                                 |  |                                |         |          |  |       |         |      
|Revenue                                          |  | $                              | 303,986 |          |  | $     | 490,722 |       |  | $ |         |   |  | $ | 794,708 | 
|                                                
|                                                
|                                                
|                                                
|Cost of operations                               |  |                                | 170,049 |          |  |       | 399,838 |       |  |   |         |   |  |   | 569,887 | 
|                                                
|                                                
|                                                
|                                                
|Selling, general and
administrative expenses     |  |                                |        |          |  |       |        |       |  |   | 47,102   |   |  |   | 47,102  | 
|                                                
|                                                
|                                                
|                                                
|Acquisition, restructuring
and write-off charges |  |                                |        |          |  |       |        |       |  |   | 125,362  |   |  |   | 125,362 | 
|                                                
|                                                
|                                                
|                                                
|Litigation settlement charges                    |  |                                |        |          |  |       |        |       |  |   |         |   |  |   |        | 
|                                                
|                                                
|                                                
|                                                
|Other income                                     |  |                                |        |          |  |       |        |       |  |   | 2,192    |   |  |   | 2,192   | 
|                                                
|                                                
|                                                
|                                                
|Interest income                                  |  |                                |        |          |  |       |        |       |  |   | 30,722   |   |  |   | 30,722  | 
|                                                
|                                                
|                                                
|                                                
|Interest expense                                 |  |                                |        |          |  |       |        |       |  |   | 6,380    |   |  |   | 6,380   | 
|                                                
|                                                
|                                                
|                                                
|Income taxes                                     |  |                                |        |          |  |       |        |       |  |   | 33,528   |   |  |   | 33,528  | 
|                                                
|                                                
|                                                
|                                                
|Minority interest
in subsidiary                  |  |                                |        |          |  |       |        |       |  |   | 173      |   |  |   | 173     | 
|                                                 |  |                                |         |          |  |       |         |       |  |   |          |   |  |   |         | 
|Net income (loss)                                |  | $                              | 133,937 |          |  | $     | 90,884  |       |  | $ | (179,631 | ) |  | $ | 45,190  | 
|                                                 |  |                                |         |          |  |       |         |       |  |   |          |   |  |   |         | 

Note H  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. On May 14, 2002 the plaintiffs filed a second amended complaint
alleging that the class consists of over 100,000 merchants who were subjected
to the allegedly improper rate and fee changes over a several-year period. The
second amended complaint sought damages in excess of $70.0 million as well as
injunctive relief and unspecified punitive damages, treble damages, attorney
fees, and costs.

On May 16, 2002 the parties entered into a settlement agreement relating to
this litigation and received preliminary approval from the trial
court therefor. On August 6, 2002 the trial court rejected the
only objection filed against the settlement agreement and gave the
settlement agreement its final approval. The objector has not yet
indicated whether he will appeal, but he has 30 days from the date of final approval to do so. The maximum amount of the credits and payments by EFS National Bank
under the settlement is $37.6 million, payable over a five-year period. A
portion of such amount will be used to pay plaintiffs counsel and certain
claims administration expenses. In connection with the settlement, Concord has
recorded a one-time charge of $20.8 million ($13.5 million, net of taxes) for
the three months ended June 30, 2002. The charge is less than $37.6 million,
because the credits and payments are contingent upon merchant retention and
submission of claims.

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 settlement in the
Tennessee case discussed above will also resolve the issues in the Missouri
case.

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##### Table of Contents



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

Note I  Other Income

Other income for the three months ended June 30, 2002 includes $5.9 million
representing the sale of certain terminal hardware and related future rental
payments. The remaining other income represents net realized gain on sales of
securities available for sale.

Note J  Subsequent Event

On August 5, 2002 Concord announced that its Board
of Directors approved the repurchase of up to $250.0 million of
Concords common stock. Under  the repurchase plan, Concord may buy
back shares of its outstanding stock from time to time either on the
open market or through privately negotiated transactions.

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##### Table of Contents






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

You should read the following discussion together with our condensed
consolidated financial statements and the notes to those financial statements,
which are included in this report. This report 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

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.

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##### Table of Contents



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

On May 17, 2002 we acquired Core Data Resources, Inc., 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. This acquisition was accounted for
as a purchase transaction in which we exchanged approximately 2.0 million
shares of our common stock for all of Core Datas outstanding common stock.

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

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).

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##### Table of Contents



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

We own two insured depository institutions, EFS National Bank and EFS Federal
Savings Bank. While EFS National Bank engages exclusively in activities
related to our payment processing business, EFS Federal Savings Bank has
engaged in limited local deposit taking and lending operations. We have
determined that the continuation of those local retail banking operations are
not strategic to the company, and we are, therefore, pursuing options to
dispose of those operations and related assets and liabilities. As an interim
step in this regard, on May 15, 2002 we applied to the Office of the
Comptroller of the Currency to merge EFS Federal Savings Bank into EFS National
Bank.

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.

Consolidation Plans

In the second quarter of 2002 we initiated a plan in conjunction with the Core
Data acquisition and continued consolidation initiatives to improve overall
operating efficiencies. The plan includes contract terminations, exiting a
non-strategic business, closing and consolidating certain facilities,
eliminating 24 positions, and writing off impaired assets. We incurred a
charge of $18.9 million, net of taxes, related to the plan. During the next
twelve months, we will implement the plan to improve our overall operating
efficiencies.

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 nine 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.

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##### Table of Contents



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

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
original terms of between three and five years.

A principal component of our revenue is derived from Network Services (38.1%
and 37.4% for the three months ended June 30, 2002 and 2001 and 39.1% and 38.3%
for the six months ended June 30, 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.

The majority of our revenue (61.9% and 62.6% for the three months ended June
30, 2002 and 2001 and 60.9% and 61.7% for the six months ended June 30, 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 having
revenue dependent 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   |       | Six months    
|                 |  | ended June 30, |       | ended June 30,
|                 |  |                |       |               
|                 |  | 2002           |       | 2001           |  | 2002 |       | 2001
|                 |  |                |       |                |  |      |       |     
|Network Services |  | $              | 205.2 |                |  | $    | 156.8 |      |  | $ | 390.8   |  |  | $ | 304.0 | 
|                
|                
|                
|                
|Payment Services |  |                | 333.0 |                |  |      | 263.0 |      |  |   | 609.5   |  |  |   | 490.7 | 
|                 |  |                |       |                |  |      |       |      |  |   |         |  |  |   |       | 
|Total            |  | $              | 538.2 |                |  | $    | 419.8 |      |  | $ | 1,000.3 |  |  | $ | 794.7 | 
|                 |  |                |       |                |  |      |       |      |  |   |         |  |  |   |       | 

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##### 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

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.

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

|                 |  |                |       |                |  |      |       |      |  |   |       |  |  |   |       | 
|---------------- |  | -------------- | ----- | -------------- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                 |  | Three months   |       | Six months    
|                 |  | ended June 30, |       | ended June 30,
|                 |  |                |       |               
|                 |  | 2002           |       | 2001           |  | 2002 |       | 2001
|                 |  |                |       |                |  |      |       |     
|Network Services |  | $              | 109.0 |                |  | $    | 85.6  |      |  | $ | 203.9 |  |  | $ | 170.1 | 
|                
|                
|                
|                
|Payment Services |  |                | 272.9 |                |  |      | 214.0 |      |  |   | 500.4 |  |  |   | 399.8 | 
|                 |  |                |       |                |  |      |       |      |  |   |       |  |  |   |       | 
|Total            |  | $              | 381.9 |                |  | $    | 299.6 |      |  | $ | 704.3 |  |  | $ | 569.9 | 
|                 |  |                |       |                |  |      |       |      |  |   |       |  |  |   |       | 

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.

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

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 |       | Six months ended
|                                                 |  | June 30,           |       | June 30,        
|                                                 |  |                    |       |                 
|                                                 |  | 2002               |       | 2001             |  | 2002 |       | 2001
|                                                 |  |                    |       |                  |  |      |       |     
|Revenue                                          |  |                    | 100.0 | %                |  |      | 100.0 | %    |  |  | 100.0 | % |  |  | 100.0 | %
|                                                
|                                                
|                                                
|                                                
|Cost of operations                               |  |                    | 71.0  |                  |  |      | 71.4  |      |  |  | 70.4  |   |  |  | 71.7  |  
|                                                
|                                                
|                                                
|                                                
|Selling, general and
administrative expenses     |  |                    | 6.0   |                  |  |      | 5.4   |      |  |  | 5.7   |   |  |  | 5.9   |  
|                                                
|                                                
|                                                
|                                                
|Acquisition, restructuring
and write-off charges |  |                    | 5.4   |                  |  |      |      |      |  |  | 7.7   |   |  |  | 15.8  |  
|                                                
|                                                
|                                                
|                                                
|Litigation settlement charges                    |  |                    | 3.8   |                  |  |      |      |      |  |  | 2.1   |   |  |  |      |  
|                                                 |  |                    |       |                  |  |      |       |      |  |  |       |   |  |  |       |  
|Operating income                                 |  |                    | 13.8  |                  |  |      | 23.2  |      |  |  | 14.1  |   |  |  | 6.6   |  
|                                                
|                                                
|                                                
|                                                
|Other income                                     |  |                    | 1.2   |                  |  |      | 0.2   |      |  |  | 0.7   |   |  |  | 0.3   |  
|                                                
|                                                
|                                                
|                                                
|Interest income, net                             |  |                    | 3.1   |                  |  |      | 2.9   |      |  |  | 3.3   |   |  |  | 3.0   |  
|                                                 |  |                    |       |                  |  |      |       |      |  |  |       |   |  |  |       |  
|Income before taxes                              |  |                    | 18.1  |                  |  |      | 26.3  |      |  |  | 18.1  |   |  |  | 9.9   |  
|                                                
|                                                
|                                                
|                                                
|Income taxes                                     |  |                    | 6.3   |                  |  |      | 9.3   |      |  |  | 6.4   |   |  |  | 4.2   |  
|                                                 |  |                    |       |                  |  |      |       |      |  |  |       |   |  |  |       |  
|Net income                                       |  |                    | 11.8  | %                |  |      | 17.0  | %    |  |  | 11.7  | % |  |  | 5.7   | %
|                                                 |  |                    |       |                  |  |      |       |      |  |  |       |   |  |  |       |  

Second Quarter 2002 Compared to 2001

Revenue in the second quarter 2002 increased 28.2% to $538.2 million from
$419.8 million in 2001. In the second quarter 2002 Network Services accounted
for 38.1% of revenue, and Payment Services accounted for 61.9%. Network
Services revenue in the second quarter 2002 increased 30.8% compared to 2001 as
a result of network price increases, 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 second
quarter 2002 increased 26.6% 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, EBT, and credit card transactions at
new and existing merchants.

Cost of operations decreased in the second quarter 2002 to 71.0% of revenue
compared to 71.4% 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 second quarter 2002 selling, general and administrative expenses
increased as a percentage of revenue to 6.0% from 5.4% in 2001. Overall,
selling, general and administrative expenses increased to $32.4 million in the
second quarter 2002 from $22.7 million in 2001. This increase is primarily
attributable to the expenses related to the acquisition of the H & F Services
sales force, increased headcount, and expenses related to the Logix and Core
Data acquisitions.

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

Second Quarter 2002 Compared to 2001, continued

Acquisition, restructuring and write-off charges were $29.0 million in the
second quarter 2002. There were no such charges in the second quarter 2001.
In the second quarter of 2002 we initiated a plan in conjunction with the Core
Data acquisition and continued consolidation initiatives to improve overall
operating efficiencies. The plan includes contract terminations, exiting a
non-strategic business, closing and consolidating certain facilities,
eliminating 24 positions, and writing off impaired assets. The charge of $29.0
million ($18.9 million, net of taxes) consisted of $16.8 million for contract
terminations, $4.1 million for exiting a non-strategic business, $1.0 million
for closing and consolidating certain facilities, and $0.7 million for
compensation and severance. In addition, the charge included stock
compensation charges of $4.8 million related to the modification of stock
options of terminated employees and asset impairment charges of $1.6 million
recorded as an adjustment to the write-off of non-performing purchased merchant
contracts.

Litigation settlement charges were $20.8 million in the second quarter 2002.
There were no such charges in the second quarter 2001. The charges represent
credits and payments to merchants and former merchants, legal expenses, and
claims administration expenses in connection with a settlement agreement
relating to a purported class action lawsuit alleging that certain rate and fee
charges were improper under Tennessee law due to allegedly deficient notice.

Excluding acquisition, restructuring, write-off, and litigation settlement
charges, operating income as a percentage of revenue was 23.0% in the second
quarter 2002 compared to 23.2% in 2001.

Other income improved as a percentage of revenue to 1.2% in the second quarter
2002 compared to 0.2% in 2001. This improvement resulted from the sale of
certain terminal hardware and related future rental payments.

Net interest income improved as a percentage of revenue to 3.1% in the second
quarter 2002 compared to 2.9% 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 net interest income by 40.6% compared to 2001.

Our overall tax rate was 35.0% in the second quarter 2002 compared to 35.5% in
2001.

Net income as a percentage of revenue decreased to 11.8% in the second quarter
2002 from 17.0% in 2001. Excluding acquisition, restructuring, write-off, and
litigation settlement charges, net income as a percentage of revenue was 17.8%
in 2002 compared to 17.0% in 2001. This increase is the result of increased
other income and interest income.

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

Six Months Ended June 30, 2002 Compared to 2001

Revenue in the six months ended June 30, 2002 increased 25.9% to $1,000.3
million from $794.7 million in 2001. In the six months ended June 30, 2002
Network Services accounted for 39.1% of revenue, and Payment Services accounted
for 60.9%. Network Services revenue in the six months ended June 30, 2002
increased 28.6% compared to 2001 as a result of network price increases, 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 six months ended June 30, 2002 increased 24.2% 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,
EBT, and credit card transactions at new and existing merchants.

Cost of operations decreased in the six months ended June 30, 2002 to 70.4% of
revenue compared to 71.7% 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 six months ended June 30, 2002 selling, general and administrative
expenses decreased as a percentage of revenue to 5.7% from 5.9% in 2001.
Overall, selling, general and administrative expenses increased to $57.1
million in the six months ended June 30, 2002 from $47.1 million in 2001. This
increase is primarily attributable to the expenses related to the acquisition
of the H & F Services sales force, increased headcount, and expenses related to
the Logix and Core Data acquisitions.

Acquisition, restructuring and write-off charges decreased to $76.5 million in
2002 from $125.4 million in 2001. In the second quarter of 2002 we initiated a
plan and incurred a charge of $29.0 million as described in the second quarter
2002 to 2001 comparison.

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 taxes) 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.

Litigation settlement charges were $20.8 million in the six months ended June
30, 2002. There were no such charges in the six months ended June 30, 2001.
The charges are described in the second quarter 2002 to 2001 comparison.

Excluding acquisition, restructuring, write-off, and litigation settlement
charges, operating income as a percentage of revenue increased to 23.9% in the
six months ended June 30, 2002 from 22.4% in 2001. This increase in operating
income resulted from improved operating efficiencies and economies of scale.

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##### Table of Contents



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

Six Months Ended June 30, 2002 Compared to 2001, continued

Other income improved as a percentage of revenue to 0.7% in the six months
ended June 30, 2002 from 0.3% in 2001. This improvement resulted from the sale
of certain terminal hardware and related future rental payments.

Net interest income improved as a percentage of revenue to 3.3% in the six
months ended June 30, 2002 compared to 3.0% 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 net interest income by 36.8% compared
to 2001.

Our overall tax rate decreased to 35.2% in the six months ended June 30, 2002
compared to 42.5% in 2001. Excluding acquisition, restructuring, write-off, and
litigation settlement charges, the tax rate was 35.2% in 2002 and 35.5% in
2001.

Net income as a percentage of revenue increased to 11.7% in the six months
ended June 30, 2002 from 5.7% in 2001. Excluding acquisition, restructuring,
write-off, and litigation settlement charges, net income as a percentage of
revenue was 18.0% in 2002 compared to 16.6% in 2001. This increase is the
result of improved margins, reduced selling, general and administrative
expenses as a percentage of revenue, and increased other income and interest
income.

Liquidity and Capital Resources

In the six months ended June 30, 2002 we generated $254.2 million from
operating activities excluding the timing of settlement operations. Including
the timing of settlement operations, we used $49.4 million in operating
activities. We received $50.0 million in proceeds from Federal Home Loan Bank
advances and $21.4 million from stock issued for exercises of options under
our stock option plan. We liquidated $149.1 million in securities, net of
purchases and maturities. We spent $70.9 million on capital additions and
$17.2 million for business acquisitions. Our capital additions were primarily
for capitalized and purchased software and computer facilities and equipment.

As of June 30, 2002 our assets were 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.

On July 1, 2002 we invested a total of $150.0 million in two hedge
fund-of-funds entities that allow us through a single investment in each entity, to access a
variety of hedge fund managers and strategies. These holdings are intended to
allow us to more efficiently diversify our investments by allocating a portion
of our investable cash with a number of professional money managers. From a
liquidity standpoint, substantially all of the funds allow withdrawals on a
quarterly basis. These investments will be accounted for using the equity
method, with unrealized gains or losses reflected in current profit and loss
each quarter.

On August 5, 2002 we announced that our Board
of Directors approved the repurchase of up to $250.0 million of our common stock. Under the repurchase plan, we may buy back shares of our outstanding stock from time to time either on the open market or through privately negotiated transactions.

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.

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##### Table of Contents






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

Quantitative and Qualitative Disclosures About Market Risk

As of June 30, 2002, there were no changes with regard to market risk since
December 31, 2001 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.

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##### 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 proceedings and developments that may
be considered material were reported in our annual report on Form 10-K for the
year ended December 31, 2001 (filed on February 26, 2002), our quarterly report
on Form 10-Q for the quarter ended March 31, 2002 (filed on May 9, 2002), and
our most recent current report on Form 8-K (filed on May 16, 2002). During the
quarter ended June 30, 2002, there were no material developments in any
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. On May 14, 2002 the plaintiffs filed a
second amended complaint alleging that the class consists of over 100,000
merchants who were subjected to the allegedly improper rate and fee changes
over a several-year period. The second amended complaint sought damages in
excess of $70.0 million as well as injunctive relief and unspecified punitive
damages, treble damages, attorney fees, and costs.

On May 16, 2002 the parties entered into a settlement agreement relating to
this litigation and received preliminary approval from the trial
court therefor. On August 6, 2002 the trial court rejected the
only objection filed against the settlement agreement and gave the
settlement agreement its final approval. The objector has not yet
indicated whether he will appeal, but he has 30 days from the date of final approval to do so. The
principal terms of the settlement agreement are:



| | (1) |  | Every member of the purported class seeking a monetary recovery
is required to submit a written claim, verified under penalty of
perjury.                                                                                
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | EFS National Bank admits no liability.                                                                                                                                                                                   
|
| | (3) |  | The settlement covers all claims relating to specific rate
increases or changes and the imposition of certain fees.                                                                                                      
|
| | (4) |  | The settlement covers claims by former and current merchants.
Former merchants who return to EFS National Bank in connection with
the settlement will receive a premium over what non-returning former
merchants receive.
|
| | (5) |  | Credits and payments will be made annually in 2002, 2003, 2004,
2005, and 2006. Claimants will have to remain with EFS National Bank
through 2006 to receive the maximum available financial benefit from
the settlement.
|
| | (6) |  | The maximum amount of the credits and payments by EFS National
Bank under the settlement is $37.6 million. A portion of such amount
will be used to pay plaintiffs counsel and certain claims
administration expenses.  

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CONCORD EFS, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION

Item 1. Legal Proceedings, continued



| | (7) |  | If more than 4% of the potential class members opt out of the
monetary aspects of the settlement, EFS National Bank will have the
right to withdraw from the settlement. EFS National Bank will
receive releases from all potential class members who do not opt out
of the monetary aspects of the settlement.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (8) |  | EFS National Bank agrees to certain injunctive relief regarding
notice of new fees and rate increases and the content of monthly
statements sent to merchants.                                                                                                                                                 

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 settlement in the
Tennessee case discussed above will also resolve the issues in the Missouri
case.




Item 2. Changes in Securities and Use of Proceeds

Pursuant to the stockholder vote at our annual meeting, we filed a Certificate
of Amendment on June 7, 2002 with the Delaware Secretary of State, amending our
Certificate of Incorporation to increase the number of authorized shares of our
common stock, $0.33 1/3 par value, to 1,500,000,000 shares. Holders of our
common stock are not entitled to preemptive rights to purchase our common
stock. The authorized shares of common stock can be issued without stockholder
approval upon such terms and in consideration of such amounts as our Board of
Directors determines is in our best interests. The authorization of additional
shares of common stock has no dilutive effect upon the proportionate voting
power of our present stockholders. However, issuance of additional shares
could have a substantial dilutive effect on present stockholders.

Our issuance of additional shares of common stock may also make it more
difficult to obtain stockholder approval of various actions, such as a merger
or other corporate combination. The increase in the number of authorized
shares of common stock could enable our Board of Directors to render more
difficult an attempt by another person or entity to obtain control of Concord,
although our Board of Directors has no present intention of issuing additional
shares for such purpose and has no present knowledge of any takeover efforts by
any person or entity.

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CONCORD EFS, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION




Item 4. Submission of Matters to a Vote of Security Holders

At the annual meeting of our stockholders held on May 23, 2002, our
stockholders elected the following nominees to our Board of Directors, with
votes cast as follows:



| |  |  | Douglas C. Altenbern419,048,899 shares for and 12,651,601 abstentions; 
| | - |  | ------------------------------------------------------------------------
|
| |  |  | J. Richard Buchignani416,185,066 shares for and 15,515,434
abstentions;
|
| |  |  | Ronald V. Congemi357,247,280 shares for and 74,453,220 abstentions;    
|
| |  |  | Richard M. Harter416,565,219 shares for and 15,135,281 abstentions;    
|
| |  |  | Richard P. Kiphart421,935,665 shares for and 9,764,835 abstentions;    
|
| |  |  | Edward A. Labry III357,405,657 shares for and 74,294,843 abstentions;  
|
| |  |  | Jerry D. Mooney419,067,605 shares for and 12,632,895 abstentions;      
|
| |  |  | Dan M. Palmer357,472,143 shares for and 74,228,357 abstentions; and    
|
| |  |  | Paul L. Whittington419,041,609 shares for and 12,658,891 abstentions.  

There were no votes cast against any nominee, and there were no broker
non-votes with respect to each nominee.

At the annual meeting, our stockholders approved an amendment to our
Certificate of Incorporation to increase the number of authorized shares of our
common stock, with votes cast as follows: 410,495,891 shares for, 19,380,393
shares against, 1,824,216 abstentions, and no broker non-votes.

At the annual meeting, our stockholders also approved the Concord EFS, Inc.
2002 Stock Option Plan that succeeds and replaces the Concord EFS, Inc. 1993
Incentive Stock Option Plan, with votes cast as follows: 314,877,291 shares
for, 49,788,882 shares against, 2,197,080 abstentions, and 64,837,247 broker
non-votes.

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##### 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 4.1 to Concords registration
statement on Form S-8 (File No. 333-90678), filed on June 18, 2002.                                    
|       
|       
|       
|       
|3.2     |  | Amended and Restated Bylaws of Concord EFS, Inc. are incorporated herein by
reference to Exhibit 4.2 to Concords registration statement on Form S-8 (File
No. 333-74215), filed on March 10, 1999.                                            
|       
|       
|       
|       
|10.1    |  | Concord EFS, Inc. 1993 Incentive Stock Option Plan (Second 1999
Restatement) is incorporated herein by reference to Exhibit I to Concords
proxy statement for the annual meeting of stockholders held on May 20, 1999,
filed on April 9, 1999.
|       
|       
|       
|       
|99.1    |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                            
|       
|       
|       
|       
|99.2    |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                            



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

On May 16, 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.

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##### 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: August 8, 2002 |  | By: |  | /s/ Dan M. PalmerDan M. Palmer
Chairman of the Board and
Chief Executive Officer                  
|                    
|Date: August 8, 2002 |  | By: |  | /s/ Edward T. HaslamEdward T. Haslam
Senior Vice President,
Chief Financial Officer, and Treasurer

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##### 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 4.1 to Concords registration
statement on Form S-8 (File No. 333-90678), filed on June 18, 2002.                                    
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                
|       
|       
|       
|       
|3.2     |  | Amended and Restated Bylaws of Concord EFS, Inc. are incorporated herein by
reference to Exhibit 4.2 to Concords registration statement on Form S-8 (File
No. 333-74215), filed on March 10, 1999.                                            
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                
|       
|       
|       
|       
|10.1    |  | Concord EFS, Inc. 1993 Incentive Stock Option Plan (Second 1999
Restatement) is incorporated herein by reference to Exhibit I to Concords
proxy statement for the annual meeting of stockholders held on May 20, 1999,
filed on April 9, 1999.
|       
|       
|       
|       
|99.1    |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                            
|       
|       
|       
|       
|99.2    |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.