Edgar Filing: CONCORD EFS INC

As filed with the Securities and Exchange Commission on May 16, 2001
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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Concord EFS, Inc.
(Exact name of registrant as specified in its charter)

Delaware 04-2462252
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

2525 Horizon Lake Drive
Suite 120
Memphis, TN 38133
(901) 371-8000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Dan M. Palmer
Chairman of the Board of Directors and Chief Executive Officer
2525 Horizon Lake Drive
Suite 120
Memphis, TN 38133
(901) 371-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

copies to:

Imad I. Qasim, Esq. Allan G. Sperling, Esq.
Sidley Austin Brown & Wood Cleary, Gottlieb, Steen & Hamilton
Bank One Plaza One Liberty Plaza
Chicago, Illinois 60603 New York, New York 10006
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE

Title of Each Class of
Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered Offering Price Per Unit Aggregate Offering Price Registration Fee
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Common stock, $0.33 1/3
par value.............. 24,373,218 shares(1) $42.82(2) $1,043,661,195 $260,915.30

(1) Includes 3,179,115 shares subject to the underwriters' over-allotment
option.
(2) Estimated solely for the purpose of calculating the registration fee and,
pursuant to Rule 457(c) under the Securities Act, based upon the average
high and low sale prices of the common stock as quoted on the Nasdaq
National Market on May 10, 2001.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this registration statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to
Section 8(a), may determine.

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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 17, 2001

PROSPECTUS

[LOGO] 21,194,103 Shares
Concord EFS, Inc.
Common Stock
$ per share

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We are selling 2,000,000 shares of our common stock, and the selling
stockholders named in this prospectus are selling 19,194,103 shares. We will
not receive any proceeds from the sale of the shares by the selling
stockholders. We have granted the underwriters an option to purchase up to
3,179,115 additional shares of common stock to cover over-allotments.

Our common stock is quoted on the Nasdaq National Market under the symbol
"CEFT." The last reported sale price of our common stock on the Nasdaq National
Market on May 15, 2001, was $44.55 per share.

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Investing in our common stock involves risks. See "Risk Factors" beginning on
page 6.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

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Per Share Total
--------- -----

Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Concord (before expenses) $ $
Proceeds to the Selling Stockholders (before expenses) $ $

The underwriters expect to deliver the shares to purchasers on or about
, 2001.

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Salomon Smith Barney Goldman, Sachs & Co. William Blair & Company
Joint Book- Joint Book-Running Manager Joint Lead Manager
Running Manager

Banc of America Securities
LLC
Bear, Stearns & Co.
Inc.
Merrill Lynch &
Co.
Morgan Keegan & Company, Inc.

, 2001

[Concord logo/diagrams illustrating
payment transaction processing cycle]

You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of any of these securities in
any state where the offer is not permitted. You should not assume that the
information contained in or incorporated by reference in this prospectus is
accurate as of any date other than the date on the front of this prospectus.

TABLE OF CONTENTS

Page
----

Prospectus Summary....................................................... 1

Risk Factors............................................................. 6

Special Note Regarding Forward-Looking Statements........................ 11

Use of Proceeds.......................................................... 12

Price Range of Common Stock.............................................. 13

Dividend Policy.......................................................... 13

Capitalization........................................................... 14

Selected Consolidated Financial Data..................................... 15

Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16

Business................................................................. 25

Management............................................................... 35

Principal and Selling Stockholders....................................... 37

Shares Eligible for Future Sale.......................................... 42

United States Federal Tax Consequences to Non-United States Holders...... 44

Underwriting............................................................. 46

Legal Matters............................................................ 48

Experts.................................................................. 48

Where You Can Find More Information...................................... 48

Index to Consolidated Financial Statements............................... F-1

Unless otherwise noted, the industry information provided in this
prospectus, including the industry rankings, is based upon information
contained in the following industry publications:

. Thomson Financial's 2001 Card Industry Directory, for share of automated
teller machines driven as of March 2000,

. Thomson Financial's 2001 EFT Network Data Book, for share of branded
network ATMs and share of PIN-secured debit transactions processed
through a debit network, in each case as of March 2000, and growth in
number of installed ATMs, ATM transactions and PIN-secured debit
transactions between 1995 and projected year-end 2000,

. Thomson Financial's 2001 Debit Card and POS Market Data Book, for share
of PIN-secured debit payment transactions acquired by a payment
processor, based on 1999 transactions,

. The Nilson Report, Issue No. 713, and Concord data, for share of dollar
volume of credit and signature debit card payment transactions, based on
1999 transactions,

. The Nilson Report, Issue No. 737, for share of total PIN-secured and
signature debit transactions, based on 2000 transactions,

. The Nilson Report, Issue Nos. 720 and 729, for share of all credit, debit
and EBT card payment transactions, based on 1999 transactions,

. The Nilson Report, Issue Nos. 632 and 729, with respect to percent of
payment transactions represented by cash, checks, credit and debit cards,
based on 1995 and 1999 transactions and projected 2005 and 2010
transactions,

. The Nilson Report, Issue No. 726, for projected growth in PIN-secured
debit transactions between 1999 and 2005, and

. The Nilson Report, Issue No. 730, for growth in credit card purchase
volume between 1995 and 2000 and projected growth between 2000 and 2005.

We believe these publications contain the most current industry information
published on the matters referenced, as of the date of this prospectus.

PROSPECTUS SUMMARY

You should read the following summary with the more detailed information
about us, including the information set forth under the heading "Risk Factors"
and our financial statements with their accompanying notes that are included in
this prospectus and in the documents incorporated by reference in this
prospectus.

Concord EFS, Inc.

Concord EFS, Inc. 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, trucking companies and independent retailers. In
2000, we processed approximately 8.0 billion transactions. We are ranked as a
market leader in several important categories, including:

in our Network Services business:

. #1 in the number of ATMs driven--we drive 16% of all ATMs in the United
States,

. #1 in the number of ATMs carrying a specific regional debit network
brand--more than 50% of the ATMs in the United States carry our STARsm,
MAC(R) or Cash Station(R) brand, and

. #1 in the number of PIN-secured debit payment transactions processed
through a debit network--we process 50% of all PIN-secured debit payment
transactions through our combined debit network, and

in our Payment Services business:

. #1 in the number of PIN-secured debit payment transactions acquired by a
payment processor--we acquire 20% of all PIN-secured debit payment
transactions,

. #4 in the total number of credit, debit and electronic benefits transfer
(EBT) card payment transactions processed--we process 9% of all credit,
debit and EBT card payment transactions, and

. #5 in the total dollar volume of credit and signature debit card payment
transactions processed--we process 5% of all dollar volume for credit and
signature debit card payments.

We have attained our leadership position as a result of being one of the few
fully integrated electronic transaction solutions providers and by focusing on
selected industries moving rapidly to cashless commerce. Our portfolio of
debit, credit, EBT, check and ATM services allows us to offer virtually any
electronic payment or deposit access product needed by merchants and financial
institutions. We believe that our strong internal growth rates and high rate of
recurring revenues reflect our ability to satisfy and retain our existing
customers and to acquire new customers.

In 2000, our revenue was $1,407.1 million and our operating income was
$293.5 million. Between 1996 and 2000, our operating income grew at a compound
annual rate of 38.4%. Over this same period, our operating margin expanded from
18.3% to 20.9%.

In 2000, we provided transaction services, including data capture,
authorization and settlement services, for over 300,000 merchant locations. We
own and operate the STAR debit network, which is comprised of the STAR, MAC and
Cash Station debit networks, and we provide processing services for
approximately 50,000 ATMs nationwide, of which we own approximately 1,000.

Investment Highlights

We believe that the following factors are important in order to understand
the growth potential of our business:

Industry Factors

Key U.S. industry trends include:

. PIN-secured debit transactions at the point of sale grew at a compound
annual rate of 36% between 1995 and 2000 to a total of 3.6 billion
transactions.

. ATM transaction volume grew at a compound annual rate of 6% between 1995
and 2000 to a total of 13.2 billion transactions.

. The number of regional debit networks has fallen from approximately 100
in 1989 to approximately 35 in 2001.

. Consumer expenditures on credit cards increased to $1,274 billion in 2000
from $744 billion in 1995, representing a compound annual growth rate of
11%.

. The percentage of total payment transactions in which cash or checks were
used as the method of payment decreased from 77% in 1995 to 72% in 1999
and is expected to further decrease to 61% by 2005.

. Consumers between the ages of 18 and 44 are the highest users of ATMs and
PIN-secured debit for payment, with greatest usage among consumers age 25
to 34, according to a 1999 study performed by The Applied Management &
Planning Group on behalf of Star Systems, Inc. (STAR).

Company Factors

. We are focused on select markets that are switching rapidly to electronic
transaction processing. We believe, therefore, that our transaction
volume will grow more rapidly than the overall market.

. We are a fully integrated company providing end-to-end payment services.
We believe this gives us a competitive advantage, because it allows our
customers to acquire from us a full set of payment services required to
process transactions and allows us to price our services competitively.

. On February 1, 2001, we acquired STAR, the nation's largest PIN-secured
debit network, which owns and operates the STAR debit network and
processes ATM and point of sale (POS) transactions on behalf of financial
institutions and merchants, and on August 21, 2000, we completed our
acquisition of Cash Station, Inc., a leading Midwest PIN-secured debit
network based in Chicago, Illinois. Following these acquisitions, our
combined debit network, which is comprised of our STAR, MAC and Cash
Station networks, now has approximately 6,500 financial institution
members with 124 million cards. Consumers carrying these cards have
access to their deposit accounts at approximately 180,000 ATMs and
720,000 POS locations coast-to-coast.

. Our national network of cards and terminals provides the critical mass
necessary to bring new products to the financial services industry,
including person-to-person payments, check electronification and secure
debit payments on the Internet.

. We strive to maintain a highly-efficient operating structure, including
an emphasis on low overhead and cost control efforts. Our ownership of a
national bank also allows us to reduce payments to outside vendors.

Operating Strategy

Our operating strategy is to:

. focus on markets which are switching rapidly to electronic payment cards,

. utilize a multi-faceted sales approach to target selected vertical
markets,

. provide a fully integrated range of services,

. cross-sell our services to existing clients,

. leverage our PIN-secured debit infrastructure,

. develop new products and services to meet market needs,

. maintain a highly-efficient operating structure, and

. seek selective acquisitions.

The Offering

The following information regarding shares outstanding after the offering is
based on the number of shares outstanding as of April 30, 2001. It does not
include a total of 30,223,477 shares reserved for issuance under the Concord
EFS, Inc. 1993 Incentive Stock Option Plan, as amended, the Electronic Payment
Services, Inc. 1995 Stock Option Plan, as amended, and the Star Systems, Inc.
2000 Equity Incentive Plan. Under those plans, options for the purchase of
25,548,612 shares were outstanding as of April 30, 2001, of which options for
the purchase of 11,941,913 shares were exercisable at that date. Throughout
this prospectus, unless we have stated otherwise, we have assumed that the
underwriters' over-allotment option for an additional 3,179,115 shares of
common stock has not been exercised.

Common stock offered by us.... 2,000,000 shares
Common stock offered by
selling stockholders......... 19,194,103 shares
Common stock outstanding after
the offering................. 244,319,486 shares
Use of proceeds............... For general corporate purposes, including for
working capital. We will not receive any of the
proceeds from the sale of common stock by the
selling stockholders.
Nasdaq National Market
symbol....................... "CEFT"

Our principal executive offices are located at 2525 Horizon Lake Drive,
Suite 120, Memphis, Tennessee 38133, and our telephone number is (901) 371-
8000.

Summary Consolidated Financial Data

The summary consolidated financial data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and notes
to those financial statements included and incorporated by reference elsewhere
in this prospectus. The summary consolidated financial data for the years ended
December 31, 1998, 1999 and 2000 have been derived from our audited
consolidated financial statements, which are included in this prospectus. The
summary consolidated financial data for the years ended December 31, 1996 and
1997 have been derived from audited consolidated financial statements which are
not included in this prospectus. The summary consolidated financial data as of
March 31, 2001 and for the three months ended March 31, 2000 and 2001 have been
derived from our unaudited condensed consolidated financial statements, which
are included in this prospectus. The summary consolidated financial data has
been restated for all periods presented to reflect the business combinations of
Concord with Digital Merchant Systems of Illinois, Inc. and American Bankcard
International, Inc. on June 30, 1998, Electronic Payment Services, Inc. on
February 26, 1999, National Payment Systems Inc. d/b/a Card Payment Systems
(referred to in this prospectus as Card Payment Systems) on January 31, 2000,
Cash Station, Inc. on August 21, 2000 and STAR on February 1, 2001, each of
which was accounted for as a pooling of interests. The column "As Adjusted"
reflects our sale of 2,000,000 shares in this offering at an assumed public
offering price of $44.55, after deducting underwriting discounts and
commissions and estimated offering expenses payable by us.

Three Months
Ended
Year Ended December 31, March 31,
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1996 1997 1998 1999 2000 2000 2001
----------- ----------- ----------- ------------ ------------ -------- --------
(in thousands except per share and per transaction numbers) (unaudited)

Income Statement Data:
Revenue................. $ 436,371 $ 622,573 $ 812,824 $ 1,060,010 $ 1,407,140 $302,917 $375,638
Cost of operations...... 288,401 421,969 552,469 735,467 1,009,954 222,515 270,268
Selling, general and
administrative
expenses............... 67,925 87,257 90,936 92,334 91,995 21,837 23,812
Acquisition expenses and
restructuring charges.. -- -- -- 36,189 11,691 776 125,362
----------- ----------- ----------- ------------ ------------ -------- --------
Operating income........ 80,045 113,347 169,419 196,020 293,500 57,789 (43,804)
Interest income
(expense), net......... (10,087) (1,688) 2,604 16,251 37,243 7,477 12,359
Equity in earnings
(loss) of subsidiary... (394) (165) 281 -- -- -- --
----------- ----------- ----------- ------------ ------------ -------- --------
Income before taxes and
minority interest...... 69,564 111,494 172,304 212,271 330,743 65,266 (31,445)
Income taxes (benefit).. 26,970 45,081 65,709 82,906 120,220 23,608 (5,626)
Minority interest in net
income of subsidiary... -- -- -- 124 597 146 173
----------- ----------- ----------- ------------ ------------ -------- --------
Net income (loss)....... $ 42,594 $ 66,413 $ 106,595 $ 129,241 $ 209,926 $ 41,512 $(25,992)
=========== =========== =========== ============ ============ ======== ========
Basic earnings (loss)
per share.............. $ 0.21 $ 0.30 $ 0.48 $ 0.56 $ 0.88 $ 0.17 $ (0.11)
Diluted earnings (loss)
per share.............. $ 0.20 $ 0.29 $ 0.46 $ 0.54(1) $ 0.85(1) $ 0.17(1) $ (0.11)(1)
Basic shares............ 207,133 222,584 224,235 231,843 239,179 238,636 241,664
Diluted shares.......... 213,759 228,381 231,396 239,867 247,997 244,748 241,664
Other Data:
Number of transactions
processed (in
millions).............. 3,295 4,404 5,537 6,592 8,004 NA NA
Operating income per
transaction (2)........ $ 0.024 $ 0.026 $ 0.031 $ 0.035 $ 0.038 NA NA

As of March 31, 2001
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Actual As Adjusted
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(in thousands,
unaudited)

Balance Sheet Data:
Working capital.......................................... $ 729,383 $ 813,719
Total assets............................................. $1,753,313 $1,837,649
Long-term debt, less current maturities.................. $ 111,562 $ 111,562
Total stockholders' equity............................... $1,133,758 $1,218,094

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(1) Excluding acquisition and restructuring charges and related taxes, diluted
earnings per share for the years ended 1999 and 2000 and for the three
month periods ended March 31, 2000 and 2001 were $0.65, $0.88, $0.17 and
$0.24, respectively.
(2) Amounts exclude acquisition and restructuring charges. Including such
charges, operating income per transaction in 1996, 1997, 1998, 1999 and
2000 was $0.024, $0.026, $0.031, $0.030 and $0.037, respectively.

RISK FACTORS

Before you invest in our common stock, you should be aware that there are
various risks, including those described below, that could have a material
adverse effect on our business, including our operating results and financial
condition. The risk factors listed in this section, as well as any cautionary
language in this prospectus, provide examples of risks, uncertainties and
events that may cause our actual results to differ materially from the
expectations we describe in our forward-looking statements. You should
carefully consider these risk factors, together with all of the other
information included in this prospectus, before you decide whether to purchase
shares of our common stock.

If we fail to successfully execute our corporate consolidation plan, our
operating results and financial condition could be adversely affected.

In the first quarter of 2001, we initiated a company-wide consolidation plan
to integrate our recent acquisitions, including STAR. The plan is intended,
among other things, to eliminate operational redundancies and functionally
integrate the STAR organization into Concord. We cannot assure you that we will
be able to combine our operations without encountering difficulties or
experiencing the loss of key employees or customers or that the expected
benefits from such combination will be realized. If we are unsuccessful in
executing our consolidation plan, our operating results and financial condition
could be adversely affected.

If we lose key personnel or are unable to attract additional qualified
personnel as we grow, our business could be adversely affected.

We are dependent upon the ability and experience of a number of our key
management personnel who have substantial experience with our operations, the
rapidly changing electronic payment processing industry and the selected
markets in which we offer our services. It is possible that the loss of the
services of one or a combination of our senior executives or key managers would
have an adverse effect on our operations. Our success also depends on our
ability to continue to attract, manage and retain other qualified middle
management and technical and clerical personnel as we grow. We cannot assure
you that we will continue to attract or retain such personnel.

Loss of key customers could reduce our revenue and net income.

As a result of our competitive business environment, we experience some
customer attrition. Customer attrition is due to several factors, including
losses to competitors, business acquisitions and mergers and business closures.
We cannot assure you that any of our contracts for credit and debit card, ATM
processing and/or debit network access services will be renewed or, if renewed,
will be renewed on terms as favorable to us as at present. If they are not
renewed, we may not be able to reduce our costs in proportion to the lost
revenue, because many of our costs are fixed. Increased attrition could
therefore have an adverse effect on our revenue and net income.

We face significant competition in each of our lines of business.

The businesses of electronic payment processing and settlement, ATM
processing, debit card processing and debit network access services are all
highly competitive. The level of competition has increased in recent years, and
other service providers have established a sizable market share in some of the
service areas in which we compete. In addition, competitors to our network,
which consist of other national and regional debit networks, continue to
consolidate as large banks merge and combine their debit networks and as shared
debit networks continue to combine into larger, super-regional conglomerates.
The continued expansion of the national debit networks operated by VISA and
MasterCard also places increasing competitive pressure on other networks as
banks seek to consolidate their network affiliations. Several of our
competitors and potential competitors have greater capital and technological,
management and marketing resources than we have, and we cannot assure you that
we will continue to be able to compete successfully with such entities. In
addition, the competitive pricing pressures that would result from any increase
in competition could adversely affect our margins and may have an adverse
effect on our operating results and financial condition. See "Business--
Competition."

Current or future card association rules and practices could adversely affect
our business.

EFS National Bank is a member of the VISA and MasterCard organizations and
is a registered processor of Discover, American Express and Diners Club
transactions. We compete directly with VISA and MasterCard in the provision of
transaction processing services. Further, the rules of the credit card
associations are set by member banks or, in the case of Discover, American
Express and Diners Club, by the card issuers, and some of those banks and
issuers are our competitors with respect to these services. With respect to our
EBT business, the governmental issuers of the benefits set the rules governing
such transactions, and the financial institutions or processors hired by the
government administer them. We cannot assure you that the credit card
associations will maintain our registrations or that the current card
association or EBT rules allowing us to market and provide transaction
processing services will remain in effect. The termination of our member
registration or our status as a certified processor, or any changes in card
association or EBT rules that limit our ability to provide transaction
processing and marketing services, could have an adverse effect on our
transaction volumes and revenue or operating costs. In addition, if we were
precluded from processing any of these card association transactions, there can
be no assurance that our processing clients would continue to use us to process
transactions in other networks.

In addition, our STAR network, as a result of the combination of the STAR,
MAC and Cash Station networks, is the first regional debit network that may
potentially be viewed as achieving national status in terms of size and
geographic coverage. Current VISA and MasterCard rules prohibit their members
from issuing the debit cards or credit cards of any competing national network,
with the exception of each other. These rules also prohibit the coexistence of
competing national marks on their credit and branded debit cards. If VISA or
MasterCard were to determine that STAR is a competing national network and
mark, they could attempt to prohibit their members from issuing STAR-branded
cards and/or prohibit the coexistence of the STAR mark with the VISA and/or
MasterCard marks on debit and credit cards. If this occurred, we cannot predict
whether, when forced to choose between us and other brands, issuing banks would
favor us over VISA or MasterCard. Further, we could lose access to the VISA or
MasterCard network and cardholders, which could adversely affect our ATM
transactions, PIN-secured and signature debit transactions, credit card
transactions and prospects for future growth.

In addition, VISA's combined PIN-based and signature debit product called
VISA Check Card II could adversely impact our Network Services business if a
significant number of financial institutions issue the product or if VISA
reinstitutes its original rule prohibiting the placement of competing debit
marks on the product.

We must remain current with rapid technological change.

Our ability to provide services is heavily dependent upon our use of and
access to computing and telecommunications technology. The transaction payment
processing business has been characterized by rapid technological change. We
cannot assure you that we will be able to continue to incorporate new
developments in payment processing technology or that the costs involved in
doing so will not be substantial.

Acquisitions involve risks that could cause our actual growth to differ from
our expectations.

We expect to continue to seek selective acquisitions as an element of our
growth strategy. It is possible that recent or future acquisitions could have
an adverse effect upon our operating results, particularly in the fiscal
quarters immediately following the completion of such transactions while the
operations of the acquired entities are being integrated into our operations.
For example, we may not be able to successfully integrate acquired businesses
in a timely manner. We may also incur substantial costs, delays or other
operational or financial problems during the integration process. In addition,
we could incur additional indebtedness to finance acquisitions.

If additional state taxes are imposed on us, our operating results and
financial condition could be adversely affected.

Transaction processing companies like us may be subject to state taxation of
certain portions of their fees charged to customers for their services.
Application of this tax is an ongoing issue in the industry, and the

states have not yet adopted uniform guidelines implementing these regulations.
If we are required to pay these taxes and are unable to pass this tax expense
through to our customers, our operating results and financial condition could
be adversely affected.

Continued consolidation in the banking and retail industries could adversely
affect our growth.

. Our Network Services business could be adversely affected. As banks
consolidate, our ability to successfully offer our Network Services will
depend in part on whether the institutions that survive those
consolidations are willing to outsource their ATM and debit processing to
third-party vendors like us and whether those institutions have pre-
existing relationships with any of our competitors. Larger institutions
with more geographically dispersed customer bases may wish to consolidate
their network participation with fewer networks having the broadest
geographic coverage and the best service offerings. As regional networks
continue to consolidate, we may lose network business if we are unable to
continue to offer a range of products that is competitive in terms of
geographic distribution as well as quality and breadth of service. Larger
banks that continue to participate in our network may also process
proportionately fewer ATM transactions through our network as more
transactions can be handled within the bank's own internal systems.

. Our Payment Services business could lose customers and fee revenue could
decrease. Continued consolidation in the retail industry, which makes up
a substantial portion of our customer base for Payment Services, could
impede our ability to grow as the survivors of such consolidation may
have relationships with competitors or may be more interested in pursuing
internal processing options due to their increased scale. Larger
merchants with larger transaction volumes may also demand lower fees
which could result in lower operating margins for us.

We are subject to the business cycles and credit risk of our merchant
customers.

A recessionary economic environment could have a negative impact on our
customers, particularly smaller merchants and trucking companies, which could,
in turn, negatively impact our financial results. If our customers make fewer
sales of their products and services, we will have fewer transactions to
process, resulting in lower revenue.

In addition, in a recessionary environment our merchant customers could
experience a higher rate of bankruptcy filings which could adversely affect us
financially. We bear credit risk for billing disputes between credit card
holders and bankrupt merchants. In the event a billing dispute between a credit
card holder and a merchant is not resolved in favor of the merchant, the
transaction is normally charged back to the merchant, and the purchase price is
refunded to the cardholder. However, if that merchant files for bankruptcy or
is otherwise unable or unwilling to pay, we must bear the credit risk for the
full transaction amount of these chargebacks. Billing disputes would include
instances where a customer ordered goods or services on credit, but those goods
and services are not delivered by the defunct merchant. We cannot assure you
that chargebacks will not increase in the future. Increases in chargebacks that
are not paid by merchants could have an adverse effect on our operating results
and financial condition.

The outcome of litigation involving VISA and MasterCard could have a negative
impact on our business.

VISA and MasterCard have been sued by the Department of Justice (DOJ) for
alleged violation of the Federal antitrust laws arising out of their respective
functionally identical policies of (1) allowing members in the respective
organizations to issue cards participating in the other organization's system
and (2) prohibiting their members from issuing cards in competing systems other
than VISA, MasterCard or Citigroup, the largest owner/member of VISA and
MasterCard. The potential impact of this litigation on us depends upon whether
or not the DOJ is successful, and if it is successful, the relief ordered by
the court. We do not currently issue cards in either system and have not been
deemed to operate a competing system by either VISA or MasterCard. If VISA and
MasterCard are permitted to prohibit members from issuing cards in competing
systems, however, there could be a significant negative impact on us if VISA or
MasterCard were then to deem the STAR debit network to be a competing system
for these purposes.

VISA and MasterCard also have been sued in a class action case brought by
merchants who allege that VISA and MasterCard have (1) unlawfully tied merchant
acceptance of VISA and MasterCard signature debit cards to merchant acceptance
of VISA and MasterCard credit cards and (2) attempted and conspired to
monopolize the market for debit cards, a market in which we compete against
VISA and MasterCard. The potential impact of this litigation on us depends upon
whether or not the plaintiffs are successful and, if they are successful, the
relief ordered by the court or, if they are not successful, the business
practices adopted by VISA and MasterCard as a result.

Utility and system interruptions or processing errors could adversely affect
our operations.

In order to promptly process transactions, our computer equipment and
network servers must be functional on a 24-hour basis, which requires access to
telecommunications facilities and the availability of electricity. Further,
with respect to certain processing services for the STAR debit network, we are
dependent on the systems and services of a third party vendor.
Telecommunications services and the electricity supply are susceptible to
disruption. Computer system interruptions and other processing errors, whether
involving our own systems or our third party vendor's system, may result from
such disruptions or from human error or other unrelated causes. Any extensive
or long-term disruptions in our processing services could cause us to incur
substantial additional expense, which could have an adverse effect on our
operations and financial condition.

We may be susceptible to fraud occurring at the merchant level.

Merchant fraud includes recording false sales transactions or false credits
by the merchant or its customers. Under some circumstances we bear the risk of
incidents of merchant fraud. It is possible that incidents of merchant fraud
could increase in the future. Increased incidents of merchant fraud could have
an adverse effect on our operating results and financial condition.

Changes in card association fees, products or practices could increase our
costs or otherwise limit our operations.

From time to time, VISA, MasterCard, Discover, American Express and Diners
Club increase the organization and/or processing fees (known as interchange
fees) that they charge. For example, in April 1999 VISA and MasterCard
increased their fees by up to 10%. It is possible that competitive pressures
will result in our absorbing a portion of such increases in the future, which
would increase our operating costs and reduce our profit margin. Furthermore,
the rules and regulations of the various card associations and networks
prescribe certain capital requirements. Any increase in the capital level
required would further limit our use of capital.

Revenue growth in ATM processing could slow because of restrictions on
surcharging.

Revenue from "convenience fees" or "surcharges" imposed by owners of ATMs,
including Concord, has been a significant factor in the recent growth in our
ATM processing business, since such fees have encouraged ATM owners to deploy
additional terminals. There have been initiatives at the federal, state and
local levels to limit surcharges. To the extent that ATM deployment does not
continue to grow at recent rates due to the enactment and successful
enforcement of statutory restrictions on surcharges, the availability of fewer
favorable retail ATM locations or other factors, demand for our ATM processing
services may not continue to grow at recent rates or may decline.

Rules and regulations governing financial institutions and changes to those
rules and regulations could limit our business.

We are a financial holding company and a bank holding company subject to
regulation under the Bank Holding Company Act of 1956, as amended, and to
regulation by the Board of Governors of the Federal Reserve System (Federal
Reserve). Our two bank subsidiaries are subject to additional regulation. EFS
National Bank is a national banking association established under the National
Bank Act and is subject to regulation by

the Office of the Comptroller of the Currency as well as the Federal Reserve.
EFS Federal Savings Bank operates under the Home Owners' Loan Act and the rules
of the Office of Thrift Supervision, which has primary regulatory and
supervisory jurisdiction over it. The Federal Deposit Insurance Corporation
insures the domestic deposits of both banks under the Federal Deposit Insurance
Act. The restrictions imposed by these and other laws governing the activities
of national banks, federal savings banks and their holding companies and
related regulations and restrictions imposed by regulatory agencies limit our
discretion and the discretion of EFS National Bank, EFS Federal Savings Bank
and their affiliates in operating their businesses. These limitations include:

. restrictions on engaging in activities that are not approved by the
Federal Reserve as financial in nature or incidental or complementary to
a financial activity,

. restrictions on mergers and acquisitions involving companies engaged in
activities other than those approved by the Federal Reserve as financial
in nature or incidental or complementary to a financial activity,

. narrower constraints on activities, mergers and acquisitions if EFS
National Bank or EFS Federal Savings Bank do not remain well capitalized
and well managed or do not maintain "satisfactory" ratings under the
Community Reinvestment Act,

. minimum capital requirements at both the holding company and bank levels,

. restrictions on dividends by banking entities,

. restrictions on intercompany transactions, and

. restrictions on tie-ins involving the products or services of EFS
National Bank or EFS Federal Savings Bank.

Material changes in applicable federal or state regulation of financial
institutions could increase our operating costs, change the competitive
environment or otherwise adversely affect us. We cannot assure you that these
laws and regulations will not be amended or interpreted differently by
regulatory authorities, or that new laws and regulations will not be adopted,
which could adversely affect our operations, financial condition and prospects.

In addition, we are subject to the financial privacy provisions of the
Gramm-Leach-Bliley Act (the GLB Act). As a result, certain consumer financial
information that we receive may be subject to limitations on reuse and
redisclosure under the GLB Act. Additionally, pending legislation at the state
and federal levels may further restrict our information gathering and
disclosure practices. Existing and potential future privacy laws may limit our
ability to develop new products and services that make use of certain data
gathered through our Network Services and Payment Services businesses.

Shares eligible for future sale could adversely affect the market price of our
common stock.

Sales of a substantial number of shares of our common stock in the public
market following this offering could adversely affect the prevailing market
price of the common stock and could impair our ability to raise additional
equity capital in the future. Upon completion of this offering, we will have
244,319,486 shares of common stock outstanding (based on outstanding shares as
of April 30, 2001, assuming the underwriters do not exercise their over-
allotment option and excluding 25,548,612 shares issuable upon exercise of
options outstanding as of April 30, 2001). Of these shares, 227,118,982 shares
(assuming the selling stockholders sell all of their 19,194,103 shares offered
in this offering) will be freely tradable without restriction or further
registration under the Securities Act of 1933 (the Securities Act) unless
purchased by an "affiliate" of ours, as that term is defined in Rule 144 under
the Securities Act, which sales will be subject to the volume limitations and
other restrictions set forth in Rule 144.

Of the remaining shares,

. 6,225,000 shares held by the two former stockholders of Card Payment
Services are eligible for sale to the public, subject to compliance with
the volume limitations and other conditions of Rule 144, and

. 5,328,116 shares held by our directors and executive officers will be
eligible for sale in the public market after the applicable lock-up
period, subject to compliance with the volume limitations and other
conditions of Rule 144.

Furthermore, an additional 30,223,477 shares that may be issued in the
future upon exercise of options granted and to be granted under our stock
option plans have been registered under the Securities Act and, therefore, will
be freely tradable when issued (subject to the volume limitations and other
conditions of Rule 144, in the case of shares to be sold by our affiliates). Of
these options, 10,211,449 shares are covered by the lock-up period for
directors and officers referred to above. Finally, certain former STAR
stockholders and former Card Payment Services stockholders will have certain
rights to demand registration of the shares owned by them and will have the
right, subject to certain restrictions and limitations, to participate in
future registered sales of our stock. See "Shares Eligible for Future Sale." In
addition, each of the selling stockholders has agreed not to sell or distribute
any shares of our common stock except under this offering within seven days
prior to, or 90 days after, the date of this prospectus. See "Underwriting."

The price of our common stock could be volatile.

In recent years, there has been and may continue to be significant
volatility in the market price for our common stock. See "Price Range of Common
Stock." Factors such as changes in quarterly operating results, the gain or
loss of significant contracts, the entry of new competitors into our markets,
changes in management, announcements of technological innovations or new
products by us or our competitors and general events and circumstances beyond
our control could have a significant impact on the future market price of our
common stock and the relative volatility of such market price. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against that
company. If similar litigation were instituted against us, it could result in
substantial costs and a diversion of our management's attention and resources,
which could have an adverse effect on our business.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains or incorporates by reference forward-looking
statements made pursuant to the safe harbor provisions of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934 (the
Exchange Act). These statements reflect management's expectations, estimates
and assumptions, based on information available at the time this prospectus, or
any document that is incorporated into this prospectus by reference, was
prepared. These forward-looking statements include, but are not limited to,
statements regarding future events, plans, goals, objectives and expectations.
When used in this prospectus, the words "anticipate," "believe," "estimate,"
"expect," "plan," "intend," "likely," "will," "should" and similar expressions
are intended to identify forward-looking statements.

Forward-looking statements involve risks, uncertainties and other factors
which may cause our actual performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by those statements. These risks, uncertainties and other factors
include, but are not limited to, those set forth in the following sections of
this prospectus:

. ""Prospectus Summary--Investment Highlights"

. "Risk Factors"

. ""Management's Discussion and Analysis of Financial Condition and Results
of Operations"

. ""Business--Industry Overview," "--Strategy" and "--Competition"

Other risks may be discussed elsewhere in the documents we incorporate into
this prospectus by reference. These events and uncertainties are difficult or
impossible to predict accurately, and many are beyond our control.

The inclusion of forward-looking statements should not be regarded as a
representation that the future expectations, estimates and assumptions we
contemplate will be achieved. Furthermore, past performance in operations and
share price is not necessarily predictive of future performance. We assume no
obligation to release publicly the result of any revisions that may be made to
any forward-looking statements to reflect events or circumstances after the
date of those statements or to reflect the occurrence of anticipated or
unanticipated events. You are cautioned not to rely on forward-looking
statements.

USE OF PROCEEDS

We anticipate that we will receive net proceeds of approximately $84,336,000
from the sale of the shares of common stock we are offering, based on an
assumed public offering price of $44.55 per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us. If the underwriters exercise their over-allotment option in full, we
anticipate we will receive total net proceeds of $220,300,390. We intend to use
our net proceeds from this offering for general corporate purposes, including
working capital. We will not receive any of the proceeds from the sale of
common stock by the selling stockholders.

PRICE RANGE OF COMMON STOCK

Our common stock trades on the Nasdaq National Market under the symbol
"CEFT." The following table sets forth, for the periods presented, the range of
high and low sales prices per share of our common stock, as reported on the
Nasdaq National Market.

Common Stock
Price
-------------
High Low
------ ------

Year ended December 31, 1999
First Quarter.................................................. $27.96 $16.92
Second Quarter................................................. 28.25 18.79
Third Quarter.................................................. 27.50 19.83
Fourth Quarter................................................. 33.50 19.38
Year ended December 31, 2000
First Quarter.................................................. 28.00 15.31
Second Quarter................................................. 29.13 18.63
Third Quarter.................................................. 36.50 25.69
Fourth Quarter................................................. 48.13 33.00
Year ending December 31, 2001
First Quarter.................................................. 49.94 34.00
Second Quarter (through May 15, 2001).......................... 47.51 37.44

On May 15, 2001, the closing price of our common stock as reported on the
Nasdaq National Market was $44.55 per share. As of March 16, 2001, we had
approximately 54,000 holders of record of common stock.

DIVIDEND POLICY

We have never paid cash dividends on our capital stock. It is our present
policy to retain earnings to finance our operations and growth, and we do not
expect to pay any dividends in the foreseeable future.

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2001 and
as adjusted to reflect our sale of common stock in this offering at an assumed
public offering price of $44.55, after deducting underwriting discounts and
commissions and estimated offering expenses payable by us. You should read this
information in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the notes to those financial statements appearing elsewhere in
this prospectus.

As of March 31, 2001
---------------------
As
Actual Adjusted
---------- ----------
(in thousands)

Long-term debt........................................... $ 111,562 $ 111,562
Stockholders' equity:
Common Stock, $0.33 1/3 par value per share, 500,000
shares authorized; 242,274 shares issued and
outstanding, actual; 244,274 shares issued and
outstanding, as adjusted.............................. 80,758 81,425
Additional paid-in capital............................. 449,417 533,086
Retained earnings and accumulated other comprehensive
income................................................ 603,583 603,583
---------- ----------
Total stockholders' equity........................... 1,133,758 1,218,094
---------- ----------
Total capitalization............................... $1,245,320 $1,329,656
========== ==========

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and notes
to those financial statements included and incorporated by reference elsewhere
in this prospectus. The selected consolidated financial data for the years
ended December 31, 1998, 1999 and 2000 have been derived from our audited
consolidated financial statements, which are included in this prospectus. The
selected consolidated financial data for the years ended December 31, 1996 and
1997 have been derived from audited consolidated financial statements which are
not included in this prospectus. The selected consolidated financial data as of
March 31, 2001 and for the three months ended March 31, 2000 and 2001 have been
derived from our unaudited condensed consolidated financial statements, which
are included in this prospectus. The selected consolidated financial data has
been restated for all periods presented to reflect the business combinations of
Concord with Digital Merchant Systems of Illinois and American Bankcard
International on June 30, 1998, Electronic Payment Services on February 26,
1999, Card Payment Systems on January 31, 2000, Cash Station on August 21, 2000
and STAR on February 1, 2001, each of which was accounted for as a pooling of
interests. The column "As Adjusted" reflects our sale of 2,000,000 shares in
this offering at an assumed public offering price of $44.55, after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us.

Three Months
Ended
Year Ended December 31, March 31,
-------------------------------------------------------------------- --------------------
1996 1997 1998 1999 2000 2000 2001
----------- ----------- ----------- ------------- ------------- -------- --------
(in thousands except per share and per transaction numbers) (unaudited)

Income Statement Data:
Revenue................. $ 436,371 $ 622,573 $812,824 $ 1,060,010 $ 1,407,140 $302,917 $375,638
Cost of operations...... 288,401 421,969 552,469 735,467 1,009,954 222,515 270,268
Selling, general and
administrative
expenses............... 67,925 87,257 90,936 92,334 91,995 21,837 23,812
Acquisition expenses and
restructuring charges.. -- -- -- 36,189 11,691 776 125,362
----------- ----------- ----------- ------------- ------------- -------- --------
Operating income........ 80,045 113,347 169,419 196,020 293,500 57,789 (43,804)
Interest income
(expense), net......... (10,087) (1,688) 2,604 16,251 37,243 7,477 12,359
Equity in earnings
(loss) of subsidiary... (394) (165) 281 -- -- -- --
----------- ----------- ----------- ------------- ------------- -------- --------
Income before taxes and
minority interest...... 69,564 111,494 172,304 212,271 330,743 65,266 (31,445)
Income taxes (benefit).. 26,970 45,081 65,709 82,906 120,220 23,608 (5,626)
Minority interest in net
income of subsidiary... -- -- -- 124 597 146 173
----------- ----------- ----------- ------------- ------------- -------- --------
Net income (loss)....... $ 42,594 $ 66,413 $106,595 $ 129,241 $ 209,926 $ 41,512 $(25,992)
=========== =========== =========== ============= ============= ======== ========
Basic earnings (loss)
per share.............. $ 0.21 $ 0.30 $ 0.48 $ 0.56 $ 0.88 $ 0.17 $ (0.11)
Diluted earnings (loss)
per share.............. $ 0.20 $ 0.29 $ 0.46 $ 0.54(1) $ 0.85(1) $ 0.17(1) $ (0.11)(1)
Basic shares............ 207,133 222,584 224,235 231,843 239,179 238,636 241,664
Diluted shares.......... 213,759 228,381 231,396 239,867 247,997 244,748 241,664

Other Data:
Number of transactions
processed
(in millions).......... 3,295 4,404 5,537 6,592 8,004 NA NA
Operating income per
transaction(2)......... $ 0.024 $ 0.026 $ 0.031 $ 0.035 $ 0.038 NA NA

As of March 31, 2001
---------------------------
Actual As Adjusted
------------ --------------
(in thousands, unaudited)

Balance Sheet Data:
Working capital...................................... $ 729,383 $ 813,719
Total assets......................................... $ 1,753,313 $ 1,837,649
Long-term debt, less current maturities.............. $ 111,562 $ 111,562
Total stockholders' equity........................... $ 1,133,758 $ 1,218,094

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with our consolidated
financial statements and the notes to those financial statements, which are
included in this prospectus. This prospectus contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below and elsewhere in this prospectus,
particularly in "Risk Factors." In addition to the other information in this
prospectus, you should carefully consider the following discussion and the
information set forth under "Risk Factors" and "Special Note Regarding Forward-
Looking Statements" in evaluating us and our business before purchasing our
common stock in this offering.

Overview

Concord EFS, Inc. 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
Payment Services, which provides payment processing for supermarkets, major
retailers, petroleum dealers, convenience stores, trucking companies and
independent retailers, and Network Services, which provides ATM processing,
debit card processing, deposit risk management and coast-to-coast debit network
access principally for financial institutions.

We recently expanded our debit network in our Network Services area through
two acquisitions. On February 1, 2001, we completed our acquisition of 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 24.0 million shares of our common stock for all of
STAR's outstanding common stock. On August 21, 2000, we completed our
acquisition of Cash Station, a leading Midwest PIN-secured debit network based
in Chicago, Illinois. This acquisition was accounted for as a pooling of
interests transaction in which we exchanged approximately 2.5 million shares of
our stock for all of the outstanding common stock of Cash Station.

Early in 2000 we completed two acquisitions in the Payment Services area. On
February 7, 2000, we completed our acquisition of Virtual Cyber Systems, Inc.,
an internet software development company. This acquisition, for which we paid
approximately $2 million, was accounted for as a purchase transaction and was
immaterial to our financial statements. On January 31, 2000, we completed our
acquisition of National Payment Services Inc. d/b/a Card Payment Systems, a New
York-based reseller of payment processing services. Card Payment Systems
provides card-based payment processing services to independent sales
organizations, which in turn sell those services to merchants. The acquisition
was accounted for as a pooling of interests transaction in which we exchanged
6.2 million shares of our stock for all the outstanding shares of Card Payment
Systems' common stock. We incurred acquisition costs of $0.8 million related to
this transaction during the first quarter of 2000.

In the first quarter of 2001, we initiated a company-wide consolidation plan
in order to address areas of operating redundancies created by our recent
acquisitions. The plan includes the functional integration of the STAR
organization into Concord, consolidation of data centers and other facilities
to eliminate redundancies and the reassignment or termination of certain
employees timed to coincide with the integration of redundant processing
platforms. During the next 12 months we intend to take steps to capture
synergies within our network operations and align our resources across the
enterprise for greater efficiency and improved service delivery. During the
first quarter of 2001, we incurred a charge of $86.4 million, net of taxes,
related to our consolidation plan, including costs incurred in combining
operating platforms and facilities, communications conversion costs, asset
write-offs, severance and compensation costs, as well as investment banking
fees and advisory, legal and accounting fees incurred in the acquisition of
STAR.

As a result of our acquisition of STAR, 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% 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 currently
composed of 145 million deposit accounts. This majority-owned subsidiary
recently 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 anticipates 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.

The following discussion reflects the business combinations of Concord with
Digital Merchant Systems of Illinois and American Bankcard International on
June 30, 1998, Electronic Payment Services on February 26, 1999, Card Payment
Systems on January 31, 2000, Cash Station on August 21, 2000 and STAR on
February 1, 2001, each of which was accounted for as a pooling of interests. As
a result, the growth in revenue discussed below reflects internal rates of
growth, since each acquired company is treated as a part of Concord for all
periods indicated.

Components of Revenue and Expenses

Payment Services and Network Services are our two reportable business
segments. These business units are managed separately because they offer
distinct products for different end users. All of our revenue is generated in
the United States, and no single customer of Concord accounts for a material
portion of our revenue. Over 75% of our total revenue is tied to contracts with
terms of between three and five years.

The majority of our revenue (60.7% in the first quarter of 2001, 62.8% in
2000 and 60.9% in 1999) is generated from fee income related to Payment
Services. Revenue from Payment Services primarily includes discount fees
charged to merchants, which are a percentage of the dollar amount of each
credit card transaction we process, as well as a flat fee per transaction. The
discount fee is negotiated with each merchant and typically constitutes a
bundled rate for the transaction authorization, processing, settlement and
funds transfer services we provide. The balance of Payment Services revenue is
derived from transaction fees for processing debit card and EBT card
transactions, check verification and authorization services and sales of POS
terminals. We recognize this revenue at the time of the transaction.

The other principal component of our revenue derives from Network Services
(39.3% in the first quarter of 2001, 37.2% in 2000 and 39.1% in 1999). 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 following table is a listing of revenue by segment for the periods
indicated:

Three Months
Ended March
Year Ended December 31, 31,
------------------------ -------------
1998 1999 2000 2000 2001
------ -------- -------- ------ ------
(in millions) (in millions)

Payment Services...................... $478.9 $ 645.5 $ 883.9 $190.4 $227.8
Network Services...................... 333.9 414.5 523.2 112.5 147.8
------ -------- -------- ------ ------
Total............................... $812.8 $1,060.0 $1,407.1 $302.9 $375.6
====== ======== ======== ====== ======

Cost of operations includes all costs directly attributable to our providing
services to our customers. The most significant component of cost of operations
is interchange and assessment fees, which are amounts charged by the credit and
debit card networks. Interchange and assessment fees are billed primarily as a
percentage of dollar volume processed and, to a lesser extent, as a transaction
fee. Cost of operations also

includes telecommunications costs, personnel costs, occupancy costs,
depreciation, the cost of equipment leased and sold, the cost of operating our
debit network and other miscellaneous merchant supplies and services expenses.
We strive to maintain a highly efficient operational structure, which includes
efficient marketing, volume purchasing arrangements with equipment and
communications vendors and direct membership by our subsidiary, EFS National
Bank, in bank card associations and major debit card networks.

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

Three Months
Year Ended December Ended March
31, 31,
------------------------ --------------
1998 1999 2000 2000 2001
------ ------ -------- ------ ------
(in millions) (in millions)

Payment Services................ $357.6 $487.6 $ 705.1 $150.8 $185.9
Network Services................ 194.9 247.9 304.9 71.7 84.4
------ ------ -------- ------ ------
Total......................... $552.5 $735.5 $1,010.0 $222.5 $270.3
====== ====== ======== ====== ======

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

Results of Operations

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

Three Months
Year Ended December Ended March
31, 31,
------------------------ --------------
1998 1999 2000 2000 2001
------ ------ -------- ------ ------

Revenue......................... 100.0% 100.0% 100.0% 100.0% 100.0 %
Cost of operations.............. 68.0 69.4 71.8 73.5 71.9
Selling, general and
administrative expenses........ 11.2 8.7 6.4 7.2 6.3
Acquisition and restructuring
charges........................ -- 3.4 0.9 0.3 33.5
------ ------ -------- ------ ------
Operating income (loss)......... 20.8 18.5 20.9 19.0 (11.7)
Interest income, net............ 0.3 1.5 2.6 2.5 3.3
Equity in earnings of
subsidiary..................... 0.1 -- -- -- --
------ ------ -------- ------ ------
Income (loss) before taxes and
minority interest.............. 21.2 20.0 23.5 21.5 (8.4)
Income taxes (benefit).......... 8.1 7.8 8.6 7.8 (1.5)
------ ------ -------- ------ ------
Net income (loss)............... 13.1% 12.2% 14.9% 13.7% (6.9)%
====== ====== ======== ====== ======

First Quarter 2001 Compared to First Quarter 2000

Revenue increased 24.0% to $375.6 million in 2001 from $302.9 million in
2000. In 2001, Payment Services accounted for 60.7% of revenue, and Network
Services accounted for 39.3%. Revenue from Payment Services increased 19.7%,
due primarily to increased transaction volumes. The increased volumes resulted
from the addition of new merchants and the widening acceptance of debit and EBT
card transactions at new and existing merchants. Network Services revenue
increased 31.3% over 2000 as a result of an increase in the number of ATMs
driven, 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.

Cost of operations decreased in 2001 to 71.9% of revenue compared to 73.5%
in 2000. This decrease was due primarily to a decrease, as a percent of
revenue, in certain operating costs, such as telecommunications, payroll
expenses and depreciation and amortization expenses.

Selling, general and administrative expenses decreased, as a percent of
revenue, to 6.3% in 2001 from 7.2% in 2000. Overall, selling, general and
administrative expenses increased to $23.8 million from $21.8 million in the
first quarter of 2000.

Acquisition expenses and restructuring charges increased to $125.4 million
in 2001 from $0.8 million in 2000. In the first quarter of 2001, we initiated a
company-wide consolidation plan in order to address areas of operating
redundancies created by our recent acquisitions. The plan includes
consolidation of data centers and other facilities to eliminate redundancies,
the reassignment or termination of certain employees timed to coincide with the
integration of redundant processing platforms and the functional integration of
the STAR organization into Concord. During the next 12 months we intend to take
steps to capture synergies within our network operations and align our
resources across the enterprise for greater efficiency and improved service
delivery. During the first quarter of 2001, we incurred a charge of $86.4
million, net of taxes, related to our consolidation plan, including costs
incurred in combining operating platforms and facilities, communications
conversion costs, asset write-offs, severance and compensation costs, as well
as investment banking fees and advisory, legal and accounting fees incurred in
the acquisition of STAR.

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

Excluding acquisition and restructuring charges, operating income as a
percent of revenue increased to 21.7% in 2001 from 19.3% in 2000. This increase
resulted from improved economies of scale and declining selling, general and
administrative expenses as a percentage of revenue.

Net interest income improved as a percent of revenue to 3.3% in 2001
compared to 2.5% in 2000. The improvement was the result of returns we received
on our investing available cash from operations, which increased interest
income by 56.5% over 2000.

Our overall tax rate decreased to (17.9%) for the three months ended March
31, 2001 compared to 36.2% for the same period in 2000. Excluding acquisition
and restructuring charges, the tax rate was 35.5% in 2001 compared to 35.9% for
the same period in 2000.

Net income, as a percent of revenue, decreased to (6.9%) for the three
months ended March 31, 2001 from 13.7% for the same period in 2000. The primary
factor in this net margin decrease was the acquisition and restructuring
charges. Excluding these charges and related tax items, net income, as a
percent of revenue, increased to 16.1% for the three months ended March 31,
2001 compared to 13.9% for the same period in 2000.

Calendar 2000 Compared to Calendar 1999

Revenue increased 32.7% to $1,407.1 million in 2000 from $1,060.0 million in
1999. In 2000, Payment Services accounted for 62.8% of revenue, and Network
Services accounted for 37.2%. Revenue from Payment Services increased 36.9%,
due primarily to increased transaction volumes and cross-selling settlement
processing to several of our higher volume merchants who were previously using
only acquirer processing services. The increased volumes resulted from the
addition of new merchants and the widening acceptance of debit and EBT card
transactions by new and existing merchants. Network Services revenue increased
26.2% over 1999 as a result of an increase in the number of ATMs driven, the
addition of new network and processing customers, increases in transaction
volumes and the full year impact of in-house processing of our signature debit
service. The increased transaction volumes resulted primarily from increased
use of our network debit cards for payment at the point of sale.

Cost of operations increased in 2000 to 71.8% of revenue compared to 69.4%
in 1999. This increase was due primarily to lower-margin revenue that was added
between the fourth quarter of 1999 and the third quarter of 2000. This lower-
margin revenue resulted principally from cross-selling settlement processing to
several of our higher volume merchants, who command lower transaction pricing.
Lower-margin revenue was also the result of additional interchange fees due to
this cross-selling and processing our signature debit service in-house. This
new, lower-margin revenue was partially offset by a decrease, as a percent of
revenue, in certain other operating costs, such as payroll expenses and
depreciation and amortization expenses.

Selling, general and administrative expenses decreased, as a percent of
revenue, to 6.4% in 2000 from 8.7% in 1999. Within selling, general and
administrative expenses, increases in salaries and wages were offset by lower
legal and other expenses.

Acquisition expenses and restructuring charges decreased to $11.7 million in
2000 from $36.2 million in 1999. The charges incurred in 2000 included $3.0
million in advisory, legal and accounting fees incurred in the acquisitions of
Card Payment Systems and Cash Station. An additional $4.2 million in
compensation and severance costs and $4.5 million in network deconversion costs
were incurred in the Cash Station acquisition.

Excluding acquisition and restructuring charges, operating income as a
percent of revenue declined slightly to 21.8% in 2000 from 21.9% in 1999, due
to lower-margin revenue. This lower-margin revenue, which resulted from lower
revenue per transaction and additional interchange fees, partially masked an
increase in operating income per transaction, which resulted from improved
economies of scale and declining selling, general and administrative expenses.

Excluding acquisition and restructuring charges, operating income per
transaction increased to $0.038 per transaction in 2000 from $0.035 per
transaction in 1999, an increase of 8.6% year over year. This growth in
operating income per transaction was the result of declines in our cost per
transaction outpacing declines in our revenue per transaction.

Net interest income improved as a percent of revenue to 2.6% in 2000
compared to 1.5% in 1999. This improvement was the continued result of our
using proceeds from our June 1999 stock offering to reduce our debt by $146.1
million at that time, which lowered interest expense by 17.2% as compared to
1999. The improvement was also the result of returns we received on our
investing available cash from operations plus the remaining $61.7 million of
the stock offering proceeds in various securities, which increased interest
income by 63.6% over 1999.

Our overall tax rate decreased to 36.3% in 2000 from 39.1% in 1999.
Excluding the acquisition charges and related tax component write-off, the tax
rate was 36.2% in 2000 compared to 36.7% in 1999.

Net income, as a percent of revenue, increased to 14.9% in 2000 from 12.2%
in 1999. The primary factor in this net margin improvement was the decrease in
acquisition and restructuring charges. Excluding these charges and related tax
items, net income, as a percent of revenue, increased to 15.5% in 2000 compared
to 14.8% in 1999.

Calendar 1999 Compared to Calendar 1998

Revenue increased 30.4% to $1,060.0 million in 1999 from $812.8 million in
1998. In 1999, Payment Services accounted for 60.9% of revenue, and Network
Services accounted for 39.1%. Revenue from Payment Services increased 34.8%,
due primarily to increased transaction volumes and cross-selling settlement
processing to several of our higher volume merchant clients. The increased
volumes resulted from the addition of new merchants and the widening acceptance
of debit and EBT card transactions at new and existing merchants. Network
Services revenue increased 24.1% over 1998 as a result of an increase in the
number of ATMs driven, the addition of new network and processing customers,
increases in transaction volumes and in-

house processing of our signature debit service. The increased transaction
volumes resulted primarily from increased use of our network debit cards for
payment at the point of sale.

Cost of operations increased in 1999 to 69.4% of revenue compared to 68.0%
in 1998. This increase was due primarily to the addition of lower-margin
revenue beginning in the fourth quarter of 1999 from cross-selling settlement
processing to several of our higher volume merchants who command lower
transaction pricing. Lower-margin revenue was also the result of additional
interchange fees due to cross-selling and processing our signature debit
service in-house. This new, lower-margin revenue was largely offset by a
decrease, as a percent of revenue, in certain other operating costs, such as
payroll expenses and depreciation and amortization expenses.

Selling, general and administrative expenses decreased, as a percent of
revenue, to 8.7% in 1999 from 11.2% in 1998. Although these expenses were up on
an absolute basis as a result of increases in salaries and wages, they were
partially offset by lower legal and other expenses.

In 1999 we incurred acquisition and restructuring charges of $36.2 million
relating to our acquisition of Electronic Payment Services. Acquisition-related
expenses were $10.5 million, consisting primarily of investment banking fees,
as well as legal, accounting, registration and other fees and expenses. The
remaining $25.7 million was for restructuring charges as described below, in
millions:

Communications conversion costs..................................... $12.4
Asset write-offs.................................................... 8.2
Signature debit conversion to in-house.............................. 2.8
Severance and other expenses........................................ 2.3
-----
Total............................................................. $25.7
=====

In order to create a single communications infrastructure for our
transaction processing businesses, we adopted a plan to convert Electronic
Payment Services' communications network to Concord's and accrued $12.4 million
related to this conversion plan.

We incurred asset write-offs of $8.2 million. We de-emphasized certain
geographic areas of the MAC network, causing impairment to the related
intangible assets of approximately $2.8 million. In addition, after review of
certain Electronic Payment Services customer lists and the undiscounted cash
flows estimated to be generated by the related intangible assets, we recognized
an impairment loss of approximately $3.6 million. The remainder of the write-
off was for assets that are no longer used or supported under revised marketing
and business plans.

Prior to its acquisition by Concord, Electronic Payment Services used a
third party for its signature debit processing services. During 1999 we adopted
a plan to take this process in-house, incurring additional restructuring
charges of $2.8 million.

Relating to our reallocation of resources in connection with the MAC network
described above, we charged approximately $0.2 million for Electronic Payment
Services employees who were terminated as the related facilities were closed.
We incurred an additional charge of $2.1 million for certain other Electronic
Payment Services employees who were terminated due to the reorganization of
management of the combined company.

Excluding acquisition and restructuring charges, operating income as a
percent of revenue increased to 21.9% in 1999 from 20.8% in 1998 due to
declines in selling, general and administrative expenses as a percent of
revenue.

Operating income (excluding acquisition and restructuring charges) increased
on a per transaction basis to $0.035 per transaction in 1999 from $0.031 per
transaction in 1998, an improvement of 12.9% year over year. This growth in
operating income per transaction was the result of declines in our cost per
transaction outpacing declines in our revenue per transaction.

Net interest income increased as a percent of total revenue to 1.5% in 1999
compared to 0.3% in 1998. This improvement resulted primarily from two factors.
Interest income increased by 47.4% over 1998 due to returns received on our
investment in various securities of available cash flow from operations plus
approximately $61.7 million in proceeds from our June 1999 stock offering. We
also reduced our long-term and short-term debt by $146.1 million with proceeds
from the same offering, producing a 24.0% decrease in interest expense in 1999
compared to 1998.

Our overall tax rate increased to 39.1% in 1999 from 38.1% in 1998. This
increase resulted from certain nondeductible acquisition costs and a tax
component write-off of $1.3 million incurred for impaired state tax net
operating losses of Electronic Payment Services in 1999. Excluding the pre-tax
charges and the tax component write-off, our tax rate decreased to 36.7% in
1999 from 38.1% in 1998.

Net income, as a percent of revenue, decreased in 1999 to 12.2% from 13.1%
in 1998. The primary factors in this decrease in net margin were the
acquisition and restructuring charges related to the acquisition of Electronic
Payment Services and the tax rate increase in 1999. Excluding these charges and
related tax items, net income as a percent of revenue increased to 14.8% in
1999 compared to 13.1% in 1998.

Liquidity and Capital Resources

We have consistently generated significant cash resources from operating
activities. In 2000, 1999 and 1998 operating activities generated cash of
$333.5 million, $236.9 million and $193.8 million, respectively. Cash generated
from operating activities may vary due to fluctuations in accounts receivable
and accounts payable balances which are affected by increases in settlement
volume from one year to the next, as well as the timing of settlements.

We generally hold a significant amount of cash and securities because of the
equity requirements of the credit card associations, which are calculated on
settlement dollar volume, and because of the liquidity requirements associated
with conducting settlement operations and owning ATM machines. During fiscal
2000, 1999 and 1998 we invested approximately $171.5 million, $191.4 million
and $88.0 million, respectively, in securities, net of sales and maturities. We
also invested $87.1 million, $67.6 million and $70.7 million, respectively, in
capital expenditures, which were primarily for communications equipment, POS
terminals, new computer equipment and capitalized software. We expect capital
expenditures in the current year to be comparable to that of prior years.

In addition to net cash provided by operating activities, we have
historically financed ourselves through issuances of equity, the exercise of
stock options and borrowings. We issued 10.1 million shares of common stock in
June 1999 and received proceeds of $207.8 million. Of those proceeds, we
invested $61.7 million in securities and reduced long-term and short-term debt
by $146.1 million.

Stock issued upon exercises of options under Concord's incentive stock
option plan provided $26.9 million of additional capital in 2000. As of April
30, 2001, there were approximately 25.5 million stock options outstanding,
approximately 46.7% of which were exercisable. Although we cannot estimate the
timing or amount of future cash flows from the exercise of stock options, we
expect this to continue to be a source of funds.

We have lines of credit with financial institutions totaling $55.0 million.
As of December 31, 2000 and 1999, no amounts were outstanding on these lines of
credit. As of December 31, 2000, we had $99.0 million of notes payable
outstanding to, and $23.7 million in unused lines of credit with, the Federal
Home Loan Bank. In addition to these advances, notes payable of $14.3 million
were outstanding.

We hold securities with a market value of approximately $649.4 million that
are available for operating needs or as collateral to obtain additional short-
term financing, if needed. As of year-end, securities carried at approximately
$110.4 million were pledged as collateral for the Federal Home Loan Bank
advances.

Net loans made by our bank subsidiaries as of December 31, 2000 and 1999
were $78.7 million and $30.9 million, respectively.

Since 1998, we have made several strategic acquisitions. Our February 2001
acquisition of the STAR network is an example of our practice of using our
stock to make these acquisitions. Any future acquisitions may involve the
issuance of our stock or payment of cash. If additional acquisitions are made,
we may incur acquisition costs and restructuring charges in connection with
combining operations as in the case of STAR, Cash Station and Electronic
Payment Services.

We believe that our available credit and cash generated by operations are
adequate to meet our capital and operating needs.

Effects of Inflation

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

Quantitative and Qualitative Disclosures about Market Risk

Our securities are subject to risk resulting from interest rate fluctuations
to the extent that there is a difference between the amount of our interest-
bearing assets and the amount of interest-bearing liabilities that are prepaid,
mature or reprice in specific periods. This risk is mitigated by the fact that
approximately 82.6% of the market value of securities owned were funded through
equity rather than debt. The principal objective of our asset/liability
activities is to provide maximum levels of net interest income while
maintaining acceptable levels of interest rate and liquidity risk and
facilitating our funding needs. We use an interest rate sensitivity model as
the primary quantitative tool in measuring the amount of interest rate risk
that is present at the end of each month.

The following tables provide comparative information about our financial
instruments that are sensitive to changes in interest rates. These tables
present principal cash flows and related weighted-average interest rates by
expected maturity dates. Additionally, we have assumed our securities are
similar enough to aggregate them for presentation purposes. If tax-equivalent
yields of municipal securities had been used, the weighted-average interest
rates would have been higher.

December 31, 2000
------------------------------
Fair Value at
December 31,
2001 2002 2003 2004 2005 Thereafter Total 2000
------ ----- ----- ----- ----- ---------- ------ -------------
(in millions)

Assets:
Securities available for
sale................... $ 36.7 $20.0 $41.5 $24.5 $13.0 $577.1 $712.8 $625.6
Average interest rate.. 6.3% 6.4% 6.4% 6.5% 5.0% 6.6% -- --
Loans................... $ 6.6 $ 3.2 $ 1.4 $ 0.6 $ 1.3 $ 66.5 $ 79.6 $ 73.9
Average interest rate.. 9.6% 9.9% 6.4% 10.5% 8.8% 8.1% -- --
Liabilities:
Deposits................ $106.8 $10.2 $ 6.2 $ 0.8 $ 1.8 -- $125.8 $126.1
Average interest rate.. 4.9% 6.6% 6.8% 6.4% 6.8% -- -- --
Long-term debt.......... $ 3.4 $ 3.4 $17.5 -- -- $ 89.0 $113.3 $111.1
Average interest rate.. 6.2% 6.2% 5.8% -- -- 5.6% -- --

December 31, 1999
-----------------------------
Fair Value at
December 31,
2000 2001 2002 2003 2004 Thereafter Total 1999
----- ----- ----- ----- ----- ---------- ------ -------------
(in millions)

Assets:
Securities available for
sale................... $71.8 $38.9 $32.5 $22.2 $25.0 $290.7 $481.1 $447.4
Average interest rate.. 6.6% 6.7% 6.7% 6.2% 6.4% 5.9% -- --
Loans................... $ 6.3 $ 0.5 $ 0.1 $ 1.8 $ 0.7 $ 22.0 $ 31.4 $ 30.1
Average interest rate.. 7.6% 8.0% 9.4% 6.7% 10.3% 7.7% -- --
Liabilities:
Deposits................ $90.9 $ 6.5 $ 2.6 $ 0.2 $ 0.3 -- $100.5 $100.6
Average interest rate.. 4.2% 5.7% 5.6% 5.3% 5.8% -- -- --
Long-term debt.......... $ 3.4 $ 3.4 $21.3 $17.5 -- $ 47.0 $ 92.6 $ 89.8
Average interest rate.. 6.4% 6.4% 6.1% 5.9% -- 5.4% -- --

BUSINESS

Overview

Concord EFS, Inc. 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 ATM processing, debit card processing, deposit
risk management and coast-to-coast debit network access principally for
financial institutions, and Payment Services, which provides payment processing
for supermarkets, major retailers, petroleum dealers, convenience stores,
trucking companies and independent retailers. In 2000, we processed
approximately 8.0 billion transactions. We are ranked as a market leader in
several important categories, including:

in our Network Services business:

. #1 in the number of ATMs driven--we drive 16% of all ATMs in the United
States,

. #1 in the number of ATMs carrying a specific regional debit network
brand--more than 50% of the ATMs in the United States carry our STAR, MAC
or Cash Station brand, and

. #1 in the number of PIN-secured debit payment transactions processed
through a debit network--we process 50% of all PIN-secured debit payment
transactions through our combined debit network, and

in our Payment Services business:

. #1 in the number of PIN-secured debit payment transactions acquired by a
payment processor--we acquire 20% of all PIN-secured debit payment
transactions,

. #4 in the total number of credit, debit and EBT card payment transactions
processed--we process 9% of all credit, debit and EBT card payment
transactions, and

. #5 in the total dollar volume of credit and signature debit card payment
transactions processed--we process 5% of all dollar volume for credit and
signature debit card payments.

Industry Overview

The electronic transaction processing industry provides financial
institutions and other ATM deployers with processing and network access
services and provides merchants with credit, debit and EBT payment processing
services. Independent sources report the following trends in the U.S.
processing industry:

Growth of PIN-secured debit at the point of sale. PIN-secured debit
transactions at the point of sale grew at a compound annual rate of 36% between
1995 and 2000 to a total of 3.6 billion transactions. We believe this growth is
due to the increased acceptance of PIN-secured debit at merchant locations and
these merchants' preference for PIN-secured debit due to its lower cost per
transaction relative to other non-cash payment methods. According to a cost
study performed in 2000 by the Food Marketing Institute, the average cost of a
PIN-secured debit transaction is $0.34, compared to $0.36 for checks and $0.72
for credit and signature debit transactions. The Nilson Report, Issue No. 726,
projects that PIN-secured debit card transactions will grow at a compound
annual rate of 18%, reaching 6.2 billion transactions in 2005.

Percent of United States Payment Transactions

[PERCENT OF UNITED STATES PAYMENT TRANSACTIONS CHART]

Opportunity to replace cash and check payments. The percentage of total
payment transactions in which cash or checks were used as the method of payment
decreased from 77% in 1995 to 72% in 1999 and is expected to further decrease
to 61% by 2005. We believe that PIN-secured and signature debit transactions
are viable alternatives to these payment methods. Since the absolute number of
transactions utilizing cash and check payment methods is still sizable (for
example, it is estimated that in 1999, 29.4 billion transactions were paid by
check and 46.6 billion transactions were paid in cash), a significant
opportunity exists for PIN-secured and signature debit payments to replace
these payment methods.

ATM usage. ATM transaction volume grew at a compound annual rate of 6%
between 1995 and 2000 to a total of 13.2 billion transactions. The number of
installed ATMs in the United States grew to 273,000 in 2000 from 122,706 in
1995, a 17% compound annual growth rate. The number of off-premise ATMs grew
33% during the same period. We believe this growth has been largely driven by
the enhanced profit potential at off-premise locations, resulting from ATM
surcharging and the lower cost of limited function machines installed off-
premise. Off-premise locations refer to sites other than bank branches.

Consolidation of regional debit networks. The number of regional debit
networks in the United States has fallen from approximately 100 in 1989 to
approximately 35 in 2001. These debit networks began as bank-owned institutions
serving financial institutions and their customers in relatively small
geographic regions. As acceptance increased and as financial institutions
merged, competing networks also merged to create multi-state networks with
broad brand coverage. This consolidation allows networks to extend their
geographical reach and serve financial institutions, consumers and merchants
nationwide.

Increased use of credit cards. Consumer expenditures on credit cards
increased to $1,274 billion in 2000 from $744 billion in 1995, representing a
compound annual growth rate of 11%. The Nilson Report, Issue No. 730, projects
that credit card purchase volume will continue to grow at a compound annual
rate of 8% over the next five years, reaching $1,905 billion in 2005.

Demographic trends. In 1999, STAR commissioned a survey of approximately
8,500 consumers which was conducted by The Applied Management & Planning Group,
an independent marketing research firm. According to the study, consumers
between the ages of 18 and 44 are the greatest users of ATMs and PIN-secured
debit for payment, with greatest usage among consumers age 25 to 34. As these
consumers age, we expect that they will continue to use the payment technology
to which they have grown accustomed, while younger consumers will begin using
ATMs and PIN-secured debit payments as their age and income increase.

Strategy

Our strategy is to grow our Network Services and Payment Services businesses
by providing a fully integrated range of processing services at competitive
prices targeted to select markets with high growth characteristics. We have
developed and continue to pursue the following initiatives to capitalize on our
competitive position and increase our share of the market for transaction
processing services:

. Focus on markets which are switching rapidly to electronic payment
cards. We target markets in which the use of cash and checks has
historically been high, such as supermarkets and gas stations. We believe
that these markets will grow faster than the overall electronic payment
processing industry in the acceptance and usage of credit and debit
cards.

. Utilize a multi-faceted sales approach to target selected vertical
markets. We seek to penetrate our selected markets through a segmented
sales approach in which 50 corporate sales people sell directly to medium
and large companies, 450 independent sales people sell to small and
medium companies, and 750 independent sales people from third party
independent sales organizations and agent banks sell to smaller
merchants. Our direct sales force is organized along key customer
industry lines with specialization in the petroleum, supermarket, major
retail and hospitality industries. We believe that this vertical sales
approach provides us with broad access to potential new customers.

. Provide a fully integrated range of services. We believe that our
vertically integrated structure allows us to be a highly efficient
provider of electronic payment processing services. By providing a wide
range of relevant services, we are able to customize services, to offer
competitive prices and to capitalize on the complete revenue opportunity
with each of our clients. Further, for PIN-secured debit transactions for
which we are both the acquiring processor and the debit card processor,
we are able to capture all of the applicable fees associated with each
transaction, thereby maximizing our per transaction revenue opportunity.

. Cross-sell our services to existing clients. With the acquisitions of
STAR and Cash Station, we now provide network access to 6,500 financial
institution customers. This creates an opportunity to increase revenue
and profits by cross-selling our ATM processing and debit card processing
products to these existing financial institution customers, especially
STAR and Cash Station members, which are under-penetrated with our
processing services as compared to MAC network members.

. Leverage our PIN-secured debit infrastructure. As a coast-to-coast debit
network, we believe that we have significant opportunities to add
additional services on our network. For example, we believe that most
Internet-based transactions are currently fulfilled using established
credit card payment methodologies. As the use of PIN-secured debit cards
for retail purchases continues to rise, we believe that debit card usage
on the Internet will also increase. We are also developing services to
take advantage of our existing ATM network and card base, such as person-
to-person payments and advertising distribution via ATMs.

. Develop new products and services to meet market needs. We strive to
offer our customers new payment alternatives and other products that will
help them reduce their costs or improve revenues. Examples include pre-
authorized debit cards and electronic check conversion, which are
designed to reduce the number of checks written for payment, and gift
cards and loyalty programs, which are value-added services to increase
sales.

. Maintain a highly-efficient operating structure. We strive to maintain a
highly-efficient operating structure, including an emphasis on low
overhead and cost control efforts. Additionally, through our banking
subsidiary, EFS National Bank, we are able to participate directly in
bank card associations and regional and national ATM and debit card
networks, to cost-effectively settle electronic transactions and to
substantially reduce our automated clearing house (ACH) and wire
transfer fees. We have been successful in leveraging the efficiency of
our operating structure and efficiency improvements in
telecommunications and other technologies. Between 1998 and 2000, we
have improved our operating income per transaction at a compound annual
rate of 10.7%, excluding acquisition and restructuring charges.

. Seek selective acquisitions. We will continue to look for opportunities
to grow our business through selective acquisitions that will allow us
to increase our customer base, increase profitable transaction volume
and reduce costs. For example, the acquisitions of STAR and Cash Station
enabled us to increase our volume of PIN-secured debit transactions at
the point of sale. We have also increased our volume of credit
transactions processed through the acquisition of Card Payment Services.

Services

Network Services. Network Services includes terminal driving and monitoring
for ATMs, transaction routing and authorization via the combined STAR, MAC and
Cash Station debit network as well as other debit networks, deposit risk
management and real-time card management and authorization for PIN-secured
debit and signature debit cards. In addition, we operate the network switch
that connects a coast-to-coast network of ATMs and POS locations that accept
debit cards issued by our member financial institutions. Our network access
services include transaction switching and settlement. In 2000, we processed
1.8 billion PIN-secured debit transactions and 3.2 billion ATM transactions.

Our debit network has been built primarily through the acquisition of a
number of regional debit networks, giving us the only non-bankcard association,
coast-to-coast debit network. In 1999, through our acquisition of Electronic
Payment Services, we acquired the MAC network, which is concentrated in the
Northeast United States. In 2000, we acquired the Cash Station network, which
is concentrated in the Midwest. Most recently, in February 2001, we acquired
STAR, whose network spans the West, Southwest and Southeastern United States.
As a result of these acquisitions, our 6,500 financial institution customers
deploy over 180,000 ATMs nationwide that carry at least one of our brands
(STAR, MAC or Cash Station).

In addition, through the 720,000 merchant locations connected to our
combined network, we switch over 50% of the total United States PIN-secured
debit transactions at the point of sale. We believe that we enjoy a significant
competitive advantage by owning a coast-to-coast debit network with the
strength of the STAR brand that allows us to effectively cross-sell our
services to both Network Services and Payment Services customers.

As a result of our acquisitions of STAR, MAC and Cash Station, we can now
capture all of the fees associated with a PIN-secured debit payment
transaction, as illustrated below.

[graphic illustrating fee opportunity in a PIN-secured debit payment
transaction]

As shown, for PIN-secured debit transactions using our combined STAR, MAC
and Cash Station debit network and for which we are both the acquiring
processor and the debit card processor, we receive (1) a fee from the merchant
for acquiring the transaction, (2) a network acquirer fee from the merchant
plus a fee from the card issuing financial institutions for running the
transaction through our network switch, and (3) a fee from the card issuer for
obtaining the authorization. For PIN-secured debit transactions which use our
network, but where we do not have an acquiring relationship with the merchant,
we still earn a network acquirer fee plus a fee for switching the transaction
through our network. Most other payment processors do not have the ability that
we do to earn all of these fees on each transaction.

We hold an 85% ownership interest in Primary Payment Systems, which we
believe is an industry leader in deposit account fraud detection systems.
Through Primary Payment Systems, we have extended our services to provide
deposit risk management services to our customers. Our deposit risk management
products will provide the financial services and retail industries with
comprehensive tools to reduce deposit account and securities account fraud and
its related expense. Primary Payment Systems' products are marketed to
financial institutions directly by Primary Payment Systems as well as through
our STAR network. Primary Payment Systems also provides us with access to a
number of financial institution customers who are customers of Primary Payment
Systems but not our debit network. Primary Payment Systems recently increased
the breadth of its deposit risk management services with the acquisition of
Wally Industries, Inc., d/b/a WJM Technologies. WJM provides front-end tools to
help financial institutions validate and protect against fraudulent deposit
accounts before they are opened and activated. Through its Early Warning(R)
software product, we believe that WJM currently screens over 70% of all new
banking customer relationships in the United States. Primary Payment Systems
anticipates 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, EBT, prepaid and pre-authorized debit
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. In 2000, we processed 3.0 billion of these payment transactions.
Payment Services also includes providing payment cards that enable drivers of
trucking companies to purchase fuel and obtain cash advances at truck stops.
Our services are completely turn-key, providing merchants with POS terminal
equipment, transaction routing and authorization, settlement, funds movement
and sponsorship into all credit card associations (such as VISA and MasterCard)
and debit networks (such as STAR, Pulse and NYCE).

We have benefited from the shift in payments from cash and checks to debit
cards and EBT. We have also realized growth in transactions as a result of our
merchants expanding into additional locations and the growth in our independent
sales organization partners. We believe our end-to-end product has provided us
with a competitive advantage. For PIN-secured debit transactions for which we
are both the acquiring processor and the debit card processor, we are able to
capture all of the applicable fees associated with each transaction, thereby
maximizing our per transaction revenue opportunity. We believe we are the
leading provider of payment services to the grocery and petroleum industries.

As a fully-integrated transaction processor, we are able to provide our
Payment Services customers with all of these services:

[graphic illustrating services Concord provides its Payment Services customers]

. Equipment--We sell or lease POS terminal equipment through volume
purchasing arrangements with equipment vendors.

. Front-End/Software--We provide the systems and software for POS
applications that support a variety of non-cash payment types, including
credit, debit, EBT, check authorization, electronic check conversion,
pre-authorized debit cards and gift cards.

. Communications Network--We manage and monitor the telecommunications
networks that connect the terminals with our host and with the credit,
debit and EBT gateways connected to us. We support all major
telecommunications options, including frame relay, dial-up, satellite,
wireless and DSL.

. Transaction Authorization--We connect to all major credit card
associations, debit networks and magnetic-stripe EBT programs, allowing
us to route transactions to the appropriate network for authorization
and then relay this information back to the terminal to complete the
transaction.

. Merchant Accounting--We perform the merchant accounting function which
aggregates transaction information by merchant for submission to the
appropriate networks and for merchant-level settlement and reporting.

. Settlement/Reporting--The credit card associations settle with our
subsidiary EFS National Bank, which acts as the merchant's sponsoring
bank.

. Funds Movement--Through EFS National Bank, we move the funds from the
networks to the merchant's bank via ACH transfers.

We believe that our ownership of EFS National Bank provides us with a number
of competitive advantages in Payment Services.

. We are a member of the credit and debit card associations and therefore
do not have to pay another financial institution to sponsor us.

. We settle our transactions directly through the Federal Reserve and thus
do not have to pay a third-party vendor.

. We perform services such as ACH and wire transfer internally and
therefore do not have to pay another financial institution for such
services.

Marketing and Customers

We market our services and products on a nationwide basis to supermarkets,
gas stations, convenience stores, restaurants, independent retailers, financial
institutions and trucking companies. We market both directly through our
internal sales force and indirectly through independent sales organizations and
their representatives. Our sales force includes 50 corporate sales people who
sell directly to medium and large companies, 450 independent sales people who
sell to small and medium sized companies and 750 independent sales people from
third party independent sales organizations and agent banks who sell to smaller
merchants. Our strategy is to use our in-house marketing expertise to target
the large to mid-sized companies within these selected industries and to use
the extensive market penetration of independent sales organizations to extend
our sales reach into the small, independent firms nationwide. Our relationship
with independent sales organizations was augmented by our acquisition, early in
2000, of Card Payment Systems, which provides card-based payment processing
services to independent sales organizations.

As an integrated services provider, we have natural cross-selling
opportunities within our client base. We acquired Electronic Payment Services
in 1999, Cash Station in 2000 and STAR in 2001. These acquisitions collectively
added approximately 200,000 retail locations and 6,500 financial institution
customers to our client base, affording us the opportunity to cross-sell
settlement processing services to Electronic Payment Services' retail customers
(who primarily received only authorization services from Electronic Payment
Services) and to cross-sell ATM and card processing services to Cash Station
and STAR financial institutions (who primarily use third-party processors or
process internally).

We market our debit network services under three different brand names:
STAR, MAC and Cash Station. We intend to consolidate all of our brands under
the STAR brand name by 2004. We believe this will add to the name recognition
of STAR as a coast-to-coast EFT brand.

We have historically had success in marketing through key trade association
relationships, such as our endorsement by the National Grocers Association as
the recommended provider of electronic services to grocers, and our partnership
with the Food Marketing Institute to develop and promote new payment products
to the supermarket industry. Management is committed to the cultivation of such
trade association relationships and the development of arrangements with other
service providers.

We are also an authorized issuer of payment cards and processor of card
transactions with the major truck stop chains, which provides a substantial
advantage in selling our card payment systems to trucking companies. Our
relationships with the truck stop owners also affords us an opportunity to
place ATMs at truck stops, which in turn provides a further advantage in
selling our integrated processing and banking services to trucking companies
and truck drivers.

Our established presence in supermarket chains, grocery stores, convenience
stores and other small and mid-sized retailers gives us an advantage in
establishing relationships with EBT providers, whose benefits are primarily
accessed at such retail locations.

Our customers are among the leaders in their industries. Our Network
Services customers include some of the largest financial institutions in the
United States. Our largest Network Services customers are Bank of America, Bank
One, Key Bank, PNC Bank and Wells Fargo. Our largest Payment Services customers
are Advantica, Food Lion, PETsMART, Sunoco and SUPERVALU.

Competition

The businesses of electronic payment processing and settlement, ATM
processing, debit card processing and debit network access services are all
highly competitive. Our principal competitors include national and major
regional banks, local processing banks, non-bank processors and other
independent service organizations, some of which have substantially greater
capital and technological, management and marketing resources than we have. We
also compete with other electronic payment processing organizations and debit
networks. The recent trend of consolidation in the banking industry in the
United States has resulted in fewer

opportunities for merchant portfolio acquisitions, as many small banks have
been acquired by large banks, some of which compete with us in the provision
of processing services.

In our Network Services segment, management estimates that:

. the three largest ATM processors, of which we are the largest, drive
approximately 27% of total ATMs in the United States,

. the three largest regional debit networks, of which we are the largest,
process 70% of all PIN-secured debit payment transactions, and

. VISA and MasterCard collectively account for over 65% of total annual
debit payment transactions (both PIN-secured and signature debit
transactions) among the debit networks.

In our Payment Services segment, we compete with other companies who have a
significant share of each business. Management estimates that:

. the three largest acquirers of PIN-secured debit payment transactions, of
which we are the largest, account for approximately 33% of all PIN-
secured debit payment transactions,

. the three largest payment processors, which we are not among, account for
roughly 48% of total credit, debit and EBT card payment transactions, and

. the three largest bank card acquirers, which we are not among, process
approximately 65% of the total dollar volume of credit and signature
debit card payments.

There can be no assurance that we will continue to be able to compete
successfully with such competitors.

While we compete with VISA and MasterCard in our Network Services business,
at the same time our Payment Services business is reliant on VISA and
MasterCard for the authority to process transactions in the VISA and
MasterCard systems. Moreover, VISA and MasterCard have existing products and
rules which could make it difficult for us to compete against them, which
could further increase VISA and MasterCard's power in the debit network access
portion of the Network Services business.

In addition, the competitive pricing pressures that would result from any
increase in competition could adversely affect our margins and may have a
material adverse effect on our operating results and financial condition.

We compete in terms of price, quality, speed and flexibility in customizing
systems to meet the particular needs of customers. We believe that we are one
of the few fully integrated suppliers of a broad range of hardware,
processing, banking and data compilation services for use in transactions at
retail locations. We also believe that we are one of the few processors that
operates a coast-to-coast debit network, permitting us to offer comprehensive
debit transaction processing services.

Supervision and Regulation

We and our subsidiaries are subject to a number of federal and state laws.
We are a financial holding company and a bank holding company registered with
the Federal Reserve under the Bank Holding Company Act of 1956, as amended,
which is administered by the Federal Reserve. As a financial holding company,
we are subject to the Bank Holding Company Act, which generally prohibits us
from:

. directly or indirectly engaging in any activities other than banking,
managing or controlling banks and certain other activities that the
Federal Reserve has approved as financial in nature, incidental to such a
financial activity or complementary to a financial activity; and

. acquiring, directly or indirectly, ownership or control of more than 5%
of any class of voting shares of any company that is engaged in
activities other than activities that the Federal Reserve has approved as
financial in nature, incidental to such a financial activity or
complementary to a financial activity, with certain exceptions.

For us to qualify as a financial holding company, our depository institution
subsidiaries needed to have at least a "satisfactory" Community Reinvestment
Act rating on their most recent examination, and we were required to certify
that our depository institution subsidiaries are well capitalized and well
managed. If any of our depository institution subsidiaries ceases to be well
capitalized or well managed, we will be required to enter into an agreement
with the Federal Reserve to bring that depository institution into compliance
with applicable capital and management requirements. During the period of
noncompliance, the Federal Reserve may impose limitations on the activities of
Concord and our affiliates, and we would not be permitted directly or
indirectly to engage in, or acquire shares of a company engaged in, additional
activities permissible for financial holding companies but not bank holding
companies, without the Federal Reserve's prior approval. In addition, the
Federal Reserve may require divestiture of our depository institution
subsidiaries if the capital or management deficiency persists. Also, if any of
our depository institution subsidiaries fails to maintain a "satisfactory"
rating under the Community Reinvestment Act, we would not be permitted directly
or indirectly to engage in, or acquire shares of a company engaged in,
additional activities permissible for financial holding companies but not bank
holding companies until the subsidiary depository institution improves its
rating to at least a "satisfactory" rating.

We are required to file with the Federal Reserve an annual report and such
additional information which the Federal Reserve may require. We also are
required to obtain the prior approval of the Federal Reserve before acquiring
more than 5% of any class of voting stock of any bank that is not already
controlled by us. The Federal Reserve may examine our and each of our
subsidiaries' records, including a review of our capital adequacy in relation
to guidelines issued by the Federal Reserve. The Federal Reserve requires
minimum capital levels as measured by three ratios: total capital to risk-
weighted assets, tier one capital to risk-weighted assets and tier one capital
to average total assets. If the level of capital is deemed to be inadequate,
the Federal Reserve may restrict our future expansion and operations and take
certain other enforcement actions. The Federal Reserve possesses cease and
desist powers over us if, among other things, our actions or actions of our
subsidiaries represent unsafe or unsound practices or violations of law.

Federal law also regulates transactions among us and our affiliates,
including the amount of loans or investments that our banking affiliates, EFS
National Bank and EFS Federal Savings Bank, may make to non-bank affiliates and
the amount of advances that each may make to third parties collateralized by an
affiliate's securities. In addition, various federal and state laws and
regulations regulate the operations of EFS National Bank and EFS Federal
Savings Bank, including laws and regulations requiring reserves against
deposits, limiting the nature and pricing of loans and restricting investments
and other activities. Our bank affiliates are also limited in the amount of
dividends that they may declare. Prior regulatory approval must be obtained
before declaring any dividends if the amount of capital, surplus and retained
earnings is below certain statutory limits.

EFS National Bank and EFS Federal Savings Bank also are generally prohibited
from engaging in certain tie-in arrangements with their affiliates that
condition the availability or price of their products and services on the
customer also obtaining products or services from the affiliate or providing
credit, property or services to an affiliate.

As a national bank, EFS National Bank operates under the rules and
regulations of the Office of the Comptroller of the Currency, which is its
primary regulator. As a federal savings bank, EFS Federal Savings Bank operates
under the regulatory and supervisory jurisdiction of the Office of Thrift
Supervision. EFS Federal Savings Bank is also a member of the Federal Reserve
System and is therefore subject to certain provisions of the Federal Reserve
Act. The Federal Deposit Insurance Corporation insures the domestic deposits of
both banks. Each bank also is subject to periodic examination by, and must make
regularly scheduled reports of financial condition to, its respective
regulatory agencies.

Our EFT services sold to financial institutions are regulated by certain
state and federal banking laws. Material changes in federal or state regulation
could increase our cost of providing EFT services, change the competitive
environment or otherwise adversely affect us. We are not aware of any such
change which is pending.

We also are affected by the financial privacy provisions of the Gramm-Leach-
Bliley Act (the GLB Act) and its implementing regulations, which apply to banks
and other financial institutions. The GLB Act and regulations generally require
financial institutions to disclose their practices for gathering and disclosure
of nonpublic personal financial information regarding consumers. Consumers also
have the right to opt out of certain types of information sharing. We do not
deal directly with consumers through our Payment Services or Network Services
businesses. However, certain consumer financial information that we receive may
be subject to limitations on reuse and redisclosure under the GLB Act.
Additionally, pending legislation at the state and federal levels may further
restrict our information gathering and disclosure practices. Although the GLB
Act and other privacy laws have not had a material impact on our business to
date, existing and potential future privacy laws may limit our ability to
develop new products and services that make use of certain data gathered
through our Network Services and Payment Services businesses.

In addition to regulation by federal and state laws and governmental
agencies, we are subject to the rules and regulations of the various credit
card associations and debit networks, including requirements for equity capital
commensurate with transaction processing dollar volume.

Employees

As of March 31, 2001, we employed 2,389 full and part-time personnel,
including 1,283 data processing and technical employees, 673 in operations and
433 in sales and administration. Many of our employees are highly skilled, and
we believe our future success will depend in large part on our ability to
attract and retain such employees. We have incentive agreements with our Chief
Executive Officer and our President and an employment agreement with the
President of STAR; however, we do not have any material employment contracts
with any other employees. None of our employees are represented by a labor
union, and we have experienced no work stoppages. We consider our employee
relations to be excellent.

Properties

Our principal executive offices, which are leased, are located at 2525
Horizon Lake Drive, Suite 120, Memphis, Tennessee 38133. We also own a building
in Wilmington, Delaware and lease buildings in Maitland, Florida and Atlanta,
Georgia, which are used as data centers. We lease approximately 25 other
properties which are used for sales and support and various other aspects of
our operations.

MANAGEMENT

The following table sets forth certain information concerning our directors
and executive officers as of April 30, 2001:

Name Age Position(s)
---- --- -----------

Dan M. Palmer........... 58 Chairman of the Board and Chief Executive Officer
Edward A. Labry III..... 38 Director and President
Edward T. Haslam........ 48 Chief Financial Officer
Vickie Brown............ 47 Senior Vice President, Chief Operating Officer, EFS National Bank
Thomas J. Dowling....... 35 Senior Vice President and Chief Financial Officer, EFS National Bank
William E. Lucado....... 60 Senior Vice President, Chief Investment and Compliance Officer
Douglas C. Altenbern*+.. 64 Director
Richard Buchignani*..... 52 Director
Ronald V. Congemi....... 54 Director
Richard M. Harter*...... 64 Director and Secretary
Richard P. Kiphart*..... 59 Director
Jerry D. Mooney*+....... 47 Director
Paul L. Whittington*+... 65 Director

--------
* Member of the Board's Audit Committee.
+ Member of the Board's Compensation Committee.

Dan M. Palmer has been a director of Concord since May 1987 and was
appointed Chairman of the Board in 1991. He was named Chief Executive Officer
of Concord in 1990 and Chief Executive Officer of EFS National Bank upon its
formation in 1992. He joined Union Planters National Bank in 1982 and founded
the bank's Electronic Fleet Systems operation, which was later acquired by
Concord. He continued as President and Chief Executive Officer of Electronic
Fleet Systems following the acquisition in 1985.

Edward A. Labry III was named President of Concord EFS, Inc. and EFS
National Bank in 1994. Mr. Labry joined Concord in 1984 as a salesman in
Concord's trucking services division, assuming responsibility for all sales and
marketing in that unit in 1987. In 1990, Mr. Labry was named Chief Marketing
Officer for all Concord companies and was appointed Senior Vice President in
1991. He is a member of the international Advisory Councils for VISA and
MasterCard and serves as director on the board of MS Carriers.

Edward T. Haslam joined Concord in 1999 and became Chief Financial Officer
in April 2000. Previously, he was Chief Operating Officer of Electronic Payment
Services. Prior positions during his five-year tenure at Electronic Payment
Services included Chief Financial Officer and Chief Accounting Officer. Mr.
Haslam also held financial management positions at SEI Corporation and
Manufacturers Hanover Financial Services, Inc.

Vickie Brown joined Concord in 1979 as an accountant. She served as
Treasurer from 1982 through 1991, was elected Vice President in April 1985 and
was elected Senior Vice President in 1991. Ms. Brown served as Chief Operating
Officer of Concord Computing Corporation from 1990 through 1992. Ms. Brown has
been Chief Operating Officer of EFS National Bank since 1997.

Thomas J. Dowling joined Concord in 1992 as Assistant Controller. He became
Vice President and Controller of Concord in 1995 and served as Chief Financial
Officer of Concord from 1998 to 2000, when Mr. Haslam was appointed Chief
Financial Officer of Concord. Mr. Dowling continues to serve as Chief Financial
Officer of EFS National Bank. Prior to May 1992, he was a senior audit
accountant and certified public accountant at Ernst & Young LLP.

William E. Lucado joined Concord in 1991 as a Vice President. He was named
Senior Vice President, Compliance Officer for EFS National Bank in 1992, and in
1994 he was elected Senior Vice President of

Concord. In 1995, he was elected Senior Vice President, Investment Officer and
Compliance Officer, Corporate Secretary and Director of EFS National Bank and
other subsidiary companies. In 1996, he was elected Assistant Secretary of
Concord, and in 1997 he was elected President of EFS Federal Savings Bank. He
was named Chief Investment and Compliance Officer of Concord in 1998.

Douglas C. Altenbern has been a director of Concord since February 1998. Mr.
Altenbern served as Vice Chairman of First Financial Management Corporation
until 1989, at which time he resigned to found Argosy Network Corporation, of
which he served as Chairman and CEO. In 1992 he sold his interest in Argosy,
and in 1993 he founded Pay Systems of America, Inc., of which he served as
Chairman and CEO through December 1996. He currently is a private investor and
serves as a director on the boards of The Bradford Funds, Inc., OPTS, Inc.,
Interlogics, Inc., CSM, Inc. and Equitas.

Richard Buchignani has been a director of Concord since August 1992. He is a
partner in the Memphis, Tennessee office of the law firm of Wyatt, Tarrant &
Combs, who also serves as local counsel to Concord. Mr. Buchignani has been
affiliated with the law firm since 1995 when most of the members of his firm of
18 years joined Wyatt, Tarrant & Combs.

Ronald V. Congemi was appointed director of Concord effective February 22,
2001. From 1975 to 1984, he served in a variety of management positions at VISA
International. In 1984, he joined the Star System, Inc. network as founding
President. Mr. Congemi became President and CEO of the newly merged HONOR
Technologies, Inc. and Star System, Inc. network (renamed Star Systems, Inc.)
in March 1999, and he continues to serve as its President. He has served on the
board of directors of the Electronic Funds Transfer Association and as member
of both the Consumer Bankers Association Committee on Electronic Funds Transfer
and the BITS Infrastructure Review Group.

Richard M. Harter has been Concord's Secretary and a director of Concord
since Concord's formation. Since 1969, he has been a partner at Bingham Dana
LLP, legal counsel to Concord.

Richard P. Kiphart has been a director of Concord since March 1997. In 1972
he became a principal of William Blair & Company, L.L.C. He served as head of
Equity Trading from 1972 to 1980. He joined the Corporate Finance Department in
1980 and was made head of that department in January 1995.

Jerry D. Mooney has been a director of Concord since August 1992. In August
1997, he began to serve as President and Chief Operating Officer of
ServiceMaster Employer Services, Inc. He retired from that position in 1998.
Prior to August 1997, he was President of Healthcare New Business Initiatives
and formerly served as Chairman, President and CEO of ServiceMaster Diversified
Health Services, Inc. (formerly VHA Long Term Care) beginning in 1981.

Paul L. Whittington has been a director of Concord since May 1993. Mr.
Whittington was the Managing Partner of the Memphis, Tennessee and Jackson,
Mississippi offices of Ernst & Young from 1988 until his retirement in 1991.
Since 1979, he had been the partner in charge of consulting at various Ernst &
Young offices.

PRINCIPAL AND SELLING STOCKHOLDERS

Beneficial Ownership

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of April 30, 2001 (except as set forth in the
footnotes to the table) and as adjusted to reflect the sale of the shares in
this offering, of:

. each of our directors and executive officers;

. all the directors and executive officers as a group;

. each owner of more than 5% of our common stock; and

. each selling stockholder.

The information in the table assumes that the underwriters will not exercise
their over-allotment option to purchase additional shares in this offering.

Unless otherwise indicated, the address for each of our directors and
executive officers is 2525 Horizon Lake Drive, Suite 120, Memphis, Tennessee
38133.

Shares Shares
Beneficially Shares Beneficially
Owned Prior Being Owned After
to Offering Offered Offering
--------------------- ------- ------------------
Name and Address of
Beneficial Owner Number Percent(1) Number Number Percent
------------------- ---------- ---------- ------- ---------- -------

Dan M. Palmer(2)............. 5,105,775 2.1% -- 5,105,775 2.0%
Edward A. Labry III(3)....... 4,422,192 1.8% -- 4,422,192 1.8%
Edward T. Haslam(4).......... 95,250 * -- 95,250 *
Vickie Brown(5).............. 56,561 * -- 56,561 *
Thomas J. Dowling(6)......... 79,833 * -- 79,833 *
William E. Lucado(7)......... 81,300 * -- 81,300 *
Douglas C. Altenbern(8)...... 27,625 * -- 27,625 *
J. Richard Buchignani(9)..... 51,149 * -- 51,149 *
Ronald V. Congemi(10)........ 239,706 * -- 239,706 *
Richard M. Harter(11)........ 136,550 * -- 136,550 *
Richard P. Kiphart(12)....... 5,107,657 2.1% -- 5,107,657 2.1%
Jerry D. Mooney(9)(13)....... 90,499 * -- 90,499 *
Paul Whittington(9).......... 45,468 * -- 45,468 *

All directors and executive
officers as a group
(13 persons)(14)............ 15,539,565 6.2% -- 15,539,565 6.1%

William Blair & Company, 19,084,647 7.9% -- 19,084,647 7.8%
L.L.C.(15)..................
222 West Adams Street
Chicago, IL 60606

Selling Stockholders(16):
Aliant National
Corporation................ 41,198 * 41,198 -- --
P.O. Box 1237
Alexander City, AL 35010

American National Bank and
Trust Company of Chicago... 38,149 * 38,149 -- --
120 South LaSalle Street
Chicago, IL 60606

America's First Federal
Credit Union............... 41,198 * 41,198 -- --
1200 Fourth Ave. North, 6th
Floor
Birmingham, AL 35203

Shares Shares
Beneficially Shares Beneficially
Owned Prior Being Owned After
to Offering Offered Offering
-------------------- --------- ---------------
Name and Address of Beneficial
Owner Number Percent(1) Number Number Percent
------------------------------ --------- ---------- --------- ------- -------

AmSouth Bancorporation......... 41,198 * 41,198 -- --
250 Riverchase Parkway East
Birmingham, AL 35244

Bank of America Corporation.... 4,514,288 1.9% 4,514,288 -- --
IJL Building, M.C. NC 1-022-
15-09
201 N. Tryon Street
Charlotte, NC 28255-0001

Bank of the West............... 634,520 * 634,520 -- --
1450 Treat Blvd.
Walnut Creek, CA 94596

Bank One, Arizona, N.A......... 634,520 * 634,520 -- --
241 North Central Avenue
Phoenix, AZ 85004

Bank One, N.A.................. 832,586 * 832,586 -- --
1 Bank One Plaza
Chicago, IL 60670

B B & T Corporation............ 1,845,166 * 1,845,166 -- --
P.O. Box 819
Wilson, NC 27894

California Federal Bank........ 634,520 * 634,520 -- --
135 Main Street
San Francisco, CA 94105

Central Carolina Bank & Trust 12,681 * 12,681 -- --
Company.......................
P.O. Box 931
Durham, NC 27702

Centura Banks, Inc. ........... 65,878 * 65,878 -- --
134 North Church Street
Rocky Mount, NC 27804

Chevy Chase Bank, F.S.B........ 243,849 * 120,000 123,849 *
6200 Chevy Chase Drive
Laurel, MD 20707

Citibank, FSB.................. 634,520 * 634,520 -- --
1 Court Square, 42nd Floor
Long Island City, New York
11120

Compass Bancshares, Inc........ 41,198 * 41,198 -- --
15 South 20th Street
Birmingham, AL 35233

C. U. Cooperative Systems...... 634,520 * 500,000 134,520 *
3500 Porsche Way, Suite 300
Ontario, CA 91764

Shares Shares
Beneficially Shares Beneficially
Owned Prior Being Owned After
to Offering Offered Offering
------------------ ------- --------------
Name and Address of Beneficial Owner Number Percent(1) Number Number Percent
------------------------------------ ------- ---------- ------- ------ -------

The Exchange Bank of South 2,638 * 2,638 -- --
Carolina, Inc.....................
130 West Main Street
Kingstree, SC 29556

The Fidelity Bank.................. 10,553 * 10,553 -- --
100 South Main Street
Fuquay-Varina, NC 27526

First Citizens Bancorporation of
S.C., Inc......................... 38,202 * 38,202 -- --
P.O. Box 29549
Raleigh, NC 27611

First Citizens BancShares, Inc. ... 110,119 * 110,119 -- --
P.O. Box 29549
Raleigh, NC 27611

First Citizens Bank & Trust Co. of 25,028 * 25,028 -- --
S. C..............................
P.O. Box 29
Columbia, SC 29202

First Hawaiian Bank................ 634,520 * 634,520 -- --
P.O. Box 1959
Honolulu, HI 96805

First National Corporation......... 11,770 * 11,770 -- --
950 John C. Calhoun Drive
Orangeburg, SC 29116

First Security Corporation......... 634,520 * 634,520 -- --
P.O. Box 30006
Salt Lake City, UT 84130

Georgia Telco Credit Union......... 256,466 * 256,466 -- --
P.O. Box 105205
Atlanta, GA 30348

The Golden 1 Credit Union.......... 634,520 * 634,520 -- --
P.O. Box 15966
Sacramento, CA 95852-1966

Heritage Banc Shares, Inc.......... 21,832 * 21,832 -- --
P.O. Box 100
Lucama, NC 27851

Lexington State Bank............... 11,770 * 11,770 -- --
38 West First Avenue
Lexington, NC 27292-3304

NASA Federal Credit Union.......... 37,389 * 37,389 -- --
P.O. Box 1588
Bowie, MD 20717

Regions Financial Corporation...... 41,198 * 41,198 -- --
Retail Division
417 North 20th Street--Fourth
Floor
Birmingham, AL 35203

Riggs National Corporation......... 243,849 * 243,849 -- --
808 17th Street, N.W.
Washington, DC 20006

Shares Shares
Beneficially Shares Beneficially
Owned Prior Being Owned After
to Offering Offered Offering
-------------------- --------- --------------
Name and Address of Beneficial
Owner Number Percent(1) Number Number Percent
------------------------------ --------- ---------- --------- ------ -------

Sanwa Bank California........... 634,520 * 634,520 -- --
1977 Saturn Street
Monterey Park, CA 91755

The South Financial Group....... 24,103 * 24,103 -- --
P.O. Box 1029
Greenville, SC 29602

Southern BancShares (N.C.), 39,498 * 39,498 -- --
Inc............................
P.O. Box 729
Mount Olive, NC 28365-0729

South Trust Corporation......... 41,198 * 41,198 -- --
P.O. Box 2554
Birmingham, AL 35290

SSA Baltimore Federal Credit 24,382 * 24,382 -- --
Union..........................
6401 Security Boulevard, Room
4M27A
Baltimore, MD 21207

SunTrust Investment Management, 1,254,134 * 1,254,134 -- --
Inc............................
P.O. Box 4418, Center Code 0632
Atlanta, GA 30302

Synovus Financial Corp.......... 237,109 * 150,000 87,109 *
P.O. Box 120
Columbus, GA 31902

Union Bank of California........ 634,520 * 634,520 -- --
1980 Saturn Street, MCV03510
Monterey Park, CA 91755

Wachovia Corporation............ 1,242,516 * 1,242,516 -- --
Mail Code N.C. 37272
P.O. Box 3099
Winston-Salem, NC 27150

The Wachovia Foundation, Inc.... 534,198 * 534,198 -- --
100 North Main Street
Winston-Salem, NC 27101

Washington Mutual Bank.......... 634,520 * 634,520 -- --
1201 Third Avenue, 15th Fl.,
WMT1501
Seattle, WA 98101

Wells Fargo Bank................ 634,520 * 634,520 -- --
1200 Montego Way
Walnut Creek, CA 94598

-------
* Denotes less than 1%.
(1) Percentage ownership is based on 242,319,486 shares issued and outstanding
as of April 30, 2001, plus the number of shares subject to options
exercisable within 60 days after April 30, 2001.
(2) Shares owned include 5,085,775 shares covered by stock options exercisable
within 60 days after April 30, 2001.
(3) Shares owned include 4,387,575 shares covered by stock options exercisable
within 60 days after April 30, 2001.
(4) Shares owned include 91,250 shares covered by stock options exercisable
within 60 days after April 30, 2001.
(5) Shares owned include 56,560 shares covered by stock options exercisable
within 60 days after April 30, 2001.

(6) Shares owned include 74,333 shares covered by stock options exercisable
within 60 days after April 30, 2001. Shares owned also include 1,500
shares held in the IRA account of Mr. Dowling's spouse as to which Mr.
Dowling disclaims beneficial ownership.
(7) Shares owned include 80,625 shares covered by stock options exercisable
within 60 days after April 30, 2001.
(8) Shares owned include 17,625 shares covered by stock options exercisable
within 60 days after April 30, 2001.
(9) Shares owned include 38,875 shares covered by stock options exercisable
within 60 days after April 30, 2001.
(10) Shares owned consist of shares covered by stock options exercisable
within 60 days after April 30, 2001.
(11) Shares owned include 37,000 shares covered by stock options exercisable
within 60 days after April 30, 2001. Shares owned also include 6,000
shares held in The Harter Family Charitable Foundation as to which Mr.
Harter disclaims benefical ownership.
(12) Shares owned include 24,375 shares covered by stock options exercisable
within 60 days after April 30, 2001.
(13) Shares owned include 21,262 shares held by Mr. Mooney's spouse and an
additional 30,362 shares held by a corporation for which Mr. Mooney
serves as President and a director, as to all of which Mr. Mooney
disclaims beneficial ownership.
(14) Shares owned include an aggregate of 10,211,449 shares covered by stock
options exercisable within 60 days after April 30, 2001.
(15) The number of shares owned reflects ownership as of April 30, 2001. The
number of shares includes 8,319,408 shares beneficially owned by
principals of William Blair & Company, L.L.C. (Blair) with respect to
which Blair disclaims beneficial ownership and 10,765,239 shares held in
client accounts at Blair with respect to which Blair disclaims beneficial
ownership.
(16) Based upon information provided by the selling stockholders.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, we will have 244,319,486 shares of common
stock outstanding (based on outstanding shares as of April 30, 2001, assuming
that the underwriters do not exercise their over-allotment option and excluding
25,548,612 shares issuable upon the exercise of options outstanding as of April
30, 2001). Of these shares, 227,118,982 shares (assuming the selling
stockholders sell all of their 19,194,103 shares offered in the offering) will
be freely tradable without restriction or further registration under the
Securities Act unless purchased by an "affiliate" of ours, as that term is
defined in Rule 144 under the Securities Act, which sales will be subject to
the volume limitations and other restrictions set forth in Rule 144.

Of the remaining shares,

Furthermore, an additional 30,223,477 shares that may be issued in the
future upon the exercise of options granted and to be granted under our stock
option plans have been registered under the Securities Act and, therefore, will
be freely tradable when issued (subject to the volume limitations and other
conditions of Rule 144, in the case of shares to be sold by our affiliates). Of
these options, 10,211,449 shares are covered by the lock-up period for
directors and officers referred to above.

Registration Rights

In connection with the acquisition of STAR, we entered into a registration
rights agreement with certain entities that became our stockholders as a result
of the merger (each, a Current Stockholder (STAR)). The registration rights
agreement provides that, subject to certain limitations, at any time on or
after August 1, 2001 but before February 1, 2003, each Current Stockholder
(STAR) has the right to demand, on no more than two occasions, that we register
all or a portion of the shares of our common stock acquired by that stockholder
as a result of the merger, subject to a minimum demand of 40% of the total
shares issued in connection with the merger, provided that such percentage has
a fair market value of at least $100 million. We are required to use our best
efforts to effect any such registration on demand. Such registrations will be
at our expense, except that each selling stockholder will bear its pro rata
share of the underwriting discounts and commissions.

In addition, under the registration rights agreement, the Current
Stockholders (STAR) have certain incidental rights to require us to include in
any registration statement we file with respect to our securities (whether for
our own account or for the account of any securityholder) such amount of shares
of common stock requested by the Current Stockholders (STAR) to be included
therein, subject to certain exceptions. Such registrations will be at our
expense, except that each selling stockholder will bear its pro rata share of
the underwriting discounts and commissions.

Pursuant to the Registration Rights Agreement, after this offering, certain
of the Current Stockholders (STAR) will continue to have the registration
rights described above with respect to 5,647,388 shares owned by them assuming
that the selling stockholders sell 19,194,103 shares in this offering.

In connection with the acquisition of Card Payment Systems, we entered into
a registration rights agreement with its two stockholders that became our
stockholders as a result of the merger (each, a Current Stockholder (CPS)). The
right of the Current Stockholders (CPS) to demand that we register shares of
our common stock acquired by such stockholders as a result of the merger has
expired. However, in the event that a Current Stockholder (CPS)'s employment
under his employment agreement with us is terminated without cause or he
terminates his employment with us for good reason, that stockholder will have a
one-time right to demand that we register the common stock held by him on the
effective date of his termination.

In addition, under the registration rights agreement with the Current
Stockholders (CPS), the Current Stockholders (CPS) have certain incidental
rights to require us to include in any registration statement we file

with respect to our securities (whether for our own account or for the account
of any security holder) such amounts of shares of common stock requested by the
Current Stockholders (CPS) to be included therein, subject to certain
exceptions. Such registrations will be at our expense, except that each selling
stockholder will bear its pro rata share of the underwriting discounts and
commissions. After this offering, the Current Stockholders (CPS) will continue
to have these registration rights with respect to 6,225,000 shares owned by
them.

UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS

This is a general discussion of United States federal tax consequences of
the acquisition, ownership and disposition of our common stock by a beneficial
holder that, for United States federal income tax purposes, is a nonresident
alien individual, a foreign corporation, a foreign partnership or a foreign
estate or trust (a Non-United States Holder). We have based this summary upon
the United States federal tax law in effect as of the date of this prospectus.
These laws may change, possibly retroactively.

We do not discuss all aspects of United States federal taxation that may be
important to you in light of your particular circumstances, such as special tax
rules that apply if you are a financial institution, insurance company, broker-
dealer, tax-exempt organization or investor holding our common stock as part of
a "straddle" or other integrated investment. We urge you to consult your tax
advisor about the United States federal tax consequences of acquiring, holding
and disposing of our common stock in your particular circumstances, as well as
any tax consequences that may arise under the laws of any foreign, state, local
or other taxing jurisdiction.

Dividends

Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States federal income tax at the rate of 30% or such
lower rate as may be provided by an applicable income tax treaty between the
United States and the country of which the Non-United States Holder is a tax
resident. If, however, the dividend is effectively connected with the conduct
of a trade or business in the United States by the Non-United States Holder,
the dividend will be exempt from withholding (subject to satisfaction of
applicable certification procedures) and will instead be subject to the United
States federal income tax imposed on net income on the same basis that applies
to United States persons generally (assuming, if required by an applicable tax
treaty, the dividends are attributable to a permanent establishment maintained
by such Non-United States Holder within the United States) and, for corporate
holders and under some circumstances, the branch profits tax. For this purpose,
dividends paid to an entity that is treated as fiscally transparent (e.g. a
partnership) for United States federal income tax purposes generally will be
treated as made to the ultimate beneficial owners of the entity.

To obtain a reduced rate of withholding under a treaty on dividends we pay,
a Non-United States Holder generally will be required to provide an Internal
Revenue Service Form W-8BEN certifying that Non-United States Holder's
entitlement to treaty benefits. In addition, in the case of common stock held
by a foreign partnership, the certification requirement generally will apply to
the partners of the partnership, and the partnership must provide certain
information, including a United States taxpayer identification number. Special
rules apply to determining whether persons holding common stock through a
fiscally transparent entity such as a partnership are eligible for treaty
benefits. The application of these rules depends on a holder's particular
circumstances and therefore such persons are urged to consult their tax
advisors regarding their eligibility for such benefits.

Gain on Disposition

A Non-United States Holder will generally not be subject to United States
federal income tax, including by way of withholding, on gain recognized on a
sale or other disposition of our common stock unless:

. the gain is effectively connected with the conduct of a trade or business
in the United States by the Non-United States Holder or

. in the case of a Non-United States Holder who is a nonresident alien
individual and who holds our common stock as a capital asset, that holder
is present in the United States for 183 or more days in the taxable year
of the disposition and certain other requirements are met.

Gain that is effectively connected with the conduct of a trade or business
in the United States by the Non-United States Holder will be subject to the
United States federal income tax imposed on net income on the same basis that
applies to United States persons generally, and, for corporate holders and
under some circumstances, the branch profits tax, but will not be subject to
withholding. Non-United States Holders should consult any applicable income tax
treaties that may provide for different rules.

United States Federal Estate Taxes

Our common stock that is owned or treated as owned by an individual who is
not a citizen or resident of the United States, as specially defined for United
States federal estate tax purposes, on the date of that person's death will be
included in his or her estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.

Information Reporting and Backup Withholding

Generally, we must report annually to the United States Internal Revenue
Service and to each Non-United States Holder the amount of dividends that we
paid to a holder and the amount of tax that we withheld on such dividends. This
information may also be made available to the tax authorities of a country in
which the Non-United States Holder resides.

United States information reporting requirements and backup withholding tax
will generally not apply to dividends that we pay on our common stock to a Non-
United States Holder if it provides a Form W-8BEN (or satisfies certain
documentary evidence requirements for establishing that it is a Non-United
States Holder) or otherwise establishes an exemption. Payments by a United
States office of a broker of the proceeds of a sale of our common stock are
subject to both backup withholding at a rate of 31% and information reporting,
unless the holder certifies its Non-United States Holder status under penalties
of perjury or otherwise establishes an exemption.

Information reporting requirements, but not backup withholding, will also
apply to payments of the proceeds from sales of our common stock by foreign
offices of United States brokers, or foreign brokers with certain types of
relationships to the United States, unless the broker has documentary evidence
in its records that the holder is a Non-United States Holder and certain other
conditions are met, or the holder otherwise establishes an exemption.

Backup withholding is not an additional tax. Any amounts that are withheld
under the backup withholding rules will be refunded or credited against the
Non-United States Holder's United States federal income tax liability, if the
required information is furnished to the United States Internal Revenue
Service.

UNDERWRITING

Salomon Smith Barney Inc., Goldman, Sachs & Co., William Blair & Company,
L.L.C., Banc of America Securities LLC, Bear, Stearns & Co. Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Morgan Keegan & Company, Inc.
are acting as representatives of the underwriters named below. Subject to the
terms and conditions stated in the underwriting agreement dated the date of
this prospectus, each underwriter named below has agreed to purchase, and we
and the selling stockholders have agreed to sell to that underwriter, the
number of shares set forth opposite the underwriter's name.

Number
of
Underwriter Shares
----------- ------

Salomon Smith Barney Inc. ............................................
Goldman, Sachs & Co...................................................
William Blair & Company, L.L.C........................................
Banc of America Securities LLC........................................
Bear, Stearns & Co. Inc...............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................................
Morgan Keegan & Company, Inc..........................................
----
Total.............................................................
====

The underwriting agreement provides that the obligations of the underwriters
to purchase the shares included in this offering are subject to approval of
legal matters by counsel and to other conditions. The underwriters are
obligated to purchase all the shares (other than those covered by the over-
allotment option described below) if they purchase any of the shares.

The underwriters propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
some of the shares to dealers at the public offering price less a concession
not to exceed $ per share. The underwriters may allow, and such dealers may
reallow, a concession not to exceed $ per share on sales to other dealers. If
all of the shares are not sold at the initial offering price, the
representatives may change the public offering price and the other selling
terms.

We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to 3,179,115 additional shares of
common stock at the public offering price less the underwriting discount. The
underwriters may exercise the option solely for the purpose of covering over-
allotments, if any, in connection with this offering. To the extent the option
is exercised, each underwriter must purchase a number of additional shares
approximately proportionate to that underwriter's initial purchase commitment.

We and our executive officers and directors have agreed that, for a period
of 90 days from the date of this prospectus, we and they will not, without the
prior written consent of Salomon Smith Barney Inc. and Goldman, Sachs & Co.,
dispose of or hedge any shares of our common stock or any securities
convertible into or exchangeable for our common stock. In addition, each of the
selling stockholders has agreed not to sell or distribute any shares of common
stock of Concord except under this offering within seven days prior to, or 90
days after, the date of this prospectus. Salomon Smith Barney Inc. and Goldman,
Sachs & Co. in their sole discretion may jointly release any of the securities
subject to these lock-up agreements at any time without notice.

The common stock is quoted on the Nasdaq National Market under the symbol
"CEFT."

The following table shows the underwriting discounts and commissions that we
and the selling stockholders are to pay to the underwriters in connection with
this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares of common
stock.

Paid by Concord Paid by Selling Stockholders
------------------------- ----------------------------------
No Exercise Full Exercise No Exercise Full Exercise
----------- ------------- -------------- ---------------

Per share.. $ $ $ $
Total......

In connection with the offering, Salomon Smith Barney Inc., on behalf of the
underwriters, may purchase and sell shares of common stock in the open market.
These transactions may include short sales, syndicate covering transactions and
stabilizing transactions. Short sales involve syndicate sales of common stock
in excess of the number of shares to be purchased by the underwriters in the
offering, which creates a syndicate short position. "Covered" short sales are
sales of shares made in an amount up to the number of shares represented by the
underwriters' over-allotment option. In determining the source of shares to
close out the covered syndicate short position, the underwriters will consider,
among other things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase shares through the
over-allotment option. Transactions to close out the covered syndicate short
position involve either purchases of the common stock in the open market after
the distribution has been completed or the exercise of the over-allotment
option. The underwriters may also make "naked" short sales of shares in excess
of the over-allotment option. The underwriters must close out any naked short
position by purchasing shares of common stock in the open market. A naked short
position is more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the shares in the open market
after pricing that could adversely affect investors who purchase in the
offering. Stabilizing transactions consist of bids for or purchases of shares
in the open market while the offering is in progress.

The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc. repurchases shares originally sold by that syndicate
member in order to cover syndicate short positions or make stabilizing
purchases.

Any of these activities may have the effect of preventing or retarding a
decline in the market price of the common stock. They may also cause the price
of the common stock to be higher than the price that would otherwise exist in
the open market in the absence of these transactions. The underwriters may
conduct these transactions on the Nasdaq National Market or in the over-the-
counter market, or otherwise. If the underwriters commence any of these
transactions, they may discontinue them at any time.

In addition, in connection with this offering, some of the underwriters and
selling group members may engage in passive market making transactions in the
common stock on the Nasdaq National Market prior to the pricing and completion
of the offering. Passive market making consists of displaying bids on the
Nasdaq National Market no higher than the bid prices of independent market
makers and making purchases at prices no higher than those independent bids and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the common stock during a specified period and
must be discontinued when that limit is reached. Passive market making may
cause the price of the common stock to be higher than the price that otherwise
would exist in the open market in the absence of those transactions. If the
underwriters commence passive market making transactions, they may discontinue
them at any time.

We estimate that our portion of the total expenses related to this offering
will be $1,200,000.

The underwriters have performed certain investment banking and advisory
services for us and the selling stockholders from time to time for which they
have received customary fees and expenses. The underwriters may, from time to
time, engage in transactions with and perform services for us in the ordinary
course of their business.

This offering is being made in conformity with certain applicable provisions
of Rule 2720 of the Conduct Rules of the National Association of Securities
Dealers, Inc. (NASD) for the following reasons: (1) As indicated under
"Principal and Selling Stockholders," Bank of America Corporation, the parent
company of Banc of America Securities LLC, one of the underwriters, is a
selling stockholder in the offering and will receive more than ten percent
(10%) of the net proceeds of the offering. Under Rule 2710(c)(8) of the Conduct
Rules of the NASD, if more than ten percent (10%) of the net proceeds of a
public offering of securities is to be paid to members of the NASD that are
participating in the offering, or affiliated or associated persons, the
offering must be made in conformity with certain applicable provisions of Rule
2720 of the Conduct Rules of

the NASD; and (2) As of April 30, 2001, certain principals (including Richard
P. Kiphart, a director of Concord) of William Blair & Company, L.L.C., one of
the underwriters, beneficially owned an aggregate of 8,319,408 shares of our
common stock, which will represent 3.4% of our outstanding common stock upon
the closing of this offering, assuming that the underwriters' over-allotment
option has not been exercised. In addition, certain mutual funds affiliated
with, and certain discretionary accounts advised by, William Blair & Company,
L.L.C. beneficially own shares of common stock.

A prospectus in electronic format may be made available on the websites
maintained by one or more underwriters. The representatives may agree to
allocate a number of shares to underwriters for sale to their online brokerage
account holders. The representatives will allocate shares to underwriters that
may make Internet distributions on the same basis as other allocations. In
addition, shares may be sold by the underwriters to securities dealers who
resell shares to online brokerage account holders.

We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to make because of
any of those liabilities.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us
by Marcia E. Heister, our General Counsel, and for the underwriters by Cleary,
Gottlieb, Steen & Hamilton, New York, New York. Marcia E. Heister is General
Counsel and Assistant Secretary of Concord and holds options for shares of
Concord's common stock.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 2000 and 1999 and for each of the three
years in the period ended December 31, 2000, to the extent indicated in their
report. We have included our consolidated financial statements in this
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (SEC). You may read and
copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549 or at the SEC's public reference rooms in
Chicago, Illinois or New York, New York. Please call the SEC at (800) SEC-0330
for further information on the operation of the public reference rooms. Our SEC
filings are also available to the public over the Internet on the web site of
the SEC at http://www.sec.gov and at the office of the National Association of
Securities Dealers, Inc. at 1735 K Street, Washington, D.C. 20006.

The SEC allows us to "incorporate by reference" the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and information that we later file with the SEC
will automatically update and supersede this information. We incorporate by
reference into this prospectus the following documents which we filed with the
SEC (SEC file number 000-13848):

. Our Annual Report on Form 10-K for our fiscal year ended December 31,
2000.

. Our Current Report on Form 8-K filed on February 14, 2001.

. Amendment No. 1 to our Current Report on Form 8-K filed on April 16,
2001.

. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.

. The description of our common stock that is contained in our Registration
Statement on Form 8-A filed on September 4, 1985, together with any and
all amendments and reports filed for the purpose of updating such
description.

In addition, all documents subsequently filed by Concord pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the
offering shall be deemed to be incorporated by reference into this prospectus.

This prospectus is part of a registration statement on Form S-3 that we
filed with the SEC.

Any statement contained in this prospectus or in a document incorporated by
reference is modified or superseded for purposes of this prospectus to the
extent that a statement contained in any such document modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.

You may request a copy of these filings, at no cost, by writing us at the
following regular or email address or by calling us at the following telephone
number:

Concord EFS, Inc.
Attn: Investor Relations
2525 Horizon Lake Drive
Suite 120
Memphis, Tennessee 38133
(901) 371-8000
Investor@efsnb.com

CONCORD EFS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Financial Statements at December 31, 2000 and December 31, 1999 and for
each of the three years in the period ended December 31, 2000

Consolidated Balance Sheets............................................ F-2

Consolidated Statements of Income...................................... F-3

Consolidated Statements of Stockholders' Equity........................ F-4

Consolidated Statements of Cash Flows.................................. F-5

Notes to Consolidated Financial Statements............................. F-6

Report of Ernst & Young LLP (Concord EFS, Inc. years ended 1998, 1999
and 2000)............................................................. F-22

Report of Deloitte & Touche LLP (Star Systems, Inc. years ended 1999
and 2000)............................................................. F-23

Report of PricewaterhouseCoopers LLP (HONOR Technologies, Inc. year
ended 1998)........................................................... F-24

Report of Arthur Andersen LLP (Star System, Inc. year ended 1998)...... F-25

Financial Statements at March 31, 2001, December 31, 2000 and for each of
the three month periods ended March 31, 2001 and March 31, 2000

Condensed Consolidated Balance Sheets (unaudited)...................... F-26

Condensed Consolidated Statements of Income (unaudited)................ F-27

Condensed Consolidated Statements of Cash Flows (unaudited)............ F-28

Notes to Condensed Consolidated Financial Statements (unaudited)....... F-29

F-1

CONCORD EFS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31
----------------------
2000 1999
---------- ----------
(in thousands)

ASSETS
Current assets
Cash and cash equivalents............................ $ 231,762 $ 173,099
Securities available for sale........................ 649,425 458,201
Accounts receivable, net............................. 307,756 181,452
Inventories.......................................... 15,087 18,076
Prepaid expenses and other current assets............ 22,125 12,844
Deferred income taxes................................ 6,732 9,888
---------- ----------
Total current assets............................... 1,232,887 853,560
Loans, net............................................. 78,654 30,922
Property and equipment, net............................ 214,662 186,567
Goodwill, net.......................................... 150,049 154,411
Other intangible assets, net........................... 75,644 57,186
Other assets........................................... 9,769 22,849
---------- ----------
Total assets....................................... $1,761,665 $1,305,495
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and other liabilities............... $ 296,980 $ 144,701
Deposits............................................. 125,834 100,475
Accrued liabilities.................................. 51,717 59,939
Income taxes payable................................. -- 19,816
Current maturities of long-term debt................. 3,357 3,357
---------- ----------
Total current liabilities.......................... 477,888 328,288
Long-term debt......................................... 109,911 89,268
Deferred income taxes.................................. 31,871 15,131
Other liabilities...................................... 6,412 14,785
---------- ----------
Total liabilities.................................. 626,082 447,472
---------- ----------
Commitments and contingent liabilities................. -- --
Minority interest in subsidiary........................ 3,052 2,602
---------- ----------
Stockholders' equity
Common stock, $0.33 1/3 par value; authorized 500,000
shares, issued and outstanding 241,457 at December
31, 2000 and 238,579 at December 31, 1999........... 80,485 79,526
Additional paid-in capital........................... 429,578 373,965
Retained earnings.................................... 623,944 414,462
Accumulated other comprehensive loss................. (1,476) (12,532)
---------- ----------
Total stockholders' equity......................... 1,132,531 855,421
---------- ----------
Total liabilities and stockholders' equity......... $1,761,665 $1,305,495
========== ==========

See Notes to Consolidated Financial Statements.

F-2

CONCORD EFS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Year ended December 31
--------------------------------
2000 1999 1998
---------- ---------- --------
(in thousands, except per
share data)

Revenue..................................... $1,407,140 $1,060,010 $812,824
Cost of operations.......................... 1,009,954 735,467 552,469
Selling, general and administrative
expenses................................... 91,995 92,334 90,936
Acquisition and restructuring charges....... 11,691 36,189 --
---------- ---------- --------
Operating Income........................ 293,500 196,020 169,419
Other income (expense):
Interest income............................. 48,182 29,456 19,984
Interest expense............................ (10,939) (13,205) (17,380)
Equity in earnings of unconsolidated
subsidiary................................. -- -- 281
---------- ---------- --------
Income Before Taxes and Minority
Interest............................... 330,743 212,271 172,304
Income taxes................................ 120,220 82,906 65,709
---------- ---------- --------
Income Before Minority Interest........... 210,523 129,365 106,595
Minority interest in net income of
subsidiary................................. 597 124 --
---------- ---------- --------
Net Income.................................. $ 209,926 $ 129,241 $106,595
========== ========== ========
Pro forma provision for income taxes........ 260 2,484 458
---------- ---------- --------
Pro forma Net Income.................... $ 209,666 $ 126,757 $106,137
========== ========== ========
Per Share Data:
Basic earnings per share--historical...... $ 0.88 $ 0.56 $ 0.48
========== ========== ========
Diluted earnings per share--historical.... $ 0.85 $ 0.54 $ 0.46
========== ========== ========
Basic earnings per share--pro forma....... $ 0.88 $ 0.55 $ 0.47
========== ========== ========
Diluted earnings per share--pro forma..... $ 0.85 $ 0.53 $ 0.46
========== ========== ========
Average Shares Outstanding:
Basic shares............................. 239,179 231,843 224,235
========== ========== ========
Diluted shares........................... 247,997 239,867 231,396
========== ========== ========

See Notes to Consolidated Financial Statements.

F-3

CONCORD EFS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Accumulated
Common Stock Additional Other
--------------- Paid-In Retained Comprehensive
Shares Amount Capital Earnings Income (Loss) Total
------- ------- ---------- -------- ------------- ----------
(in thousands)

Balance at January 1,
1998................... 100,978 $33,659 $154,955 $186,817 $ 99 $ 375,530
Exercise of stock
options............... 413 138 6,458 6,596
Three for two stock
split................. 48,341 16,114 (16,114)
Tax benefit of
nonqualifying stock
option exercises...... 3,630 3,630
Activity by pooled
subsidiaries.......... 824 (997) (173)
Net income............. 106,595 106,595
Cumulative effect of
accounting change, net
of tax of $421........ 776 776
Change in net
unrealized gain on
securities available
for sale, net of tax
of $158............... 294 294
----------
Comprehensive income... 107,665
------- ------- -------- -------- -------- ----------
Balance at December 31,
1998................... 149,732 49,911 149,753 292,415 1,169 493,248
Exercise of stock
options............... 2,664 888 21,714 22,602
Three for two stock
split................. 79,435 26,478 (26,478)
Offering of common
stock................. 6,748 2,249 205,569 207,818
Tax benefit of
nonqualifying stock
option exercises...... 23,407 23,407
Activity by pooled
subsidiaries.......... (7,194) (7,194)
Net income............. 129,241 129,241
Change in net
unrealized loss on
securities available
for sale, net of tax
of $7,764............. (13,701) (13,701)
----------
Comprehensive income... 115,540
------- ------- -------- -------- -------- ----------
Balance at December 31,
1999................... 238,579 79,526 373,965 414,462 (12,532) 855,421
Exercise of stock
options............... 2,793 931 25,962 26,893
Tax benefit of
nonqualifying stock
option exercises...... 27,955 27,955
Stock issued for
purchase acquisition.. 85 28 1,696 1,724
Activity by pooled
subsidiaries.......... (444) (444)
Net income............. 209,926 209,926
Change in net
unrealized loss on
securities available
for sale, net of tax
of $5,536............. 11,056 11,056
----------
Comprehensive income... 220,982
------- ------- -------- -------- -------- ----------
Balance at December 31,
2000................... 241,457 $80,485 $429,578 $623,944 $ (1,476) $1,132,531
======= ======= ======== ======== ======== ==========

See Notes to Consolidated Financial Statements.

F-4

CONCORD EFS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31
-------------------------------
2000 1999 1998
--------- --------- ---------
(in thousands)

Operating activities
Net income................................... $ 209,926 $ 129,241 $ 106,595
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest in subsidiary.............. 597 124 --
Equity in earnings of unconsolidated
subsidiary.................................. -- -- (281)
Provision for losses on accounts receivable.. 5,039 3,474 3,654
Depreciation and amortization................ 96,615 82,682 70,729
Deferred income taxes........................ 13,610 (616) 945
Net realized gain on sales of securities
available for sale.......................... (2,333) (230) (1,234)
Restructuring charges........................ -- 8,152 --
Changes in operating assets and liabilities:
Accounts receivable.......................... (130,682) (58,846) (443)
Inventories.................................. 2,989 (6,680) (5,498)
Prepaid expenses and other current assets.... (9,577) (3,656) (1,620)
Accounts payable and other liabilities....... 153,309 78,260 23,987
Other, net................................... (5,995) 4,951 (2,996)
--------- --------- ---------
Net cash provided by operating activities.... 333,498 236,856 193,838
Investing activities
Acquisition of securities available for
sale........................................ (308,157) (273,603) (240,783)
Proceeds from sales of securities available
for sale.................................... 106,771 51,051 105,617
Proceeds from maturity of securities
available for sale.......................... 29,889 31,105 47,183
Acquisition of securities held to maturity... -- -- (9,630)
Proceeds from maturity of securities held to
maturity.................................... -- -- 4,843
Purchases of loans........................... (48,324) (15,781) (13,683)
Net change in loans.......................... (69) 710 (127)
Acquisition of property and equipment........ (87,113) (67,596) (70,652)
Purchased merchant contracts................. (30,640) (26,869) (16,988)
Other investing activity..................... (2,899) (16,733) (24,620)
--------- --------- ---------
Net cash used in investing activities........ (340,542) (317,716) (218,840)
Financing activities
Net increase in deposits..................... 25,359 65,568 24,769
Repayment under credit agreement (net)....... -- (21,500) (8,425)
Proceeds from notes payable.................. 42,000 12,500 68,925
Payments on notes payable.................... (22,326) (138,873) (52,876)
Payments on leases payable................... (2,874) (4,017) (4,435)
Proceeds from exercise of stock options...... 26,893 22,602 6,596
Proceeds from offering of common stock....... -- 207,818 --
Activity by pooled subsidiaries.............. (3,345) (4,293) (173)
--------- --------- ---------
Net cash provided by financing activities..... 65,707 139,805 34,381
--------- --------- ---------
Net increase in cash and cash equivalents..... 58,663 58,945 9,379
Cash and cash equivalents at beginning of
year........................................ 173,099 114,154 104,775
--------- --------- ---------
Cash and cash equivalents at end of year...... $ 231,762 $ 173,099 $ 114,154
========= ========= =========
Disclosure of cash flow information:
Interest paid................................. $ 10,698 $ 13,943 $ 17,622
========= ========= =========
Income taxes paid............................. $ 96,419 $ 48,494 $ 59,684
========= ========= =========

See Notes to Consolidated Financial Statements.

F-5

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2000

Note A--Significant Accounting Policies

Nature of Operations: Concord is a vertically-integrated electronic
transaction processor. Concord acquires, routes, authorizes, captures, and
settles all types of non-cash payment transactions for retailers and financial
institutions nationwide. Concord's primary activities consist of (1) Payment
Services, which provides payment processing services for credit card, debit
card, and electronic benefits transfer card transactions for retailers; and (2)
Network Services, which provides network and ATM processing services for
financial institutions.

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

Business Combinations: The consolidated financial statements have been
restated for all transactions accounted for as poolings of interests to combine
the financial position, results of operations, and cash flows of the respective
companies for all periods presented. Transactions accounted for under the
purchase method of accounting reflect the net assets of the acquired company at
fair value on the date of acquisition, and the excess of the purchase price
over fair value of the assets is recorded as goodwill. The results of
operations of the purchased company are included since the date of acquisition.
Concord owns a majority interest of 74% in Primary Payment Systems, Inc. (PPS),
a risk management service, as a result of Concord's acquisitions of STAR and
Cash Station. Concord has consolidated PPS in the consolidated financial
statements in 2000 and 1999. Prior to 1999, Concord considered its majority
ownership in PPS as temporary; therefore, its investment was accounted for
under the equity method of accounting.

Use of Estimates: The preparation of the consolidated financial statements
in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.

Cash Equivalents: Concord considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents. Cash
equivalents consist primarily of federal funds sold through Concord's financial
institutions and money market funds which invest in commercial paper,
repurchase agreements, and instruments of domestic and foreign banks and other
financial institutions.

Accounts Receivable: The majority of Concord's accounts receivable is
related to the gross settlement dollars due from associations, networks, and
trucking company customers. Revenue from most Payment Services customers is
collected daily from settlement funds due to Concord's merchants. In addition,
Concord records an account receivable when revenue is recognized from sales of
POS equipment or transactions by Concord's Payment Services and Network
Services customers.

Securities Available for Sale: Management determines the appropriate
classification of debt securities at the time of purchase and evaluates such
designation as of each balance sheet date. Securities available for sale are
stated at fair value, with the unrealized gains and losses, net of tax,
reported as a component of accumulated other comprehensive income (loss) in
stockholders' equity.

The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity, or in the case of mortgage-
backed securities, over the estimated life of the security. Such amortization,
interest and dividends are included in interest income from investments. The
cost of securities sold is based on the specific identification method.

Inventories: Inventories are stated at the lower of cost (first-in, first-
out method) or market. Inventories consist primarily of POS terminals.

F-6

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Loans: A substantial portion of the loan portfolio is represented by
mortgage loans in Memphis, Tennessee and the surrounding communities purchased
through Concord's financial institution subsidiaries (the Banks). The Banks
originate loans to home builders in the construction industry as well as a
limited number of commercial and consumer loans. The ability of Concord's
debtors to honor their contracts is dependent upon the real estate and general
economic conditions of this area.

Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off generally are reported at their outstanding
unpaid principal balances adjusted for charge-offs and the allowance for loan
losses. Interest income is accrued on the unpaid principal balance.

The accrual of interest on loans is discontinued at the time the loan is 90
days delinquent. In all cases, loans are placed on non-accrual or charged off
at an earlier date if collection of principal or interest is considered
doubtful.

Interest income is subsequently recognized on impaired loans only to the
extent cash payments in excess of past due principal amounts are received.
Loans are returned to accrual status when all the principal and interest
amounts contractually due are brought current.

The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management determines that a loan
balance is uncollectible. Subsequent recoveries, if any, are credited to the
allowance.

Property and Equipment: Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.

Goodwill and Other Intangible Assets: Goodwill and other intangible assets
are stated at cost. Amortization is computed using the straight-line basis over
an estimated useful life of 10 to 25 years for goodwill, 6 years for purchased
merchant contracts, and 5 to 15 years for intangibles other than purchased
merchant contracts, such as customer lists.

Impairment of Long-Lived Assets: Management evaluates long-lived assets,
including property and equipment, goodwill, and certain other intangible assets
to be held and used by Concord for impairment whenever events or changes in
circumstances indicate that the carrying value of the assets may not be
recoverable. Impairment losses are recognized if expected discounted future
cash flows of the related assets are less than their carrying values.
Measurement of an impairment loss is based on the fair value of the asset.

Income Taxes: Concord accounts for income taxes using the liability method.

Revenue Recognition: Revenue from credit card and other transaction
processing activities is recorded when the service is provided, gross of
interchange and network fees charged to Concord which are recorded as a cost of
operations at the same time the services are provided.

Revenue from service contracts and product sales is recognized when the
service is provided or the equipment is shipped. Service contracts and related
sales include all revenue under system service contracts, including revenue
from sales of terminal hardware when the contract includes such sales.

Concord may incur losses from cardholder disputes in the case of merchant
insolvency or bankruptcy. Based on historical losses, Concord believes its
allowance for doubtful accounts is adequate. The allowance for doubtful
accounts is established as losses are estimated to have occurred through a
provision for bad debts charged to earnings. Losses are charged against the
allowance when management confirms that a receivable balance is uncollectible.
Subsequent recoveries, if any, are credited to the allowance.

Stock-Based Compensation: Concord grants options for a fixed number of
shares to employees with an exercise price equal to the fair value of the
shares at the date of the grant. These stock option grants are accounted for in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees;"
accordingly, Concord recognizes no compensation expense for the stock option
grants.

F-7

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Reclassification: Certain 1999 and 1998 amounts have been reclassified to
conform to the 2000 presentation.

Note B--Business Combinations

On February 1, 2001, Concord acquired STAR, a debit network. The acquisition
was accounted for as a pooling of interests transaction in which Concord issued
approximately 24.0 million shares of its common stock. STAR was formed as a
result of an Agreement of Mergers and Reorganization (the Agreement) dated
October 2, 1998 effective March 1, 1999 between Honor Technologies, Inc. (HTI),
organized under the laws of the State of Delaware, and Star System, Inc. (SSI),
a nonprofit mutual benefit corporation under the laws of the State of
California. As a result of the Agreement, HTI and SSI became wholly owned
subsidiaries of STAR in a combination accounted for as a pooling of interests.

On August 21, 2000 Concord acquired Cash Station, Inc., a debit network. The
acquisition was accounted for as a pooling of interests transaction in which
Concord issued 2.5 million shares of its common stock.

On January 31, 2000 Concord acquired National Payment Systems Inc. d/b/a
Card Payment Systems (CPS), a reseller of payment processing services. The
acquisition was accounted for as a pooling of interests transaction in which
Concord issued 6.2 million shares of its common stock.

On February 26, 1999 Concord acquired Electronic Payment Services, Inc.
(EPS), a payment processor and operator of a debit network. The acquisition was
accounted for as a pooling of interests transaction in which Concord issued
45.1 million shares of its common stock.

The following table presents selected financial information split among
Concord, CPS, Cash Station, STAR, SSI, and HTI:

Year ended December 31
--------------------------------
2000 1999 1998
---------- ---------- --------
(in thousands, except per
share data)

Revenue:
Concord................................ $1,215,893 $ 830,059 $634,511
CPS(1)................................. 4,047 41,909 15,915
Cash Station(2)........................ 9,494 17,973 16,121
STAR(3)................................ 184,866 152,748 --
SSI(4)................................. -- 8,851 48,790
HTI(5)................................. -- 14,229 101,412
Intercompany eliminations(6)........... (7,160) (5,759) (3,925)
---------- ---------- --------
Combined................................. $1,407,140 $1,060,010 $812,824
========== ========== ========
Pro forma net income:
Concord................................ 186,009 101,652 88,695
CPS(1)................................. 650 7,096 1,309
Cash Station(2)........................ 816 1,222 1,052
STAR(3)................................ 22,451 16,409 --
SSI(4)................................. -- 1,624 6,842
HTI(5)................................. -- 1,238 8,697
Pro forma provision for CPS income
taxes(7).............................. (260) (2,484) (458)
---------- ---------- --------
Combined............................... $ 209,666 $ 126,757 $106,137
========== ========== ========
Pro forma basic earnings per share
combined................................ $ 0.88 $ 0.55 $ 0.47
========== ========== ========
Pro forma diluted earnings per share
combined................................ $ 0.85 $ 0.53 $ 0.46
========== ========== ========

F-8

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

--------
(1) The 2000 amounts reflect the results of CPS operations from January 1, 2000
through January 31, 2000 (unaudited). The CPS results of operations from
February 1, 2000 to December 31, 2000 are included in Concord amounts.
Results for the years ended December 31, 1999 and 1998 are unaudited.
(2) The 2000 amounts reflect the results of Cash Station operations from
January 1, 2000 through June 30, 2000 (unaudited). Results of operations
from July 1, 2000 to December 31, 2000 are included in Concord amounts.
(3) The 2000 amounts reflect the results of STAR operations from January 1,
2000 through December 31, 2000. The 1999 amounts reflect the results of
STAR operations from March 1, 1999 to December 31, 1999.
(4) The 1999 amounts reflect the results of SSI operations from January 1, 1999
through February 28, 1999 (unaudited). Results of operations from March 1,
1999 to December 31, 1999 are included in STAR amounts.
(5) The 1999 amounts reflect the results of HTI operations from January 1, 1999
through February 28, 1999 (unaudited). Results of operations from March 1,
1999 to December 31, 1999 are included in STAR amounts.
(6) All material activity between Concord and STAR has been eliminated.
(7) The results of operations include pro forma income taxes that would have
been required if CPS had been a taxable corporation. The former owners of
CPS were responsible for income taxes for the periods prior to the merger.

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

Acquisition expenses and restructuring charges were $11.7 million for the
year ended December 31, 2000. These pre-tax expenses and charges consisted of
advisory, legal, and accounting fees incurred in the acquisitions of CPS and
Cash Station, and severance and network de-conversion costs incurred in the
acquisition of Cash Station. Acquisition and restructuring charges of $36.2
million were incurred in the year ended December 31, 1999 in connection with
the acquisition of EPS. The pre-tax expenses and charges were for acquisition
expenses, communications conversion costs, asset write-offs, signature debit
conversion, severance costs, and other. As of December 31, 2000 approximately
$3.4 million of these expenses related to Cash Station were accrued but unpaid.

The following table details the reserve balance, in millions, from the
various acquisition expenses and charges:

2000
Expenses
Cash or Balance & Charges Balance
Description Non-cash 12/31/99 Accrued Activity 12/31/00
----------- -------- -------- --------- -------- --------

EPS:
Communications conversion
costs......................... Cash $11.3 $ -- $11.3 $ --
Severance and other............ Cash 1.4 -- 1.4 --
CPS:
Advisory, legal and
accounting.................... Cash -- 0.8 0.8 --
Cash Station:
Compensation and severance..... Cash -- 4.2 3.2 1.0
Legal and accounting fees...... Cash -- 2.2 2.2 --
Network de-conversion costs.... Cash -- 4.5 2.1 2.4
----- ----- ----- -----
$12.7 $11.7 $21.0 $ 3.4
===== ===== ===== =====

F-9

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In addition to the pre-tax charges, a tax component write-off of $1.3
million for impaired state tax net operating losses of EPS was incurred in
1999.

Note C--Accounts Receivable, Net

Accounts receivable, net, consisted of the following at December 31:

2000 1999
-------- --------
(in thousands)

Receivable from VISA and MasterCard...................... $179,103 $ 70,857
Receivable from trucking companies....................... 40,871 32,078
Other accounts receivable................................ 90,801 81,246
-------- --------
310,775 184,181
Allowance for doubtful accounts.......................... (3,019) (2,729)
-------- --------
Accounts receivable, net................................. $307,756 $181,452
======== ========

Note D--Securities Available for Sale

The following is a summary of securities available for sale:

Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
(in thousands)

December 31, 2000
U.S. government and agency
securities.......................... $114,988 $ 584 $ (2,279) $113,293
Mortgage-backed securities........... 169,856 458 (1,811) 168,503
Corporate securities................. 169,859 1,412 (1,928) 169,343
Municipal securities................. 173,989 1,977 (1,464) 174,502
-------- ------ -------- --------
Total debt securities.............. 628,692 4,431 (7,482) 625,641
Equity securities.................... 23,285 896 (397) 23,784
-------- ------ -------- --------
$651,977 $5,327 $ (7,879) $649,425
======== ====== ======== ========
December 31, 1999
U.S. government and agency
securities.......................... $ 71,526 $ 49 $ (3,388) $ 68,187
Mortgage-backed securities........... 167,356 -- (7,830) 159,526
Corporate securities................. 70,926 -- (1,123) 69,803
Municipal securities................. 157,246 109 (7,472) 149,883
-------- ------ -------- --------
Total debt securities.............. 467,054 158 (19,813) 447,399
Equity securities.................... 10,802 -- -- 10,802
-------- ------ -------- --------
$477,856 $ 158 $(19,813) $458,201
======== ====== ======== ========

The scheduled maturities of debt securities at December 31, 2000 were as
follows:

Amortized Fair
Cost Value
--------- --------
(in thousands)

Due in one year or less.................................. $ 36,688 $ 36,573
Due in one to five years................................. 97,777 97,262
Due in five to ten years................................. 117,286 117,269
Due after ten years...................................... 376,941 374,537
-------- --------
$628,692 $625,641
======== ========

F-10

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Expected maturities on mortgage-backed securities may differ from contractual
maturities because the issuers of the securities may have the right to prepay
obligations without prepayment penalties. Securities carried at approximately
$110.4 million at December 31, 2000 were pledged as collateral for the Federal
Home Loan Bank advances.

Note E--Loans, Net

Loans, net, consisted of the following at December 31:

2000 1999
-------- --------
(in thousands)

Mortgage (1-4 family).................................... $ 57,501 $ 25,069
Small business administration............................ 12,102 --
Construction and development............................. 7,376 3,594
Commercial............................................... 2,154 2,597
Consumer................................................. 496 114
-------- --------
79,629 31,374
Allowance for loan losses................................ (975) (452)
-------- --------
Loans, net............................................... $ 78,654 $ 30,922
======== ========

Note F--Property and Equipment, Net

Property and equipment, net, consisted of the following at December 31:

2000 1999
--------- ---------
(in thousands)

Land................................................... $ 1,050 $ 1,050
Building & improvements................................ 16,050 15,862
Computer facilities and equipment...................... 328,748 289,551
Furniture and equipment................................ 70,545 72,466
Leasehold improvements................................. 17,807 15,810
--------- ---------
434,200 394,739
Accumulated depreciation............................... (219,538) (208,172)
--------- ---------
Property and equipment, net............................ $ 214,662 $ 186,567
========= =========

Depreciation expense was $61.4 million, $54.2 million, and $48.1 million for
the years ended December 31, 2000, 1999, and 1998, respectively.

Note G--Goodwill, Net

Goodwill, net, consisted of the following at December 31:

2000 1999
--------- ---------
(in thousands)

Goodwill............................................... $ 203,439 $ 197,562
Accumulated amortization............................... (53,390) (43,151)
--------- ---------
Goodwill, net.......................................... $ 150,049 $ 154,411
========= =========

Amortization expense related to goodwill was $9.5 million, $9.3 million, and
$9.5 million for the years ended December 31, 2000, 1999, and 1998,
respectively.

F-11

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note H--Other Intangible Assets, Net

Other intangible assets, net, consisted of the following at December 31:

2000 1999
-------- --------
(in thousands)

Purchased merchant contracts............................. $ 90,883 $ 60,413
Customer lists........................................... 33,644 31,144
-------- --------
124,527 91,557
Accumulated amortization................................. (48,883) (34,371)
-------- --------
Other intangible assets, net............................. $ 75,644 $ 57,186
======== ========

Total amortization expense related to other intangible assets was $14.9
million, $9.8 million, and $8.8 million for the years ended December 31, 2000,
1999, and 1998, respectively.

Amortization expense on purchased merchant contracts is recognized on a
straight-line basis over an estimated useful life of six years. Amortization
expense associated with purchased merchant contracts was $12.7 million, $7.7
million, and $6.1 million for the years ended December 31, 2000, 1999, and
1998, respectively.

Customer lists consist of contract rights including agreements not to
compete and other values assigned to the assets. Amortization expense
associated with these assets was approximately $2.2 million, $2.1 million, and
$2.7 million for the years ended December 31, 2000, 1999, and 1998,
respectively.

Note I--Commitments and Contingencies

Concord licenses a portion of its computer software under various
noncancelable agreements, which expire on various dates through 2002. Software
license expense under these agreements totaled approximately $4.6 million, $4.2
million, and $3.3 million during 2000, 1999, and 1998 respectively.

Concord rents office facilities and equipment under non-cancelable operating
leases expiring at various dates through 2011. Rental expense for operating
leases amounted to approximately $8.0 million, $8.8 million, and $7.5 million
for the years ended December 31, 2000, 1999, and 1998, respectively.

On May 22, 1998 Concord entered into a $15.0 million operating lease
agreement replacing the remainder of the original subrental agreement on
offices in Wilmington, Delaware. The terms for the operating lease provide for
an initial seven-year term through 2005 with an option to renew for two
additional five-year terms.

Future minimum lease payments for operating leases and software license
agreements with initial or remaining terms in excess of one year at December
31, 2000 are as follows:

Software Operating
Licenses Leases
-------- ---------
(in thousands)

2001...................................................... $1,236 $ 8,906
2002...................................................... 852 9,368
2003...................................................... 675 7,155
2004...................................................... 675 4,454
2005...................................................... 761 3,604
Thereafter................................................ 338 14,097
------ -------
Total future payments..................................... $4,537 $47,584
====== =======

F-12

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Concord has available $55.0 million in unsecured lines of credit with other
financial institutions, which expire on various dates throughout 2005. No
amounts were outstanding on these lines at December 31, 2000 or 1999.

Concord is a party to various claims and litigation in the normal course of
business. None of these claims is expected to have a material effect on
Concord's consolidated financial position or results of operations.

Note J--Long-Term Debt

Long-term debt consisted of the following at December 31, 2000 and 1999:

2000 1999
-------- -------
(in thousands)

Federal Home Loan Bank (FHLB) advances.................... $ 99,000 $75,000
Notes payable............................................. 14,268 17,625
-------- -------
Total long-term debt...................................... 113,268 92,625
Current portion of notes payable.......................... (3,357) (3,357)
-------- -------
Total long-term debt, less current portion.............. $109,911 $89,268
======== =======

FHLB advances were at fixed rates ranging from 4.75% to 6.40% at December
31, 2000 with a final maturity date in 2008. Concord had approximately $23.7
million available on unused lines of credit with the FHLB at December 31, 2000.

Notes payable were at a variable rate of LIBOR plus 0.50%, 7.085% at
December 31, 2000, maturing on March 15, 2003. Notes payable were
collateralized by a security interest in all former HTI member contracts. The
original balance of notes payable was $23.5 million which was repayable in
monthly installments with a final principal payment on March 15, 2003.

Concord repaid an unsecured note to a former stockholder during 1999 in the
amount of $125.0 million. The interest rate on the debt was 6.40%.

Future maturities of FHLB advances and notes payable are as follows:

FHLB Notes
Advances Payable
-------- -------
(in thousands)

Year ending December 31:
2001...................................................... $ -- $ 3,357
2002...................................................... -- 3,357
2003...................................................... 10,000 7,554
2004...................................................... -- --
2005...................................................... -- --
Thereafter................................................ 89,000 --
------- -------
Total future payments................................... $99,000 $14,268
======= =======

Note K--Employee Benefit Plans

Effective March 1, 1998 Concord established the Concord EFS Retirement
Savings Plan (the Concord Plan). Employees who have reached the age of 21 and
completed one year of service with Concord are eligible to participate in the
Concord Plan. The Concord Plan provides for voluntary tax-deferred
contributions by

F-13

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

eligible employees and discretionary contributions by Concord. Total expenses
related to the Concord Plan were approximately $2.7 million, $2.0 million, and
$0.1 million for the years ended December 31, 2000, 1999, and 1998,
respectively.

The Electronic Payment Services, Inc. Retirement Savings Plan (the EPS Plan)
covered substantially all employees of EPS. Prior to February 26, 1999, when
the EPS Plan was terminated, each qualified employee received a discretionary
company profit-sharing contribution at December 31 of the plan year. In
addition, the EPS Plan included voluntary tax-deferred employee contributions
and discretionary contributions by EPS. Total expenses related to the EPS Plan
were approximately $0.5 million and $3.7 million for the years ended December
31, 1999 and 1998, respectively.

STAR maintains a defined contribution plan (the STAR Plan). Employees of
STAR are eligible to become participants in the STAR Plan upon completion of
three months employment and upon attaining the age of 21 1/2. Participation in
the STAR plan is voluntary. Total expenses related to the STAR Plan were $3.5
million, $3.0 million, and $1.6 million for the years ended December 31, 2000,
1999, and 1998, respectively. The STAR Plan will be terminated as of December
31, 2001 and all participants will become participants in the Concord Plan.

STAR maintains a deferred compensation trust to provide supplemental
retirement benefits to the former President and Chief Executive Officer of HTI.
The balance of this retirement account, plus accrued interest, totaled
approximately $1.5 million as of December 31, 2000 and 1999 and was included
with other assets and other liabilities in the consolidated financial
statements.

Note L--Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of Concord's deferred tax liabilities and assets at December 31 are as follows:

2000 1999
------- -------
(in thousands)

Deferred tax liabilities:
Capitalization of internal use software.................. $17,359 $17,060
Restructuring charges.................................... 179 (6,180)
Depreciation............................................. 10,761 4,000
Intangible amortization.................................. 1,019 3,581
Purchased merchant contracts............................. 1,436 387
Other.................................................... 1,117 (3,717)
------- -------
Total deferred tax liabilities......................... 31,871 15,131
------- -------
Deferred tax assets:
Net unrealized loss on securities available for sale..... 837 7,123
Nondeductible reserves................................... -- 1,802
Bad debt allowance....................................... 2,132 730
Inventories.............................................. 123 44
Restructuring charges.................................... 1,470 --
Depreciation............................................. 370 166
Other.................................................... 1,800 23
------- -------
Total deferred tax assets.............................. 6,732 9,888
------- -------
Net deferred tax liability............................. $25,139 $ 5,243
======= =======

F-14

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The components of the provision (benefit) for income taxes for the three
years ended December 31 are as follows:

2000 1999 1998
-------- ------- -------
(in thousands)

Current
Federal......................................... $102,942 $73,428 $59,529
State........................................... 3,668 10,094 5,235
-------- ------- -------
106,610 83,522 64,764
-------- ------- -------
Deferred
Federal......................................... 11,816 (1,930) (100)
State........................................... 1,794 1,314 1,045
-------- ------- -------
13,610 (616) 945
-------- ------- -------
$120,220 $82,906 $65,709
======== ======= =======

The reconciliation of income taxes computed at the U.S. federal statutory
tax rate of 35% to income tax expense for the three years ended December 31 is
as follows:

2000 1999 1998
-------- ------- -------
(in thousands)

Tax at statutory rate............................ $115,760 $74,294 $60,306
State income taxes, net of federal benefit....... 3,551 5,092 3,699
Acquisition costs................................ 753 2,292 --
Nondeductible amortization of goodwill........... 2,549 2,523 2,537
Tax-exempt interest income....................... (2,560) (2,319) (1,175)
Other, net....................................... 167 1,024 342
-------- ------- -------
$120,220 $82,906 $65,709
======== ======= =======

Income tax benefits resulting from the disqualifying dispositions of certain
employee incentive stock option shares were credited to additional paid-in
capital because no compensation expense was charged to income for financial
reporting purposes related to the exercise of such options.

Note M--Stockholders' Equity

In June 1999 Concord completed an offering of 10.1 million shares of its
common stock, and within the same offering, an additional 44.5 million shares
of common stock were sold by the previous owners of EPS for a total of 54.6
million shares of common stock. Net of the underwriting discount and other
expenses of the offering, Concord received $207.8 million for the 10.1 million
shares of common stock issued. The previous owners of EPS had received
unregistered common stock of Concord in connection with the February 26, 1999
acquisition. Concord did not receive any proceeds from the sale of shares by
the previous owners of EPS.

F-15

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note N--Earnings Per Share

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

Year ended December 31
--------------------------
2000 1999 1998
-------- -------- --------
(in thousands, except per
share data)

Numerator:
Net income..................................... $209,926 $129,241 $106,595
======== ======== ========
Denominator:
Denominator for basic earnings per share,
weighted-average shares....................... 239,179 231,843 224,235
Effect of dilutive employee stock options...... 8,818 8,024 7,161
-------- -------- --------
Denominator for diluted earnings per share-
adjusted weighted-average shares and assumed
conversions................................... 247,997 239,867 231,396
======== ======== ========
Basic earnings per share......................... $ 0.88 $ 0.56 $ 0.48
======== ======== ========
Diluted earnings per share....................... $ 0.85 $ 0.54 $ 0.46
======== ======== ========

Earnings per share and related share data have been restated to reflect all
stock splits.

Note O--Incentive Stock Option Plans

The Concord EFS, Inc. 1993 Incentive Stock Option Plan, as amended (the
Concord Plan) allows for the grant of up to 37.5 million shares of common stock
for the benefit of Concord's key employees. Options are granted at 100% of the
market value on the date of the grant (110% in the case of a holder of more
than 10% of the outstanding shares) and generally become exercisable within
four years of the date of the grant. Options generally expire 10 years from the
grant date. At December 31, 2000, 8.2 million shares were available to be
granted.

Information pertaining to the Concord Plan is summarized below, in
thousands, except price per share:

Number of Weighted Weighted
Shares Average Average
Under Exercise Aggregate Options
Option Price/Share Price Exercisable
--------- ----------- --------- -----------

Outstanding at January 1, 1998..... 12,188 $ 7.11 $ 86,696 4,886
======== =====
Granted.......................... 6,404 11.14
Exercised........................ (1,324) 4.91
Terminated....................... (51) 9.73
------
Outstanding at December 31, 1998... 17,217 8.77 $151,041 7,825
======== =====
Granted.......................... 6,672 21.63
Exercised........................ (3,857) 5.87
Terminated....................... (618) 20.66
------
Outstanding at December 31, 1999... 19,414 13.43 $260,818 7,720
======== =====
Granted.......................... 6,553 18.55
Exercised........................ (2,793) 9.75
Terminated....................... (247) 18.90
------
Outstanding at December 31, 2000... 22,927 $15.29 $350,476 9,576
====== ======== =====

F-16

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The weighted average fair value of options granted during 2000, 1999, and
1998 was $8.28, $9.29, and $4.10, respectively.

Additional information regarding options outstanding as of December 31, 2000
is summarized below:

Weighted
Average Weighted
Remaining Average
Weighted Contractual Number of Exercise
Option Options Average Life of Options Price of
Exercise Outstanding Exercise Options in Exercisable Options
Price Range (thousands) Price/Share Years (thousands) Exercisable
----------- ----------- ----------- ----------- ----------- -----------

$ 2.28- 8.67.... 2,672 $ 5.35 4.43 2,672 $ 5.35
$10.06-12.78.... 9,111 11.69 6.85 5,823 11.34
$15.50-21.00.... 6,850 19.01 8.82 502 20.74
$21.08-29.94.... 4,294 23.17 8.48 579 22.38
------ -----
$ 2.28-29.94.... 22,927 $15.29 7.46 9,576 $10.83
====== =====

Prior to its merger with Concord, EPS adopted the Electronic Payment
Services, Inc. 1995 Stock Option Plan, as amended (the EPS Plan). In connection
with the merger of EPS with Concord, all outstanding options in the EPS Plan
were accelerated and vested in February 1999. The total amount of option shares
(after conversion to Concord EFS, Inc. shares) at December 31, 1998 was
approximately 3.4 million, at a weighted average exercise price of $5.65. All
outstanding options in the EPS Plan were exercised by the expiration date of
November 23, 1999.

Prior to its merger with Concord, STAR adopted the Star Systems, Inc. 2000
Equity Incentive Plan (the STAR Plan). In connection with the merger of STAR
with Concord, all outstanding options in the STAR Plan were vested and became
exercisable. None of the options were issuable upon exercise until February
2001, when the shares subject to issuance under these options were registered.
The total amount of option shares (after conversion to Concord EFS, Inc.
shares) at December 31, 2000 was approximately 0.8 million, at a weighted
average exercise price of $10.21.

As discussed below, Concord has elected to follow APB No. 25 and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under SFAS No. 123, "Accounting
for Stock Based Compensation," requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB No. 25,
no compensation expense is recognized because the exercise price of Concord's
employee stock options equals the market price of the underlying stock on the
date of grant.

Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if Concord had accounted
for its employee stock options under the fair value method of that statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 2000, 1999, and 1998, respectively: risk-free interest rates of
5.0%, 5.0%, and 6.0%, and volatility factors of the expected market price of
Concord's common stock of .512, .582, and .358. Assumptions that remained
constant for all years were dividend yields of 0% and a weighted average
expected life of the options of three years.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because Concord's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, it is

F-17

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

management's opinion that the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options. For
purposes of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period. Concord's pro forma
information is as follows for the years ended December 31 (in thousands, except
for earnings per share):

2000 1999 1998
-------- -------- -------

Pro forma net income.............................. $184,922 $113,639 $97,895
Pro forma basic earnings per share................ $ 0.77 $ 0.49 $ 0.44
Pro forma diluted earnings per share.............. $ 0.75 $ 0.47 $ 0.42

Pro forma disclosures are not likely to be representative of reported pro
forma net income and earnings per share in future years as additional options
may be granted in future years and the vesting of options already granted will
impact the pro forma disclosures.

Note P--Employment Agreements

In February 1998 Concord entered into incentive agreements with its CEO and
President, each for a term of five years expiring February 2003. Each agreement
sets out the executive's annual base salary, provides an incentive compensation
program with a bonus potential of 50% of annual base salary, provides for
grants of regular stock options of up to 562,500 shares a year based on
performance, and provides for grants of special stock options contingent upon,
or providing accelerated vesting upon, the average market price of Concord
stock reaching and maintaining certain levels. The agreements contain certain
non-compete provisions and change in control provisions regarding the
acceleration of outstanding stock options and the payment of bonuses.

Note Q--Operations by Business Segment

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

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

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

Concord evaluates performance and allocates resources based on profit or
loss from operations. Items classified as "Other" include amounts not
identifiable with the two reported segments described above. The accounting
policies of the reportable segments are the same as those described in Note A--
Significant Accounting Policies.

Assets are allocated between Payment Services and Network Services based
upon Concord's evaluation of the revenue earned by the particular assets.
Assets classified as "Other" include assets not identifiable with the two
reported segments.

Concord's reportable segments are business units that are managed separately
because they offer distinct products for different end users. No single
customer of Concord accounts for a material portion of Concord's

F-18

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

revenue Business segment information for the years ended December 31, 2000,
1999, and 1998 is presented below in thousands:

Payment Network
Services Services Other Total
--------- --------- --------- -----------

2000
Revenue......................... $ 883,890 $ 523,250 $ -- $ 1,407,140
Cost of operations.............. (705,057) (304,897) -- (1,009,954)
Selling, general &
administrative expenses........ -- -- (91,995) (91,995)
Acquisition & restructuring
charges........................ (776) (10,915) -- (11,691)
Taxes & interest, net........... -- -- (82,977) (82,977)
Minority interest in
subsidiary..................... -- -- (597) (597)
--------- --------- --------- -----------
Net income (loss)............... $ 178,057 $ 207,438 (175,569) 209,926
========= ========= ========= ===========
Assets by segment............... $ 887,067 $ 378,859 $ 495,739 $ 1,761,665
========= ========= ========= ===========
1999
Revenue......................... $ 645,474 $ 414,536 $ -- $ 1,060,010
Cost of operations.............. (487,547) (247,920) -- (735,467)
Selling, general &
administrative expenses........ -- -- (92,334) (92,334)
Acquisition & restructuring
charges........................ (6,436) (19,253) (10,500) (36,189)
Taxes & interest, net........... -- -- (66,655) (66,655)
Minority interest in
subsidiary..................... -- -- (124) (124)
--------- --------- --------- -----------
Net income (loss)............... 151,491 147,363 (169,613) 129,241
========= ========= ========= ===========
Assets by segment............... $ 620,750 $ 363,536 $ 321,209 $ 1,305,495
========= ========= ========= ===========
1998
Revenue......................... $ 478,917 $ 333,907 $ -- $ 812,824
Cost of operations.............. (357,634) (194,835) -- (552,469)
Selling, general &
administrative expenses........ -- -- (90,936) (90,936)
Equity in earnings of
subsidiary..................... -- -- 281 281
Taxes & interest, net........... -- -- (63,105) (63,105)
--------- --------- --------- -----------
Net income (loss)............... $ 121,283 $ 139,072 $(153,760) $ 106,595
========= ========= ========= ===========
Assets by segment............... $ 440,700 $ 349,993 $ 178,052 $ 968,745
========= ========= ========= ===========

Note R--Debt and Dividend Restrictions

In accordance with federal banking laws, certain restrictions exist
regarding the ability of Concord's financial institution subsidiaries to
transfer funds to Concord in the form of cash dividends, loans or advances. The
approval of certain regulatory authorities is required to pay dividends in
excess of earnings retained in the current year plus retained net earnings for
the preceding two years. As of December 31, 2000, approximately $213.3 million
and $8.1 million of undistributed earnings of EFS National Bank (EFSNB) and EFS
Federal Savings Bank (EFSFSB), respectively, included in consolidated retained
earnings, were available for distribution to Concord as dividends without prior
regulatory approval. Under Federal Reserve regulations, these subsidiaries are
also limited as to the amount they may loan to affiliates, including Concord,
unless such loans are collateralized by specific obligations. At December 31,
2000, the maximum amount available for transfer in the form of loans to Concord
from EFSNB and EFSFSB, respectively, approximated 2.30% and 0.43% of Concord's
consolidated net assets.

F-19

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note S--Disclosures About Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments. These fair values are provided for
disclosure purposes only, and do not necessarily indicate the amount Concord
would pay or receive in a market transaction with an unrelated third party.

Cash and Cash Equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair values.

Securities Available for Sale: Fair values for securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.

Loans: Fair values of all categories of loans are estimated by discounting
their expected future cash flows using interest rates currently being offered
for loans with similar terms, reduced by an estimate of credit losses inherent
in the portfolio.

Deposits: Fair values of fixed-rate, fixed-maturity deposits are estimated
using a discounted cash flow calculation that applies interest rates currently
being offered on similar deposits to a schedule of aggregated expected monthly
maturities on time deposits. The fair values disclosed for deposits other than
fixed-rate, fixed-maturity deposits approximate their respective carrying
values at the reporting date.

Short-Term Borrowings: The interest rates on short-term borrowings are
variable rates; accordingly, fair value approximates the outstanding balance.

FHLB Advances: The fair values of FHLB advances are estimated using
discounted cash flow analyses based on Concord's current incremental borrowing
rates for similar types of borrowing arrangements.

Notes Payable: The carrying amount of notes payable to banks approximates
fair value based on interest rates that are currently available to the Company
for issuance of debt with similar terms and remaining maturities.

F-20

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table summarizes the carrying amount compared to the fair
value of financial instruments according to the methods and assumptions listed
above:

Carrying Fair
Amount Value
-------- --------
(in thousands)

December 31, 2000
Financial assets:
Cash and cash equivalents................................ $231,762 $231,762
Securities available for sale............................ 649,425 649,425
Loans.................................................... 78,654 73,864
Financial liabilities:
Deposits................................................. 125,834 126,122
FHLB advances............................................ 99,000 96,809
Notes payable............................................ 14,268 14,300
December 31, 1999
Financial assets:
Cash and cash equivalents................................ $173,099 $173,099
Securities available for sale............................ 458,201 458,201
Loans.................................................... 30,922 30,124
Financial liabilities:
Deposits................................................. 100,475 100,557
FHLB advances............................................ 75,000 72,099
Notes payable............................................ 17,625 17,672

Note T--Quarterly Financial Results (Unaudited)

The following table provides an unaudited summary of quarterly results for
the calendar years 2000 and 1999. The quarterly information reported previously
on Form 10-Q for these quarters has been restated to reflect mergers accounted
for as pooling of interests.

1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(in thousands, except per share
data)

2000
Revenue.................................. $302,917 $338,848 $363,908 $401,467
Operating income......................... 57,789 74,032 70,045 91,634
Net income............................... 41,512 52,282 50,246 65,886
Per share:
Basic earnings......................... $ 0.17 $ 0.22 $ 0.21 $ 0.27
Diluted earnings....................... $ 0.17 $ 0.21 $ 0.20 $ 0.26
1999
Revenue.................................. $221,565 $251,053 $274,149 $313,243
Operating income......................... 12,589 53,143 63,228 67,060
Net income............................... 3,332 34,946 43,476 47,487
Per share:
Basic earnings......................... $ 0.01 $ 0.15 $ 0.18 $ 0.20
Diluted earnings....................... $ 0.01 $ 0.15 $ 0.18 $ 0.19

F-21

CONCORD EFS, INC. AND SUBSIDIARIES

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders of Concord EFS, Inc.

We have audited the accompanying consolidated balance sheets of Concord EFS,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000. These
consolidated financial statements are the responsibility of the management of
Concord EFS, Inc. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Star Systems, Inc., a wholly-owned subsidiary, which reflect
total assets constituting 11.8% and 14.8% at December 31, 2000 and 1999,
respectively, of the related consolidated financial statements totals, and
which reflect net income constituting approximately 10.7%, 14.9%, and 14.6% of
the related consolidated financial statements totals for the years ended
December 31, 2000, 1999, and 1998, respectively. Those statements were audited
by other auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to data included for Star Systems, Inc., is based solely
on the reports of the other auditors.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Concord EFS, Inc. and
subsidiaries at December 31, 2000 and 1999, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.

/s/ Ernst & Young LLP

Memphis, Tennessee
April 4, 2001

F-22

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Star Systems, Inc.:

We have audited the consolidated balance sheets of Star Systems, Inc. and
subsidiaries (the Company) as of December 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements (not presented separately
herein) referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2000 and 1999, and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States
of America.

/s/ Deloitte & Touche LLP
Certified Public Accountants

Orlando, Florida
March 2, 2001

F-23

INDEPENDENT ACCOUNTANTS REPORT

Stockholders of HONOR Technologies, Inc.:

In our opinion, the consolidated statements of income, of changes in
stockholders' equity and of cash flows (not presented separately herein)
present fairly, in all material respects, the results of operations and cash
flows of HONOR Technologies, Inc. and its subsidiaries (the Company) for the
year ended December 31, 1998 in conformity with generally accepted accounting
principles. Those financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on those financial
statements based our audit. We conducted our audit of those statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

Orlando, Florida
April 23, 1999

F-24

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of Star System, Inc.:

We have audited the statements of income, changes in members' equity, and
cash flows for the year ended December 31, 1998 of Star System, Inc. (a
California nonprofit mutual benefit corporation). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above (not presented
separately herein) present fairly, in all material respects, the results of
operations and cash flows of Star System, Inc. for the year ended December 31,
1998, in conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP

San Diego, California
April 12, 1999

F-25

CONCORD EFS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

March 31 December 31
2001 2000
---------- -----------
(in thousands)

ASSETS
Current assets
Cash and cash equivalents.............................. $ 224,379 $ 231,762
Securities available for sale.......................... 706,733 649,425
Accounts receivable, net............................... 238,248 307,756
Inventories............................................ 17,218 15,087
Prepaid expenses and other current assets.............. 24,171 22,125
Deferred income taxes.................................. 4,013 6,732
---------- ----------
Total current assets................................. 1,214,762 1,232,887
Loans, net............................................... 84,329 78,654
Property and equipment, net.............................. 219,625 214,662
Goodwill, net............................................ 147,525 150,049
Other intangible assets, net............................. 78,449 75,644
Other assets............................................. 8,623 9,769
---------- ----------
Total assets......................................... $1,753,313 $1,761,665
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and other liabilities................. $ 217,421 $ 296,980
Deposits............................................... 124,725 125,834
Accrued liabilities.................................... 40,314 48,307
Accrued restructuring charges.......................... 91,531 3,410
Income taxes payable................................... 11,388 --
Current maturities of long-term debt................... -- 3,357
---------- ----------
Total current liabilities............................ 485,379 477,888
Long-term debt........................................... 111,562 109,911
Deferred income taxes.................................... 12,785 31,871
Other liabilities........................................ 6,604 6,412
---------- ----------
Total liabilities.................................... 616,330 626,082
---------- ----------
Commitments and contingent liabilities................... -- --
Minority interest in subsidiary.......................... 3,225 3,052
---------- ----------
Stockholders' equity
Common stock........................................... 80,758 80,485
Other stockholders' equity............................. 1,053,000 1,052,046
---------- ----------
Total stockholders' equity........................... 1,133,758 1,132,531
---------- ----------
Total liabilities and stockholders' equity........... $1,753,313 $1,761,665
========== ==========

See Notes to Condensed Consolidated Financial Statements.

F-26

CONCORD EFS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

Three months
ended March 31
------------------
2001 2000
-------- --------
(in thousands,
except per share
data)

Revenue..................................................... $375,638 $302,917
Cost of operations.......................................... 270,268 222,515
Selling, general and administrative expenses................ 23,812 21,837
Acquisition and restructuring charges....................... 125,362 776
-------- --------
Operating Income (Loss)................................. (43,804) 57,789
Other income (expense):
Interest income............................................. 15,482 9,893
Interest expense............................................ (3,123) (2,416)
-------- --------
Income (Loss) Before Taxes and Minority Interest........ (31,445) 65,266
Income taxes (benefit)...................................... (5,626) 23,608
-------- --------
Income (Loss) Before Minority Interest.................. (25,819) 41,658
Minority interest in net income of subsidiary............... 173 146
-------- --------
Net Income (Loss)....................................... $(25,992) $ 41,512
======== ========
Pro forma provision for income taxes........................ -- 260
-------- --------
Pro forma Net Income (Loss)............................. $(25,992) $ 41,252
======== ========
Per Share Data:
Basic and proforma basic earnings (loss) per share........ $ (0.11) $ 0.17
======== ========
Diluted and proforma diluted earnings (loss) per share.... $ (0.11) $ 0.17
======== ========
Average shares outstanding:
Basic shares.............................................. 241,664 238,636
======== ========
Diluted shares............................................ 241,664 244,748
======== ========

See Notes to Condensed Consolidated Financial Statements.

F-27

CONCORD EFS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Three months ended
March 31
-------------------
2001 2000
--------- --------
(in thousands)

Operating activities
Net cash provided by
operating activities..... $ 69,563 $ 58,576
Investing activities
Acquisition of securities
available for sale....... (172,411) (69,538)
Proceeds from sales of
securities available for
sale..................... 110,784 29,325
Proceeds from maturity of
securities available for
sale..................... 15,532 9,763
Purchases of loans........ (9,417) (15,072)
Acquisition of property
and equipment............ (23,843) (19,035)
Purchased merchant
contracts................ (7,490) (6,661)
Other investing activity.. 1,629 (4,298)
--------- --------
Net cash used in
investing activities... (85,216) (75,516)
Financing activities
Net increase (decrease) in
deposits................. (1,109) 1,472
Repayment under credit
agreement (net).......... (14,706) --
Proceeds from notes
payable.................. 13,000 6,000
Payments on notes
payable.................. -- (7,808)
Proceeds from exercise of
stock options............ 11,085 420
Activity by pooled
subsidiaries............. -- (2,905)
--------- --------
Net cash provided by
financing activities....... 8,270 (2,821)
--------- --------
Net decrease in cash and
cash equivalents........... (7,383) (19,761)
Cash and cash equivalents at
beginning of year.......... 231,762 173,099
--------- --------
Cash and cash equivalents at
end of Quarter............. $ 224,379 $153,338
========= ========

See Notes to Condensed Consolidated Financial Statements.

F-28

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001

Note A--Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management all
adjustments, consisting of normal recurring accruals, considered necessary for
a fair presentation have been included. Operating results for the three month
period ended March 31, 2001 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2001. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Concord EFS, Inc. and Subsidiaries (Concord) current report on Form 8-
K/A filed April 16, 2001 for the year ended December 31, 2000.

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

Business Combinations: The condensed consolidated financial statements have
been restated for all transactions accounted for as poolings of interests to
combine the financial position, results of operations, and cash flows of the
respective companies for all periods presented. Transactions accounted for
under the purchase method of accounting reflect the net assets of the acquired
company at fair value on the date of acquisition, and the excess of the
purchase price over fair value of the assets is recorded as goodwill. The
results of operations of the purchased company are included since the date of
acquisition.

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

F-29

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

March 31, 2001

Note B--Business Combinations

On January 31, 2000 Concord acquired National Payment Systems Inc. d/b/a
Card Payment Systems, a reseller of payment processing services. The
acquisition was accounted for as a pooling of interests transaction in which
Concord issued 6.2 million shares of its common stock.

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

Three months
ended
March 31
------------------
2001 2000
-------- --------
(in thousands,
except per share
data)

Revenue:
Concord........................................... $360,766 $253,721
Card Payment Systems (1).......................... -- 4,047
Cash Station (2).................................. -- 4,676
STAR (3).......................................... 15,396 42,144
Intercompany eliminations (4)..................... (524) (1,671)
-------- --------
Combined revenue.................................. $375,638 $302,917
======== ========
Pro forma net income (loss):
Concord........................................... (28,920) 36,939
Card Payment Systems (1).......................... -- 650
Cash Station (2).................................. -- 329
STAR (3).......................................... 2,928 3,594
Pro forma provision for Card Payment Systems
income taxes (5)................................. -- (260)
-------- --------
Combined net income (loss)........................ $(25,992) $ 41,252
======== ========
Pro forma basic earnings (loss) per share combined.. $ (0.11) $ 0.17
======== ========
Pro forma diluted earnings (loss) per share
combined........................................... $ (0.11) $ 0.17
======== ========

--------
(1) The 2000 amounts reflect the results of Card Payment Systems operations
from January 1, 2000 through January 31, 2000 (unaudited). Results of
operations from the effective merger date of February 1, 2000 are included
in Concord amounts.
(2) The 2000 amounts reflect the results of Cash Station operations from
January 1, 2000 through March 31, 2000 (unaudited). Results of operations
from the effective merger date of July 1, 2000 are included in Concord
amounts.
(3) The 2001 amounts reflect the results of STAR operations from January 1,
2001 through January 31, 2001. Results of operations from February 1 to
March 31, 2001 are included in Concord amounts.

F-30

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

March 31, 2001

Note B--Business Combinations, continued

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

Concord owns a majority interest in Primary Payment Systems, Inc., a risk
management service, as a result of Concord's acquisitions of STAR and Cash
Station. Primary Payment Systems is immaterial to Concord's financial
statements.

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

Acquisition and restructuring charges were $125.4 million for the three
months ended March 31, 2001. The expenses and charges are a result of a
company-wide consolidation plan to address areas of operating redundancies
created by our recent acquisitions. The plan includes consolidation of data
centers and other facilities to eliminate redundancies, the reassignment or
termination of certain employees timed to coincide with the integration of
redundant processing platforms and the functional integration of the STAR
organization into Concord. The charges include $63.9 million for combining
various processing platforms, $16.0 million for the consolidation of duplicate
products and internal systems, $15.6 million for accounting, legal and advisory
fees, and $19.1 million for the termination of certain data center services
contracts. In connection with the consolidation plan, Concord expects to
eliminate approximately 250 positions, 73 of which have been eliminated as of
March 31, 2001. The individual components of the expenses and charges are
listed below. As of March 31, 2001, $89.3 million of these expenses were
accrued but unpaid.

As of March 31, 2001, expenses of $2.2 million, primarily related to Cash
Station network deconversion costs, were accrued but unpaid.

The following table details the activity in the restructuring charge accrual
by category, in millions:

2001
Expenses
Cash or Balance & Charges Balance
Description Non-cash 12/31/00 Accrued Activity 3/31/01
----------- -------- -------- --------- -------- -------

2000:
Compensation and severance...... Cash $1.0 $ -- $ 0.8 $ 0.2
Network de-conversion costs..... Cash 2.4 -- 0.4 2.0
2001:
Office closings and operational
deconversions.................. Cash -- 63.9 3.1 60.8
Duplicate or abandoned products
& systems...................... Cash -- 4.4 0.7 3.7
Duplicate or abandoned products
& systems...................... Non-cash -- 11.6 5.9 5.7
Advisory, legal, & accounting... Cash -- 15.6 15.0 0.6
Contract terminations........... Cash -- 19.1 8.7 10.4
Compensation and severance...... Cash -- 9.8 2.0 7.8
Other........................... Non-cash -- 1.0 0.7 0.3
---- ------ ----- -----
$3.4 $125.4 $37.3 $91.5
==== ====== ===== =====

F-31

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

March 31, 2001

Note C--Comprehensive Income (Loss)

Total comprehensive income (loss) was ($18,886) and $41,666, in thousands,
for the three months ended, March 31, 2001 and 2000, respectively.
Comprehensive income includes net income and the change in the unrealized gain
or loss on securities available for sale arising during the period.

Note D--Earnings Per Share

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

Three months
ended March 31
-----------------
2001 2000
-------- -------
(in thousands,
except per share
data)

Numerator:
Net income (loss).......................................... $(25,992) $41,512
======== =======
Denominator:
Denominator for basic earnings per share, weighted-average
shares.................................................... 241,664 238,636
Effect of dilutive employee stock options.................. -- 6,112
-------- -------
Denominator for diluted earnings per share-adjusted
weighted-average shares and assumed conversions........... 241,664 244,748
======== =======
Basic (loss) earnings per share.............................. $ (0.11) $ 0.17
======== =======
Diluted (loss) earnings per share............................ $ (0.11) $ 0.17
======== =======

Excluding acquisition costs and restructuring charges and related taxes,
diluted earnings per share for the three month period ended March 31, 2001 and
2000 were $0.24 and $0.17, respectively.

Earnings per share and related per share data have been restated to reflect
all stock splits.

Note E--Operations by Business Segment

Payment Services provides the systems and processing that allow retail
clients to accept virtually any type of cashless payment, including all card
types--credit, debit, electronic benefits transfer (EBT), fleet, prepaid and
automated clearing house (ACH)--and a variety of check-based options. Payment
Services also includes providing payment cards that enable drivers of trucking
companies to purchase fuel and obtain cash advances at truck stops.

Network Services includes terminal driving and monitoring for ATMs,
transaction routing and authorization via credit and debit network gateways,
and real-time card management and authorization for online debit and signature
debit cards. We also operate the switch that connects a coast to coast network
of ATMs and POS locations that accept debit cards issued by our member
financial institutions. Our network access services include transaction
switching and settlement.

F-32

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

March 31, 2001

Note E--Operations by Business Segment, continued

Industry segment information, in thousands, for the three months ended March
31, 2001 and 2000 is presented below.

Payment Network
Services Services Other Total
--------- --------- -------- ---------

2001
Revenue........................... $ 227,860 $ 147,778 $ -- $ 375,638
Cost of operations................ (185,839) (84,429) -- (270,268)
Selling, general & administrative
expenses......................... -- -- (23,812) (23,812)
Acquisition & restructuring
charges.......................... (21,787) (103,575) -- (125,362)
Taxes & interest, net............. -- -- 17,985 17,985
Minority interest in subsidiary... -- -- (173) (173)
--------- --------- -------- ---------
Net income (loss)................... $ 20,234 $ (40,226) $ (6,000) $ (25,992)
========= ========= ======== =========
2000
Revenue........................... $ 190,397 $ 112,520 $ -- $ 302,917
Cost of operations................ (150,821) (71,694) -- (222,515)
Selling, general & administrative
expenses......................... -- -- (21,837) (21,837)
Acquisition & restructuring
charges.......................... (776) -- -- (776)
Taxes & interest, net............. -- -- (16,131) (16,131)
Minority interest in subsidiary... -- -- (146) (146)
--------- --------- -------- ---------
Net income (loss)................... $ 38,800 $ 40,826 $(38,114) $ 41,512
========= ========= ======== =========

Note F--Subsequent Event

In April 2001 Concord increased its ownership position in Primary Payment
Systems to 85% through the purchase of newly issued shares, which largely
funded Primary Payment Systems' acquisition of Wally Industries, Inc. (doing
business as WJM Technologies). The incremental investment was not material to
Concord's financial statements.

F-33

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

21,194,103 Shares
Concord EFS, Inc.

Common Stock

LOGO

--------
PROSPECTUS
, 2001
--------

Salomon Smith Barney

Goldman, Sachs & Co.

William Blair & Company

Banc of America Securities LLC

Bear, Stearns & Co. Inc.

Merrill Lynch & Co.

Morgan Keegan & Company, Inc.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.

SEC registration fee............................................ $260,915.30
The Nasdaq National Market fee.................................. *
National Association of Securities Dealers fee.................. 30,500.00
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Printing and engraving expenses................................. *
Miscellaneous................................................... *
-----------
Total......................................................... $ *
===========

--------
*To be completed by amendment. Except for the SEC registration fee and the
National Association of Securities Dealers fee, all of the foregoing fees
and expenses are estimates. All of the above expenses will be borne by
Concord.

Item 15. Indemnification of Officers and Directors.

Section 145 of the Delaware General Corporation Law (DGCL) empowers a
Delaware corporation to indemnify any person who is, or is threatened to be
made, a party to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), by reason of the fact
that the person is or was an officer or director of such corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation or enterprise. The indemnity may include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding, provided that the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to the
corporation's best interests, and, for any criminal action or proceeding, had
no reasonable cause to believe the person's conduct was unlawful. A Delaware
corporation may indemnify officers and directors in an action by or in the
right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation in the performance of his
or her duty. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify the director or officer against the expenses which the officer or
director actually and reasonably incurred.

In accordance with the DGCL, Concord's Restated Certificate of
Incorporation, as amended, contains a provision to limit the personal liability
of Concord's directors for breach of their fiduciary duty. This provision
eliminates each director's liability to Concord or its stockholders for
monetary damages except to the extent provided by the DGCL (1) for any breach
of the director's duty of loyalty to Concord or its stockholders, (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under section 174 of the DGCL providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions or (4) for any transactions from which the director
derived an improper personal benefit. The effect of this provision is to
eliminate the personal liability of directors for monetary damages for actions
involving a breach of their fiduciary duty of care, including any such actions
involving gross negligence.

Concord's Restated Certificate of Incorporation, as amended, and Bylaws
provide for indemnification of Concord's officers and directors to the fullest
extent permitted by applicable law. In addition, Concord maintains insurance
policies which provide coverage for its officers and directors in certain
situations where Concord cannot directly indemnify such officers or directors.

II-1

Item 16. Exhibits.

Exhibit
Number Description of Exhibit
------- ----------------------

1.1+ Form of Underwriting Agreement.

4.1 Restated Certificate of Incorporation of the registrant is
incorporated herein by reference to Exhibit 4.1 to the registrant's
registration statement on Form S-8 (File No. 333-74215), filed on
March 10, 1999.

4.2 Certificate of Amendment to the Restated Certificate of Incorporation
of the registrant is incorporated herein by reference to Exhibit 3.3
to Amendment No. 2 to the registrant's registration statement on Form
S-3 (File No. 333-77829), filed on June 14, 1999.

4.3 By-Laws of the registrant are incorporated herein by reference to
Exhibit 4.2 to the registrant's registration statement on Form S-8
(File No. 333-74215), filed on March 10, 1999.

5.1 Opinion of Marcia E. Heister, General Counsel.

23.1 Consent of Marcia E. Heister, General Counsel (included in Exhibit 5.1
hereto).

23.2 Consent of Ernst & Young LLP (Concord EFS, Inc. years ended 1998, 1999
and 2000).

23.3 Consent of Deloitte & Touche LLP (Star Systems, Inc. years ended 1999
and 2000)

23.4 Consent of PricewaterhouseCoopers LLP (Honor Technologies, Inc. year
ended 1998)

23.5 Consent of Arthur Andersen LLP (Star System, Inc. year ended 1998)

24.1 Powers of Attorney.

--------
+ To be filed by amendment.

Item 17. Undertakings.

(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A

II-2

and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be
deemed to be part of this registration statement as of the time it was
declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Memphis, State of Tennessee, on May 16, 2001.

Concord EFS, Inc.

/s/ Dan M. Palmer
By: _________________________________
Dan M. Palmer
Chairman of the Board of
Directors
and Chief Executive Officer

Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated:

Signature Title Date
--------- ----- ----

/s/ Dan M. Palmer Chairman of the Board, May 16, 2001
By: __________________________________ Chief Executive Officer,
Dan M. Palmer Director (Principal
Executive Officer)

/s/ Edward T. Haslam Chief Financial Officer May 16, 2001
By: __________________________________ (Principal Financial and
Edward T. Haslam Accounting Officer)

/s/ Edward A. Labry III President and Director May 16, 2001
By: __________________________________
Edward A. Labry III

/s/ Douglas C. Altenbern Director May 16, 2001
By: __________________________________
Douglas C. Altenbern

/s/ Richard Buchignani Director May 16, 2001
By: __________________________________
Richard Buchignani

/s/ Ronald V. Congemi Director May 16, 2001
By: __________________________________
Ronald V. Congemi

/s/ Richard M. Harter Director May 16, 2001
By: __________________________________
Richard M. Harter

/s/ Richard P. Kiphart Director May 16, 2001
By: __________________________________
Richard P. Kiphart

/s/ Jerry D. Mooney Director May 16, 2001
By: __________________________________
Jerry D. Mooney

/s/ Paul Whittington Director May 16, 2001
By: __________________________________
Paul Whittington

II-4

EXHIBIT INDEX
TO REGISTRATION STATEMENT
ON FORM S-3

CONCORD EFS, INC.

Exhibit
Number Description of Exhibit
------- ----------------------

1.1+ Form of Underwriting Agreement.

4.3 By-Laws of the registrant are incorporated herein by reference to
Exhibit 4.2 to the registrant's registration statement on Form S-8
(File No. 333-74215), filed on March 10, 1999.

5.1 Opinion of Marcia E. Heister, General Counsel.

23.1 Consent of Marcia E. Heister, General Counsel (included in Exhibit 5.1
hereto).

23.2 Consent of Ernst & Young LLP (Concord EFS, Inc. years ended 1998, 1999
and 2000).

23.3 Consent of Deloitte & Touche LLP (Star Systems, Inc. years ended 1999
and 2000).

23.4 Consent of Pricewaterhouse Coopers LLP (HONOR Technologies, Inc. year
ended 1998).

23.5 Consent of Arthur Andersen LLP (Star System, Inc. year ended 1998).

24.1 Powers of Attorney.

--------
+ To be filed by amendment.

II-5