TheTable number of shares of the registrant’s Common Stock, $0.33 1/3 par value, outstanding as of October 31, 2002 was 508,733,706. Contents

TheTable number of shares of the registrant’s Common Stock, $0.33 1/3 par value, outstanding as of October 31, 2002 was 508,733,706. Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

~~WASHINGTON~~Washington, DC 20549

FORM 10-Q

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

~~x QUARTERLY REPORT PURSUANT TO~~ SECTION 13 OR 15(d) OF THE ~~SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2002~~

OR SECURITIES EXCHANGE ACT OF 1934

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from __________ to ____________

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended June 30, 2003

OR
¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission ~~file~~File Number ~~number 000~~001-~~13848~~ 31527

CONCORD EFS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	~~04-2462252~~	04-2462252
(State or Other Jurisdiction of	(I.R.S. Employer
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)
Incorporation or Organization)	Identification Number)
2525 Horizon Lake Drive, Suite 120, Memphis, Tennessee		38133
(Address of Principal Executive Offices)		(Zip Code)
Registrant’s telephone number, including area code: (901) 371-8000

~~2525~~Indicate ~~Horizon~~by ~~Lake~~check ~~Drive,~~ mark ~~Suite~~whether ~~120,~~the ~~Memphis,~~registrant ~~Tennessee~~(1) ~~38133~~has filed all reports required to be filed by Section 13 or 15(~~Address~~d) of ~~Principal~~the Securities ~~Executive~~Exchange ~~Offices~~Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

~~(901)~~Indicate ~~371-8000~~ by check mark whether the registrant is an accelerated filer (~~Registrant’s~~as defined ~~Telephone~~in ~~Number,~~Exchange ~~Including~~Act ~~Area~~Rule ~~Code~~12b-2) . Yes x No ¨

~~Indicate~~The bynumber ~~check~~of ~~mark~~shares ~~whether~~of the registrant: ’s ~~(1)~~common ~~has~~stock ~~filed~~outstanding ~~all~~as ~~reports required to be filed by Section 13 or 15(d)~~ of ~~the Securities~~ July ~~Exchange~~31, ~~Act~~2003 ~~of 1934 during the preceding 12 months (or for such shorter period that the registrant~~ was ~~required to file such reports) and (2) has been subject to such filing requirements for the past 90 days~~486,772,912. ~~Yes x No o~~

CONCORD EFS, INC.

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
PART I—Financial Information
	FINANCIAL STATEMENTS (UNAUDITED)
Item 1. Financial Statements (Unaudited)
		CONDENSED CONSOLIDATED BALANCE SHEETS
Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002		1
		CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Consolidated Statements of Income for Three Months and Six Months Ended June 30, 2003 and June 30, 2002		2
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Consolidated Statements of Cash Flows for Six Months Ended June 30, 2003 and June 30, 2002		3
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements		4
	MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 3. Quantitative and Qualitative Disclosures About Market Risk		28
	CONTROLS AND PROCEDURES
Item 4. Controls and Procedures		29
PART II OTHER INFORMATION
PART II—Other Information
Item 1. Legal Proceedings	~~Item 1. Legal Proceedings~~	30
	Item 6. Exhibits and Reports on Form 8-K
Item 4. Submission of Matters to a Vote of Security Holders		32
SIGNATURES
Item 6. Exhibits and Reports on Form 8-K		33
CERTIFICATIONS
Signatures		35
FORM 10-Q LISTING OF EXHIBITS
MASTER AGREEMENT, DATED AS OF JULY 12, 2002
MASTER LEASE AGREEMENT, DATED AS OF JULY 12, 2002
CONSTRUCTION AGENCY AGREEMENT, DATED JULY 12,2002
LOAN AGREEMENT, DATED AS OF JULY 12, 2002
GUARANTY AGREEMENT, DATED AS OF JULY 12, 2002
LETTER AGREEMENT, DATED SEPTEMBER 11, 2002
LETTER AGREEMENT, DATED AUGUST 30, 2002
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
CERTIFICATION OF PRESIDENT
CERTIFICATION OF CHIEF FINANCIAL OFFICER
CAUTIONARY STATEMENTS

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

CONCORD EFS, INC. AND SUBSIDIARIES

PART I - Financial Information
Item 1. Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001	1
	Condensed Consolidated Statements of Income for Three Months and Nine Months Ended September 30, 2002 and September 30, 2001	2
	Condensed Consolidated Statements of Cash Flows for Nine Months Ended September 30, 2002 and September 30, 2001	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3. Quantitative and Qualitative Disclosures About Market Risk		28
Item 4. Controls and Procedures		29
PART II - Other Information
Item 1. Legal Proceedings		30
Item 6. Exhibits and Reports on Form 8-K		32
Signatures		33
Certifications		34

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2003		December 31, 2002
	(in thousands)
Assets
Current assets
Cash and cash equivalents	$	1,036,363	$	471,825
Securities available for sale		874,245		985,400
Accounts receivable, net		129,331		129,983
Settlement receivables, net		39,475		24,958
Inventories		22,519		19,983
Prepaid expenses and other current assets		32,229		48,633
Deferred income taxes		8,938		5,569

Total current assets		2,143,100		1,686,351
Securities available for sale		133,577		139,092
Property and equipment, net		347,052		338,558
Goodwill, net		265,040		265,460
Other intangible assets, net		50,270		57,073
Other assets, net		62,245		41,906

Total assets	$	3,001,284	$	2,528,440

Liabilities and stockholders’ equity
Current liabilities
Accounts payable and other liabilities	$	25,069	$	25,252
Settlement payables		506,178		165,349
Deposits		64,643		78,133
Accrued liabilities		63,295		53,617
Income taxes payable		21,474		16,527
Current maturities of long-term debt		31,548		58,940

Total current liabilities		712,207		397,818
Long-term debt		133,577		139,092
Deferred income taxes		63,798		62,343
Other liabilities		8,141		7,962

Total liabilities		917,723		607,215

Commitments and contingent liabilities		—		—
Minority interest in subsidiary		5,614		5,063

Stockholders’ equity
Common stock, $0.33¹/3 par value; authorized 1,500,000 shares, issued and outstanding 486,771 at June 30, 2003 and 486,461 at December 31, 2002		162,257		162,154
Additional paid-in capital		989,352		986,416
Retained earnings		920,438		756,605
Accumulated other comprehensive income		5,900		10,987

Total stockholders’ equity		2,077,947		1,916,162

Total liabilities and stockholders’ equity	$	3,001,284	$	2,528,440

See Notes to Consolidated Financial Statements.

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

	September 30,		December 31,
	2002		2001
ASSETS	(in thousands)
CURRENT ASSETS
Cash and cash equivalents	$	807,425	$	682,906
Securities available for sale		1,231,823		1,228,805
Alternative investments		197,378		—
Accounts receivable, net		165,318		134,496
Inventories		20,688		20,971
Prepaid expenses and other current assets		36,083		34,346
Deferred income taxes		960		13,054
TOTAL CURRENT ASSETS		2,459,675		2,114,578
Loans, net		12,953		89,038
Property and equipment, net		311,404		267,451
Goodwill, net		282,644		158,632
Other intangible assets, net		54,609		85,712
Other assets		31,988		14,034
TOTAL ASSETS	$	3 ,153,273	$	2,729,445
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other liabilities	$	468,318	$	488,789
Deposits		133,674		162,972
Accrued liabilities		43,565		29,837
Accrued restructuring charges		31,590		5,315
Accrued litigation settlement		2,487		—
Income taxes payable		21,954		1,438
Current maturities of long-term debt		75,489		—
TOTAL CURRENT LIABILITIES		777,077		688,351
Long-term debt		141,751		119,458
Deferred income taxes		67,385		55,437
Other liabilities		8,039		4,202
TOTAL LIABILITIES		994,252		867,448
Commitments and contingent liabilities		—		—
Minority interest in subsidiary		4,825		3,410
STOCKHOLDERS' EQUITY
Common stock		169,578		169,352
Other stockholders' equity		1,984,618		1,689,235
TOTAL STOCKHOLDERS' EQUITY		2,154,196		1,858,587
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	3,153,273	$	2,729,445

CONSOLIDATED STATEMENTS OF INCOME

~~See~~(Unaudited) ~~Notes to Condensed Consolidated Financial Statements.~~

-1-

	Three months ended June 30,				Six months ended June 30,
	2003		2002		2003		2002
	(in thousands, except per share data)

Revenue	$	570,046	$	488,181	$	1,089,905	$	909,862
Cost of operations		421,385		331,898		798,846		613,817
Selling, general and administrative expenses		34,428		32,357		66,254		57,139
Merger, acquisition, restructuring and write-off charges		5,562		29,006		7,949		76,506
Litigation settlement charges		—		20,761		—		20,761

Operating income		108,671		74,159		216,856		141,639
Other income and expense:
Investment income		14,553		19,498		29,263		39,070
Interest expense		2,000		2,656		4,369		5,762
Other income, net		11,689		6,388		11,148		6,914

Income before taxes and minority interest		132,913		97,389		252,898		181,861
Income taxes		46,519		34,086		88,514		64,074

Income before minority interest		86,394		63,303		164,384		117,787
Minority interest in net income of subsidiary		278		85		551		360

Net income	$	86,116	$	63,218	$	163,833	$	117,427


Per share data:
Basic earnings per share	$	0.18	$	0.12	$	0.34	$	0.23

Diluted earnings per share	$	0.17	$	0.12	$	0.33	$	0.22

Average shares outstanding:
Basic shares		486,642		511,673		486,554		510,186

Diluted shares		498,162		532,638		496,660		531,455

See Notes to Consolidated Financial Statements.

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

	Three months endedSeptember 30,					Nine months endedSeptember 30,
	2002			2001		2002		2001
	(in thousands, except per share data)
Revenue	$	568,296		$	436,198	$	1,568,616	$	1,230,906
Cost of operations		421,086			304,414		1,125,361		874,301
Selling, general and administrative expenses		31,233			22,348		88,372		69,450
Acquisition, restructuring and write-off charges		—			—		76,506		125,362
Litigation settlement charges (credits)		(11,000	)		—		9,761		—
OPERATING INCOME		126,977			109,436		268,616		161,793
Other income and expense:
Other income		1,023			876		7,937		3,068
Investment income		20,653			19,702		59,723		50,424
Interest expense		3,054			3,510		8,816		9,890
INCOME BEFORE TAXES AND MINORITY INTEREST		145,599			126,504		327,460		205,395
Income taxes		50,959			44,910		115,033		78,438
INCOME BEFORE MINORITY INTEREST		94,640			81,594		212,427		126,957
Minority interest in net income of subsidiary		311			138		671		311
NET INCOME	$	94,329		$	81,456	$	211,756	$	126,646
PER SHARE DATA:
Basic earnings per share	$	0.18		$	0.16	$	0.41	$	0.26
Diluted earnings per share	$	0.18		$	0.16	$	0.40	$	0.25
AVERAGE SHARES OUTSTANDING:
Basic shares		512,546			503,193		510,973		491,102
Diluted shares		527,856			524,510		530,255		512,319

CONSOLIDATED STATEMENTS OF CASH FLOWS

~~See~~(Unaudited) ~~Notes to Condensed Consolidated Financial Statements.~~

-2-

	Six months ended June 30,
	2003			2002
	(in thousands)
Operating activities
Net income	$	163,833		$	117,427
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Minority interest in subsidiary		551			360
Provision for losses on receivables and loans		1,224			116
Depreciation and amortization		53,753			39,612
Deferred income taxes		826			11,979
Net realized gain on sales of securities available for sale		(13,073	)		(1,013	)
Restructuring charges		190			38,338
Changes in operating assets and liabilities:
Settlement receivables and payables, net		325,552			(303,577	)
Accounts receivable		188			(27,031	)
Inventories		(2,536	)		(843	)
Prepaid expenses and other assets		(7,349	)		(6,818	)
Accounts payable and other liabilities		15,624			79,714
Other, net		2,115			2,338

Net cash provided by (used in) operating activities		540,898			(49,398	)
Investing activities
Acquisition of securities available for sale		(458,060	)		(423,762	)
Proceeds from sales of securities available for sale		397,578			487,336
Proceeds from maturity of securities available for sale		180,283			85,528
Purchases of loans		—			(17,716	)
Proceeds from sales of loans		263			—
Other net change in loans		3,161			25,281
Acquisition of property and equipment		(54,636	)		(70,904	)
Purchase of merchant contracts		(1,008	)		(1,045	)
Business acquisitions, net		—			(17,240	)
Other investing activity		—			(12,398	)

Net cash provided by investing activities		67,581			55,080
Financing activities
Net decrease in deposits		(13,490	)		(3,846	)
Proceeds from borrowings		33,400			50,000
Payments on borrowings		(66,307	)		(193	)
Proceeds from exercise of stock options		2,456			21,445
Payments on leases payable		—			(243	)

Net cash provided by (used in) financing activities		(43,941	)		67,163

Net increase in cash and cash equivalents		564,538			72,845
Cash and cash equivalents at beginning of year		471,825			682,906

Cash and cash equivalents at end of period	$	1,036,363		$	755,751

See Notes to Consolidated Financial Statements.

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

	Nine months ended September 30,
	2002			2001
	(in thousands)
OPERATING ACTIVITIES
Net income	$	211,756		$	126,646
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in subsidiary		671			311
Provision for (recovery of) losses on accounts receivable and loans		(81	)		1,587
Depreciation and amortization		64,537			69,831
Deferred income taxes		14,671			(15,873	)
Net realized gain on sales of securities available for sale		(2,035	)		(2,492	)
Restructuring charges		38,339			19,916
Changes in operating assets and liabilities:
Settlement receivables and payables, net		(32,381	)		(19,672	)
Accounts receivable		(21,794	)		(15,099	)
Inventories		517			(4,692	)
Prepaid expenses and other current assets		(1,268	)		(11,893	)
Accounts payable and other liabilities		58,960			101,165
Other, net		2,224			(528	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		334,116			249,207
INVESTING ACTIVITIES
Acquisition of securities available for sale		(665,725	)		(948,255	)
Proceeds from sales of securities available for sale		558,543			377,045
Proceeds from maturity of securities available for sale		131,483			127,391
Acquisition of alternative investments		(195,546	)		—
Purchases of loans		(17,716	)		(30,915	)
Proceeds from sales of loans		53,534			—
Other net change in loans		41,827			13,957
Acquisition of property and equipment		(100,409	)		(82,881	)
Purchased merchant contracts		—			(22,581	)
Business acquisitions, net		(17,240	)		(19,700	)
Other investing activity		(21,043	)		(6,005	)
NET CASH USED IN INVESTING ACTIVITIES		(232,292	)		(591,944	)
FINANCING ACTIVITIES
Net increase (decrease) in deposits		(29,298	)		39,030
Proceeds from borrowings		149,900			21,000
Payments on borrowings		(52,118	)		(14,444	)
Purchase and retirement of common stock		(68,365	)		—
Proceeds from offering of common stock		—			420,630
Proceeds from exercise of stock options		22,819			21,620
Payments on leases payable		(243	)		(1,217	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		22,695			486,619
NET INCREASE IN CASH AND CASH EQUIVALENTS		124,519			143,882
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		682,906			298,383
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	807,425		$	442,265

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~See~~(Unaudited) ~~Notes to Condensed Consolidated Financial Statements.~~

~~-3-~~ Note A—Significant Accounting Policies

Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the Concord EFS, Inc. and Subsidiaries (Concord) annual report on Form 10-K filed March 27, 2003 for the year ended December 31, 2002.

Nature of Operations: Concord, an electronic transaction processor, provides the technology and network systems that make payments and other financial transactions faster, more efficient, and more secure than paper-based alternatives. As a vertically integrated service provider, Concord acquires, routes, authorizes, captures, and settles virtually all types of electronic payment and deposit access transactions for financial institutions and merchants nationwide. Concord’s primary activities consist of Network Services, which provides automated teller machine (ATM) processing, debit card processing, deposit risk management, and coast-to-coast debit network access principally for financial institutions, and Payment Services, which provides point of sale (POS) processing, settlement, and related services, with specialized systems focusing on supermarkets, major retailers, gas stations, convenience stores, restaurants, and trucking companies.

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

Business Combinations: Transactions accounted for under the purchase method of accounting reflect the net assets of the acquired company at fair value on the date of acquisition, and the excess of the purchase price over fair value of the assets is recorded as goodwill. The results of operations of the purchased company are included in the consolidated results since the date of acquisition. Stock issued in a purchase transaction is valued at the average closing price of Concord’s stock for a period of a few days surrounding the announcement date of the purchase in accordance with the Financial Accounting Standard Board’s (FASB) Emerging Issues Task Force (EITF) Issue 99-12.

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

Revenue Recognition: Revenue from credit card and other transaction processing activities is recorded when the service is provided. Network Services revenue is recorded gross of network fees and net of interchange fees. Payment Services revenue is recorded gross of network and interchange fees. For both Network Services and Payment Services network fees represent amounts charged to Concord by the card associations and debit networks and billed to its clients. In accordance with EITF 01-14, as discussed below, Concord recognizes these amounts as both a component of revenue and expense in its financial statements. Network Services interchange fees represent amounts paid to Concord from the card associations as the card issuer processor and subsequently paid by Concord to the card issuer. In accordance with EITF 02-16, as discussed below, Network Services revenue excludes this interchange fee. In contrast, Payment Services interchange fees are collected from

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

~~Note~~NOTES ATO -CONSOLIDATED ~~Basis~~FINANCIAL ~~of Presentation~~STATEMENTS—(Continued)

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 and nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Concord EFS, Inc. and Subsidiaries (~~Concord~~Unaudited) ~~annual report on Form 10-K filed on February 26, 2002 for the year ended December 31, 2001.~~

~~Nature of Operations:~~ Concord’s ismerchant a clients, ~~vertically~~not ~~integrated electronic~~the ~~transaction~~card ~~processor.~~association ~~Concord~~or ~~acquires,~~network ~~routes~~vendor, ~~authorizes, captures,~~ and ~~settles~~as ~~virtually~~a ~~all~~result ~~types~~is ofreported ~~electronic~~as ~~payment~~both ~~and~~a ~~deposit~~component ~~access~~ of ~~transactions~~revenue ~~for financial institutions~~ and ~~merchants nationwide~~expense. ~~Concord’s primary~~Payment Services ~~activities~~interchange ~~consist~~fees ofamounted ~~Network Services,~~to ~~which~~$266.4 ~~provides~~million ~~automated~~and ~~teller~~$200.5 ~~machine~~million ~~(ATM)~~ for ~~processing,~~the ~~debit~~three ~~card~~months ~~processing,~~ended ~~deposit~~June ~~risk management~~30, 2003 and ~~coast-to-coast debit network access principally for financial institutions~~2002, ~~and~~respectively. Payment Services, ~~which~~interchange ~~provides~~ fees ~~payment~~amounted ~~processing~~to ~~for~~$497.8 ~~supermarkets,~~million ~~major~~and ~~retailers,~~$360.4 ~~petroleum~~million ~~dealers,~~for ~~convenience~~the ~~stores,~~ six ~~restaurants,~~months ~~trucking~~ended ~~companies~~June 30, 2003 and ~~independent~~2002, ~~retailers~~respectively.

~~Principles~~In ofJanuary ~~Consolidation:~~2003 ~~The~~the EITF reached ~~condensed~~a ~~consolidated~~consensus ~~financial~~on ~~statements~~Issue ~~include~~02-16, “Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor” (EITF 02-16). EITF 02-16 provides guidance on how a customer should account for cash consideration received from a vendor. The transition provisions apply prospectively to arrangements entered into or modified subsequent to December 31, 2002 and would require all amounts received from vendors to be accounted for as a reduction of the ~~accounts~~cost of the products or services purchased unless certain criteria are met. Concord ~~and~~elected ~~its~~ to ~~subsidiaries~~early ~~after~~adopt ~~elimination~~the provisions of ~~all~~EITF ~~material~~02-16 ~~intercompany~~in ~~balances~~the ~~and~~fourth ~~transactions~~quarter of 2002.

~~Business~~The ~~Combinations:~~application ~~The~~of ~~condensed~~ EITF ~~consolidated~~02-16 ~~financial~~resulted ~~statements~~in ~~have~~a ~~been~~change ~~restated~~in ~~for~~presentation ~~all~~of ~~transactions~~interchange ~~accounted~~fees ~~for~~received as by ~~poolings~~Concord offrom ~~interests~~card associations relating to ~~combine~~signature debit ~~the~~card ~~financial~~transactions ~~position,~~processed ~~results~~by ofits ~~operations,~~Network ~~and~~Services ~~cash~~ segment. ~~flows~~The ofinterchange ~~the~~fee ~~respective~~received ~~companies~~reimburses Concord for ~~all~~similar ~~periods~~amounts ~~presented.~~paid ~~Transactions~~to ~~accounted~~signature ~~for~~debit ~~under~~card issuing financial institutions processed by its Network Services segment. These amounts ~~the~~received ~~purchase~~are ~~method~~presented ofas ~~accounting~~a ~~reflect~~reduction ~~the~~of ~~net~~segment ~~assets~~cost of ~~the~~operations, ~~acquired~~which ~~company~~offset atthe ~~fair~~ amounts ~~value~~paid. onPrior to the ~~date~~adoption of ~~acquisition~~EITF 02-16, ~~and~~interchange ~~the~~received ~~excess~~on ofsignature ~~the~~debit ~~purchase~~card ~~price~~transactions ~~over~~was ~~fair~~included ~~value~~in ofsegment revenue. Prior interim periods ~~the~~presented ~~net~~herein ~~assets~~have isbeen ~~recorded~~reclassified asto ~~goodwill~~conform to this change. The ~~results~~adoption of ~~operations~~EITF of02-16 ~~the~~had ~~purchased~~no ~~company~~ effect ~~are~~on ~~included~~reported inoperating ~~Concord’s~~income, ~~results~~net ofincome ~~operations~~or ~~since~~cash ~~the~~flows ~~date~~for ofany ~~acquisition~~periods presented.

~~Alternative~~In ~~Investments: Concord’s~~ January ~~alternative~~2002 ~~investments~~the EITF reached a consensus on Issue 01-14, ~~including~~“Income Statement ~~hedge~~Characterization ~~fund~~of Reimbursements Received for ‘Out-of-~~funds,~~Pocket’ ~~are~~Expenses ~~accounted~~Incurred” (EITF 01-14). EITF 01-14 concluded that reimbursements received for ~~under~~out-of-pocket ~~the~~expenses ~~equity~~incurred should be characterized as revenue in the income ~~method~~statement. Concord adopted EITF 01-14 effective January 1, 2002. The adoption of ~~accounting~~EITF ~~with~~01-14 ~~realized~~had ~~and~~no ~~unrealized~~material ~~gains~~effect ~~and~~on ~~losses~~Concord, ~~reflected~~as substantially all reimbursements governed by EITF 01-14 were previously reported in ~~investment~~revenue. These expenses (certain ~~income~~telecommunications ~~for~~expenses ~~each~~and ~~reporting~~network ~~period~~fees) are billed to the customer separately or as part of a bundled rate including other Concord services.

~~Reclassification:~~Revenue ~~Certain~~from ~~2001~~service ~~amounts~~ contracts ~~have~~and ~~been~~product ~~reclassified~~sales tois ~~conform~~recognized towhen the ~~2002~~service ~~presentation~~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.

~~Recent~~Revenue ~~Pronouncement:~~from Inmost ~~July~~Payment ~~2002~~Services ~~the~~ customers ~~Financial~~is ~~Accounting~~collected ~~Standards~~daily ~~Board~~from ~~issued~~settlement ~~Statement~~funds ofdue ~~Financial~~to ~~Accounting~~Concord’s ~~Standards~~ merchants ~~146,~~or ~~“Accounting~~through ~~for~~an ~~Costs~~automated ~~Associated~~debit ~~with~~to ~~Exit~~the customer’s oraccount ~~Disposal~~in ~~Activities~~the next month.~~” SFAS~~ ~~146~~Transaction ~~addresses~~ revenue ~~financial~~from ~~accounting~~Network ~~and~~Services ~~reporting~~customers ~~for~~is ~~costs~~recorded ~~associated~~as ~~with~~a ~~exit~~receivable orat ~~disposal~~month ~~activities~~end and ~~nullifies~~collected ~~EITF~~through ~~Issue~~a ~~94-3. The~~debit ~~principal~~to ~~difference~~the ~~between~~customer’s ~~SFAS~~account ~~146~~during ~~and~~the ~~Issue~~next ~~94-3~~month. ~~relates~~ In toaddition, ~~SFAS~~Concord ~~146’s~~records an ~~requirements~~account ~~for~~receivable ~~recognition~~when ofrevenue ais ~~liability~~recognized ~~for~~from asales ~~cost~~of ~~associated~~POS ~~with~~equipment anto ~~exit~~ Payment orServices ~~disposal activity~~customers. ~~SFAS~~ ~~146 requires that a~~

~~-4-~~Accounts and Settlement Receivables: Concord may incur losses from cardholder disputes in the case of merchant insolvency or bankruptcy for the full amount of the cardholder transaction. Based on historical losses, Concord believes its allowance for doubtful accounts is adequate. The allowance for doubtful accounts is established as losses are estimated to have occurred through a provision for bad debts charged to earnings. Losses are charged against the allowance when management confirms that a receivable balance is uncollectible. Subsequent recoveries, if any, are credited to the allowance.

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

~~Note~~NOTES ATO -CONSOLIDATED ~~Basis~~FINANCIAL ~~of Presentation,~~STATEMENTS—(Continued) ~~continued~~

~~liability~~(Unaudited) for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity’s commitment to an exit plan. The FASB concluded in SFAS 146 that an entity’s commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Therefore, SFAS 146 eliminates the definition and requirements for recognition of exit costs in Issue 94-3. SFAS 146 also establishes that fair value is the objective for initial measurement of the liability. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002.

InCash ~~October~~Equivalents: Concord ~~2002~~considers ~~the~~all ~~Financial~~ highly ~~Accounting~~liquid ~~Standards~~investments ~~Board issued Statement of Financial Accounting Standards 147,~~with a ~~“Acquisitions~~maturity of ~~Certain~~three ~~Financial~~months ~~Institutions.” SFAS~~or ~~147~~less ~~addresses~~when ~~the~~purchased ~~financial~~ to ~~accounting~~be ~~and~~cash ~~reporting~~equivalents. ~~for~~Cash ~~the~~equivalents ~~acquisition~~consist of ~~all~~federal orfunds ~~part~~sold ofthrough aConcord’s financial institution subsidiary and ismoney ~~effective~~market ~~for~~funds ~~any~~that ~~such~~invest ~~activities~~in ~~initiated~~commercial ~~after~~paper, ~~October 1~~repurchase agreements, ~~2002.~~and ~~The~~instruments ~~adoption~~ of ~~this~~ domestic ~~statement~~and isforeign ~~not~~banks ~~anticipated~~and toother ~~have a material effect on Concord’s~~ financial ~~position or results of operations~~institutions.

~~Note~~Securities BAvailable -for ~~Business~~Sale: Management ~~Combinations~~determines the appropriate classification of debt securities at the time of purchase and evaluates such designation as of each balance sheet date. ~~Acquisition~~Securities available for sale are stated at fair value, ~~Restructuring~~with the unrealized gains and ~~Write~~losses, net of tax, reported as a component of accumulated other comprehensive income in stockholders’ equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity or, in the case of mortgage-~~Off~~backed ~~Charges~~securities, over the estimated life of the security. Such amortization, interest, and dividends are included in investment income. The cost of securities sold is based on the specific identification method.

InInventories: Inventories ~~June~~are ~~2001~~stated at the ~~Financial~~lower ~~Accounting Standards Board issued Statement~~ of ~~Financial~~cost ~~Accounting~~(first-in, ~~Standards~~first-out ~~141,~~method) ~~“Business~~ or ~~Combinations~~market.~~” SFAS~~ ~~141~~Inventories ~~requires~~consist ~~that the purchase method~~ of ~~accounting~~POS beterminals ~~used~~and ~~for~~related ~~all business combinations initiated after June 30, 2001~~equipment. ~~SFAS~~Concord ~~141~~periodically ~~also~~reviews ~~includes~~its ~~guidance~~inventories ~~on the~~for obsolescence ~~initial recognition~~ and ~~measurement~~slow-moving ~~of goodwill and other intangible assets arising from business combinations completed after June 30, 2001~~items.

OnProperty ~~May~~and Equipment: Property ~~17,~~and ~~2002~~equipment ~~Concord~~are ~~acquired~~ stated ~~Core~~at ~~Data Resources, Inc~~cost., anCosts ~~electronic~~associated ~~transaction~~with ~~processor. The~~internally ~~acquisition,~~developed ~~for~~software ~~which~~ are ~~Concord~~capitalized ~~issued~~once ~~approximately~~technological ~~2.0~~feasibility ~~million shares~~ of ~~its~~the ~~common~~software ~~stock,~~has ~~was~~been ~~accounted~~established. ~~for~~Depreciation ~~as a purchase transaction and~~ is ~~immaterial~~computed ~~to Concord’s financial statements. The allocation of~~using the ~~purchase~~straight-line ~~price~~method isover ~~preliminary~~the ~~because~~estimated auseful ~~valuation~~lives ~~study~~of ~~has not yet been completed. Concord expects to complete this study in~~ the ~~fourth quarter~~assets.

OnGoodwill ~~March~~and 1,Other ~~2002~~Intangible ~~Concord~~Assets: Goodwill ~~acquired~~ and ~~The~~other ~~Logix~~intangible ~~Companies,~~assets ~~LLC,~~are anstated ~~electronic~~at ~~transaction processor~~cost. ~~The~~ ~~acquisition~~Concord adopted Statement of Financial Accounting Standards 142, ~~for~~“Goodwill ~~which~~and ~~Concord~~Other Intangible Assets” (SFAS ~~issued~~142), ~~approximately~~effective 0January 1, 2002.9 ~~million~~SFAS ~~shares~~142 prohibits the amortization of ~~its~~goodwill ~~common~~and ~~stock~~intangible assets with indefinite useful lives and ~~paid~~requires ~~approximately~~that $6these assets be reviewed for impairment at least annually.3 ~~million~~Intangible assets with finite useful inlives ~~cash~~will continue to be amortized over their estimated useful lives. Prior to the adoption of SFAS 142, amortization was ~~accounted~~computed ~~for~~using asthe astraight-line ~~purchase~~method ~~transaction~~over ~~and~~an isestimated ~~immaterial~~useful life of 10 to ~~Concord’s~~25 ~~financial~~ years ~~statements~~for goodwill. The ~~allocation~~ amortization of ~~the~~intangibles ~~purchase~~other ~~price~~than purchased merchant contracts, such as customer lists and trade names, is ~~preliminary~~computed ~~because~~using athe ~~valuation~~straight-line ~~study~~method ~~has~~ over ~~not~~an ~~yet~~estimated ~~been~~useful ~~completed.~~life ~~Concord~~of ~~expects~~5 to ~~complete~~15 ~~this~~years. ~~study~~Individual inpurchased merchant contracts are written off if the merchant ~~fourth~~has ~~quarter~~terminated its processing relationship. The remaining contracts are amortized using the straight-line method over an estimated useful life of nine years.

OnOther ~~January~~Assets: Other 1assets, ~~2002~~net ~~Concord~~of ~~acquired~~ accumulated ~~H & F Services~~amortization, ~~Inc~~include $49.,8 anmillion ~~independent~~as ~~sales~~of ~~organization~~June 30, ~~for~~2003 and $829.9 million inas ~~cash.~~ of ~~Prior~~December 31, 2002 for capitalized payments made to customers, which are amortized over the ~~acquisition,~~life ~~Concord~~of ~~had~~the ~~purchased~~customer ~~merchant~~contract ~~contracts~~and ~~through~~are Hrecoverable &on F a ~~Services.~~pro-rata ~~The~~basis ~~acquisition~~upon ~~was~~early ~~accounted~~termination. ~~for~~These aspayments arepresent reimbursement ~~purchase~~of ~~transaction~~customer ~~and~~costs isto ~~immaterial~~convert to Concord’s ~~financial~~systems ~~statements~~and contract renewal payments.

Impairment of Long-5Lived Assets: In accordance with Statement of Financial Accounting Standards 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective January 1, 2002, long-lived assets are reviewed for impairment on an annual basis and whenever events indicate that their carrying amount may not be recoverable. In such reviews, estimated undiscounted future cash flows associated with these assets or operations are compared with their carrying value to determine if a write-down to fair value, normally measured by discounting estimated future cash flows, is required.

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

Stock-Based Compensation: Concord grants options to employees and directors for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of the grant. These stock option

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

~~Note~~NOTES BTO -CONSOLIDATED ~~Business~~FINANCIAL ~~Combinations and~~STATEMENTS—(Continued) ~~Acquisition, Restructuring and Write-Off Charges, continued~~

~~Concord~~(Unaudited) owns a majority interest in Primary Payment Systems, Inc., a deposit risk management company. In April 2001 Concord increased its ownership position in Primary Payment Systems to 85.5% through the purchase of newly issued shares, which largely funded Primary Payment Systems’ acquisition of Wally Industries, Inc. d/b/a WJM Technologies. The acquisition of WJM, for which Primary Payment Systems paid approximately $20.0 million, was accounted for as a purchase transaction and is immaterial to Concord’s financial statements.

On grants ~~February~~are 1,accounted ~~2001~~for ~~Concord~~in ~~acquired~~ accordance ~~Star~~with ~~Systems,~~Accounting ~~Inc.~~Principles ~~(STARsm),~~Board aOpinion ~~debit~~25, ~~network.~~“Accounting ~~The~~for ~~acquisition~~Stock ~~was~~Issued ~~accounted for~~to asEmployees” a(APB ~~pooling~~25); accordingly, ~~of interests transaction in which~~ Concord ~~issued~~ ~~approximately 48.0~~recognizes ~~million~~no ~~shares~~compensation ofexpense ~~its~~ for ~~common~~the stock option grants.

The following table presents ~~selected~~information regarding Concord’s use of the intrinsic value method under APB 25 of accounting for stock-based compensation and states pro forma net income and earnings per share, as required ~~financial~~by ~~information~~SFAS ~~split~~123, ~~between~~ “Accounting for Stock-Based Compensation,” as if Concord ~~and~~had ~~STAR~~accounted for its stock options under the fair value method of that statement for the periods indicated (in thousands, except per share data):

	Three months endedSeptember 30,						Nine months endedSeptember 30,
		Three months endedJune 30,						Six months endedJune 30,
		2002			2001			2002			2001
		2003			2002			2003			2002
Revenue:
Net income as reported		$	86,116		$	63,218		$	163,833		$	117,427
Concord	$	568,296		$	436,198		$	1,568,616		$	1,216,034
Basic earnings per share as reported		$	0.18		$	0.12		$	0.34		$	0.23
STAR (1)		—			—			—			15,396
Diluted earnings per share as reported		$	0.17		$	0.12		$	0.33		$	0.22
Intercompany eliminations (2)		—			—			—			(524	)
Stock-based compensation cost, net of tax, included in the determination of net income as reported			—		$	4,844			—		$	4,844
Combined revenue	$	568,296		$	436,198		$	1,568,616		$	1,230,906
Stock-based compensation cost, net of tax, that would have been included in the determination of net income if the fair value method had been applied to all stock option grants		$	10,685		$	10,736		$	20,974		$	19,224
Net income:
Pro forma net income		$	75,431		$	52,482		$	142,859		$	98,203
Concord	$	94,329		$	81,456		$	211,756		$	123,718
Pro forma basic earnings per share		$	0.16		$	0.10		$	0.29		$	0.19
STAR (1)		—			—			—			2,928
Pro forma diluted earnings per share		$	0.15		$	0.10		$	0.29		$	0.18
Combined net income	$	94,329		$	81,456		$	211,756		$	126,646
Basic earnings per share combined	$	0.18		$	0.16		$	0.41		$	0.26
Diluted earnings per share combined	$	0.18		$	0.16		$	0.40		$	0.25

(1)	The 2001 amounts reflect the results of STAR operations from January 1, 2001 through January 31, 2001. Results of operations from February 1, 2001 are included in Concord amounts.
(2)	All material activity between Concord and STAR has been eliminated.

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

~~-6-~~In October 2002 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 147, “Acquisitions of Certain Financial Institutions” (SFAS 147). SFAS 147 addresses the financial accounting and reporting for the acquisition of all or part of a financial institution and is effective for any such activities initiated after October 1, 2002. The adoption of this statement is not anticipated to have a material effect on Concord’s financial statements.

In November 2002 the Financial Accounting Standards Board issued FASB Interpretation 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of

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

~~Note~~NOTES BTO -CONSOLIDATED ~~Business~~FINANCIAL ~~Combinations and Acquisition,~~STATEMENTS—(Continued) ~~Restructuring and Write-Off Charges, continued~~

~~Acquisition, restructuring and write-off charges were $29.0 million~~ (~~$18.9 million, net of taxes~~Unaudited) for the three months ended June 30, 2002. During the second quarter, management approved a plan in conjunction with the Core Data acquisition and continued consolidation initiatives to improve overall operating efficiencies. The charge consisted of $16.8 million for contract terminations, $4.1 million for exiting a non-strategic business, $1.0 million for closing and consolidating certain facilities and $0.7 million for compensation and severance. In addition, the charge included stock compensation charges of $4.8 million related to the modification of stock options of terminated employees and asset impairment charges of $1.6 million recorded as an adjustment to the write-off of non-performing purchased merchant contracts. In connection with the plan, Concord expects to eliminate 24 positions, none of which were eliminated as of September 30, 2002. As of September 30, 2002, $21.3 million of the charges were accrued but unpaid. Concord expects to complete the plan by June 30, 2003.

~~The~~ Others” ~~following~~(FIN ~~table~~45). ~~presents~~FIN 45 elaborates on the disclosures that must be made by a ~~summary~~guarantor in its interim and annual financial statements about its obligations under certain guarantees. It also clarifies that a guarantor is required to recognize, at the inception of ~~activity~~a ~~through~~guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN ~~September~~45 30are effective for financial statements of interim or annual periods ending after December 15, 2002, ~~related~~and toits ~~the~~recognition ~~second~~requirements ~~quarter~~are applicable for guarantees issued or modified after December 31, 2002. ~~restructuring~~The ~~charge~~adoption ~~accrual~~of ~~(in~~this ~~thousands):~~interpretation did not have a material effect on Concord’s financial statements.

Acquisition, restructuring and write-off charges	$	29,006
Cash outlays		1,182
Non-cash writedowns and charges - asset impairment		1,691
Non-cash writedowns and charges - other		4,845
Balance, September 30, 2002	$	21,288

In December 2002 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (SFAS 148). SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to SFAS 123’s fair value method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB 28, “Interim Financial Reporting,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While SFAS 148 does not amend SFAS 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS 123 or the intrinsic value method of APB 25. Concord intends to continue to account for stock options under the provisions of APB 25.

~~The~~In ~~following~~January ~~table~~2003 the ~~presents~~Financial aAccounting ~~summary~~Standards Board issued FASB Interpretation 46, “Consolidation of Variable Interest Entities” (FIN 46). In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the ~~remaining~~entity ~~components~~to ~~related~~support its activities. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the ~~second~~risk ~~quarter~~of ~~2002~~loss ~~restructuring~~from ~~charge~~the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation ~~accrual~~requirements (of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in ~~thousands):~~the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003 regardless of when the variable interest entity was established. Concord does not anticipate that the consolidation provisions of FIN 46 will have a material effect on its financial statements.

Contract terminations	$	16,649
Non-strategic business closures		3,093
Facility closings and consolidations		863
Compensation and severance		683
Balance, September 30, 2002	$	21,288

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

Note B—Business Combinations and Merger, Acquisition, Restructuring and Write-7- Off Charges

On April 1, 2003 First Data Corporation (First Data) and Concord entered into a definitive agreement to merge in an all-stock transaction. Upon completion of the transaction, the combined company is expected to have approximately $10.0 billion in annual revenues with more than 31,000 employees worldwide.

First Data will exchange 0.40 First Data common shares for every Concord common share. Upon completion of the transaction, based on the current shares outstanding, Concord stockholders are expected to own approximately 21% of the outstanding shares of First Data. The transaction is subject to approval by stockholders of Concord and First Data, various regulatory approvals and other customary closing conditions.

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

~~Note~~NOTES BTO -CONSOLIDATED ~~Business~~FINANCIAL ~~Combinations and~~STATEMENTS—(Continued) ~~Acquisition, Restructuring and Write-Off Charges, continued~~

~~Acquisition, restructuring and write-off charges were $47.5 million~~ (~~$30.6 million, net of taxes~~Unaudited) for the three months ended March 31, 2002. During the first quarter, management approved a corporate consolidation plan initiated to continue improvements in overall operating efficiency and integrate recent acquisitions. The charge consisted of $6.7 million for closing and consolidating certain facilities, $5.9 million for compensation and severance, and $4.5 million for exiting non-strategic businesses. In addition, asset impairment charges of $22.5 million ($0.03 basic and diluted earnings per share) were incurred for the write-off of non-performing purchased merchant contracts identified in the first quarter and $7.9 million was incurred for the write-off of capitalized software and computer and communications equipment no longer in use. In connection with the plan, Concord expects to eliminate approximately 165 positions, 142 of which were eliminated as of September 30, 2002. Compensation and severance costs paid and charged against the restructuring charge accrual were $2.9 million through September 30, 2002. As of September 30, 2002, $10.3 million of the charges were accrued but unpaid. Concord expects to complete the consolidation plan by March 31, 2003.

~~The~~Professional ~~following~~fees ~~table~~of ~~presents~~$6.1 amillion ~~summary~~and of$8.9 million related to the First Data merger were recorded during ~~activity~~the ~~through~~three ~~September~~months and six months ended June 30, ~~2002~~2003, ~~related~~respectively, toand ~~the~~are ~~first~~included ~~quarter~~in ~~2002~~merger, acquisition, restructuring ~~charge~~and ~~accrual~~write-off ~~(in~~charges. ~~thousands):~~

Acquisition, restructuring and write-off charges	$	47,500
Cash outlays		5,424
Non-cash writedowns and charges - asset impairment		31,774
Balance, September 30, 2002	$	10,302

On May 17, 2002 Concord acquired Core Data Resources, Inc. (n/k/a Concord Processing, LP), an electronic transaction processor. Core Data’s ATM processing services are designed specifically for retailers and independent sales organizations and complement Concord’s existing ATM driving and monitoring services. The acquisition, for which Concord issued approximately 2.0 million shares of its common stock valued at $64.9 million, was accounted for as a purchase transaction and is immaterial to Concord’s results of operations. The allocation of the purchase price was based on a valuation study completed in the fourth quarter of 2002.

On March 1, 2002 Concord acquired The Logix Companies, LLC, an electronic transaction processor. Logix technology supplies new features to Concord’s check conversion and risk management services, and the Logix ATM driving business serves independent sales organizations. The acquisition, for which Concord issued approximately 0.9 million shares of its common stock valued at $28.8 million and paid approximately $6.3 million in cash, was accounted for as a purchase transaction and is immaterial to Concord’s results of operations. The allocation of the purchase price was based on a valuation study completed in the fourth quarter of 2002.

On January 1, 2002 Concord acquired H & F Services, Inc., an independent sales organization, for $8.9 million in cash. Prior to the acquisition, Concord had purchased merchant contracts from H & F Services. The acquisition was intended to establish control over this sales channel with product, pricing, compensation, and productivity initiatives. The acquisition was accounted for as a purchase transaction and is immaterial to Concord’s financial statements. The H & F Services stock purchase agreement contains deferred purchase price payments through 2007 subject to the terms and conditions contained therein. As of June 30, 2003, the deferred payments amounted to $3.1 million.

During the second quarter of 2002, management approved a plan in conjunction with the Core Data acquisition and continued consolidation initiatives to improve overall operating efficiencies. Merger, acquisition, restructuring and write-off charges relating to the second quarter 2002 plan were $27.9 million. The charge consisted of $16.2 million for contract terminations, $3.8 million for exiting a non-strategic business, $0.6 million for closing and consolidating certain facilities, and $0.9 million for compensation and severance. In addition, the charge included stock compensation charges of $4.8 million related to the modification of stock options of terminated employees and asset impairment charges of $1.6 million recorded as an adjustment to the write-off of non-performing purchased merchant contracts. In connection with the plan, Concord eliminated 24 positions as of June 30, 2003. Compensation and severance costs paid and charged against the restructuring charge accrual were $0.3 million through June 30, 2003. As of June 30, 2003, $0.7 million of the charges were accrued but unpaid. Concord substantially completed the plan by June 30, 2003.

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

Balance, December 31, 2002	$	3,876
Changes in estimate		(414	)
Cash outlays		(2,608	)
Non-cash writedowns and charges—asset impairment		(190	)

Balance, June 30, 2003	$	664

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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

Non-strategic business closures	$	50
Facility closings and consolidations		50
Compensation and severance		564

Balance, June 30, 2003	$	664

During the first quarter of 2002, management approved a corporate consolidation plan initiated to continue improvements in overall operating efficiency and integrate recent acquisitions. Merger, acquisition, restructuring and write-off charges relating to the first quarter 2002 plan were $46.1 million. The charge consisted of $7.2 million for closing and consolidating certain facilities, $5.5 million for compensation and severance, and $3.0 million for exiting non-strategic businesses. In addition, asset impairment charges of $22.5 million were incurred for the write-off of non-performing purchased merchant contracts identified in the first quarter of 2002 and $7.9 million was incurred for the write-off of capitalized software and computer and communications equipment no longer in use. In connection with the plan, Concord eliminated approximately 165 positions as of March 31, 2003. Compensation and severance costs paid and charged against the restructuring charge accrual were $5.4 million through June 30, 2003. As of June 30, 2003, $3.9 million of the charges were accrued but unpaid. Concord substantially completed the consolidation plan by March 31, 2003.

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

Balance, December 31, 2002	$	6,852
Changes in estimate		(563	)
Cash outlays		(2,405	)

Balance, June 30, 2003	$	3,884

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

Facility closings and consolidations	$	5,333
Facility closings and consolidations (lease obligations)		$	3,764
Compensation and severance		~~2,981~~	102
Non-strategic business closures		~~1,988~~	18
Balance, September 30, 2002	$	10,302
Balance, June 30, 2003		$	3,884

~~-8-~~Note C—Goodwill and Other Intangible Assets

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

	Network Services		Payment Services			Total
Balance, December 31, 2002	$	193,943	$	71,517		$	265,460
Purchase price adjustment		—		(420	)		(420	)

Balance, June 30, 2003	$	193,943	$	71,097		$	265,040

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

~~Note~~NOTES BTO -CONSOLIDATED ~~Business~~FINANCIAL ~~Combinations and Acquisition,~~STATEMENTS—(Continued) ~~Restructuring and Write-Off Charges, continued~~

~~Acquisition, restructuring and write-off charges were $125.4 million~~ (~~$86.4 million, net of taxes~~Unaudited) for the three months ended March 31, 2001. The charges were a result of a company-wide consolidation plan to address areas of operating redundancies created by recent acquisitions. The plan included consolidation of data centers and other facilities to eliminate redundancies, the reassignment or termination of certain employees timed to coincide with the integration of redundant processing platforms, and the functional integration of the STAR organization into Concord. The charges consisted of $63.9 million for combining various processing platforms, $16.0 million for the consolidation of duplicate products and internal systems, $15.6 million for advisory, legal, and accounting fees, $19.1 million for the termination of certain data center services contracts, $9.8 million for compensation and severance costs, and $1.0 million for other expenses. In connection with the consolidation plan, Concord expected to eliminate approximately 250 positions, all of which were eliminated as of March 31, 2002. Compensation and severance costs paid and charged against the restructuring charge accrual were $9.8 million through March 31, 2002. As of March 31, 2002, the consolidation activities were substantially completed, and there was no remaining balance related to the 2001 restructuring charge accrual.

The ~~following~~purchase ~~table~~price ~~presents~~adjustment arepresents ~~summary~~the reversal of ~~current~~estimated ~~year~~accrued ~~activity~~liabilities ~~through~~in connection ~~March 31,~~with ~~2002 related to~~ the ~~2001~~acquisition ~~restructuring~~of ~~charge~~H ~~accrual~~& ~~(in~~F ~~thousands):~~ Services.

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

Note D—Comprehensive Income

~~Note~~Total Ccomprehensive -income ~~Goodwill~~was $83.7 million and $79.5 ~~Other~~million ~~Intangible~~for ~~Assets~~the three months ended June 30, 2003 and 2002, respectively. Total comprehensive income was $158.7 million and $128.9 million for the six months ended June 30, 2003 and 2002, respectively. Comprehensive income includes net income and the change in the unrealized gain or loss on securities available for sale arising during the period.

InNote ~~June~~E—Commitments ~~2001 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 142, “Goodwill~~ and ~~Other~~Contingencies Intangible Assets.” SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. SFAS 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives.

During the second quarter of 2003, Concord ~~adopted~~entered ~~SFAS~~into ~~142~~amended ~~effective~~and ~~January~~ restated 1agreements for the financing, ~~2002~~construction and leasing of a new corporate headquarters in Memphis, Tennessee. ~~Concord~~These ~~has~~agreements ~~tested~~amend ~~goodwill~~the previous ~~for~~agreements ~~impairment~~entered ~~using~~into during the ~~two-step~~third ~~process~~quarter ~~prescribed~~ of 2002 for the Memphis facility to include leasing existing facilities in ~~SFAS~~Wilmington, ~~142~~Delaware, and Marietta, Georgia that were covered under other leasing agreements. The ~~first~~agreements ~~step~~qualify for isoperating alease ~~screen~~accounting ~~for~~treatment ~~potential~~under ~~impairment~~Statement of Financial Accounting Standards 13, ~~while~~“Accounting ~~the~~For ~~second~~ Leases,” ~~step~~and, ~~measures~~as such, the ~~amount~~related ofassets ~~the~~and ~~impairment,~~obligations ifare ~~any.~~not recorded on Concord’s ~~has~~balance ~~performed~~sheet. ~~the~~Upon ~~first~~completion of construction of the ~~required~~Memphis ~~impairment~~facility, ~~tests~~which ~~for~~is ~~goodwill~~expected asin ofthe ~~January~~fourth 1quarter of 2003, ~~2002~~rent payments will begin and ~~has~~will ~~determined~~ be ~~that~~expensed ~~the~~in ~~carrying~~Concord’s ~~amount~~statements of ~~goodwill~~income. isThe minimum lease payments under these agreements are not ~~impaired.~~material to Concord. The following table summarizes certain aspects of these agreements:

-9-

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

The renewals, including economic terms of the leases during the renewal term, are subject to the consent of the lessor and lenders. In addition to the renewal option, Concord also has the option of purchasing the related property for the lease balance or remarketing the property for the lessor at the end of the initial and any renewal term. Concord has guaranteed the value realizable from the sale of the property at the end of the lease term as indicated in the table above. Should Concord elect to market the property for the lessor at the end of the lease term, Concord would be responsible for the difference in the sale proceeds and the value guaranteed above. As of June 30, 2003, the fair value of the guarantee of $1.5 million was recorded as other assets and other liabilities on Concord’s balance sheet and will be amortized using the straight-line method over the lease term. Based on current market conditions, Concord does not expect to be required to make payments under these residual value guarantees.

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

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

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

~~Note~~NOTES CTO -CONSOLIDATED ~~Goodwill~~FINANCIAL ~~and Other Intangible~~STATEMENTS—(Continued) ~~Assets, continued~~

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

	Three months endedSeptember 30,				Nine months endedSeptember 30,
	2002		2001		2002		2001
Reported net income	$	94,329	$	81,456	$	211,756	$	126,646
Goodwill amortization, net of tax		—		2,485		—		7,176
Adjusted net income	$	94,329	$	83,941	$	211,756	$	133,822
Adjusted basic earnings per share	$	0.18	$	0.17	$	0.41	$	0.27
Adjusted diluted earnings per share	$	0.18	$	0.16	$	0.40	$	0.26

Concord and certain of its current and former directors and officers have been named as defendants in a purported securities fraud class action lawsuit and two stockholder derivative actions which were filed in September 2002 in the United States District Court for the Western District of Tennessee and in the Circuit Court for the Thirtieth Judicial District at Memphis. The lawsuits raise allegations relating to Concord’s financial performance between March 2001 and September 2002, changes in the price of Concord’s common stock during that time, alleged failures to disclose material facts, and alleged insider trading and breaches of fiduciary duties by certain officers and certain directors. On April 21, 2003 the plaintiffs in the Tennessee state court derivative action filed a consolidated complaint which adds allegations that the defendants arranged the proposed merger with First Data at a below market price in return for indemnification against alleged prior wrong doing and for other benefits to them personally. The lawsuits seek unspecified compensatory and punitive damages, attorneys’ fees, and other relief. In addition, the Tennessee state court derivative action seeks an injunction against the proposed merger. Although these matters are in the preliminary stages, Concord believes that the claims against it and its directors and officers are without merit and intends to vigorously defend against all claims. Any losses incurred by Concord in connection with this litigation may be covered in part by Concord’s directors’ and officers’ liability insurance.

~~The~~On ~~following~~April ~~table~~1, ~~presents~~2003 ~~the~~Concord ~~allocation~~filed a motion to ofdismiss ~~unamortized~~the ~~goodwill~~consolidated toamended ~~Concord’s~~complaint ~~reporting~~filed ~~units~~in (the shareholder derivative litigation pending in ~~thousands):~~the United States District Court for the Western District of Tennessee. This motion was fully briefed as of May 30, 2003, but has yet to be ruled on by the court.

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

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

~~The~~On ~~following~~June ~~table~~20, 2003 ~~presents~~ Concord’s ~~amortization~~filed ~~expense~~a ~~relating~~motion to ~~other~~dismiss ~~intangible assets as of December 31, 2001 for~~ the ~~periods~~consolidated ~~indicated,~~complaint ~~net~~filed ~~of the write-off of non-performing purchased merchant contracts of $22,496~~ in the ~~three~~shareholder ~~months~~derivative ~~ended~~litigation ~~March~~pending ~~31, 2002 and $1,611~~ in ~~the~~ Tennessee ~~three~~state ~~months~~court. ~~ended~~This ~~June~~motion ~~30,~~has ~~2002~~yet ~~included~~to inbe ~~acquisition,~~ruled ~~restructuring~~on ~~and~~by ~~write-off~~ the ~~charges~~court. ~~as described in Note B (in thousands):~~

2002	$	12,486
2003		7,925
2004		7,873
2005		7,873
2006		7,698
Thereafter		17,750
Total	$	61,605

On or about April 3 and 4, 2003 two purported class action complaints were filed in the Circuit Court of Tennessee for the Thirtieth Judicial District at Memphis. The defendants in these actions are certain of Concord’s current and former officers and directors. The complaints generally allege breaches of the defendants’ duty of loyalty and due care in connection with the defendants’ alleged attempt to sell Concord without maximizing the value to shareholders in order to advance the defendants’ alleged individual interests in obtaining indemnification agreements related to the securities and other derivative litigation discussed above. The complaints seek class certification, injunctive relief directing the defendants’ conduct in connection with an alleged sale or auction of Concord, reasonable attorneys’ fees, experts’ fees and other costs and relief the court deems just and proper. These complaints were consolidated into one action and transferred to the division of the Shelby County Circuit Court in which the Tennessee consolidated state-court derivative action is pending. Although these matters are in the preliminary stages, Concord believes that the claims against its officers and directors are without merit and intends to vigorously contest these claims.

~~-10-~~On or about April 2, 2003 a purported class action complaint was filed in the Chancery Court for Shelby County, Tennessee. The defendants are Concord, certain of its current and former officers and directors, and First Data. The complaint contains allegations regarding the individual defendants’ alleged insider trading and alleged violations of securities and other laws and asserts that this alleged misconduct reduced the consideration offered to Concord’s shareholders in the proposed merger between Concord and First Data. The complaint seeks class certification, attorneys’ fees, expert fees, costs and other relief the court deems just and proper. The complaint seeks an order enjoining consummation of the merger, rescinding the merger if it is consummated and setting it

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

~~Note~~NOTES DTO -CONSOLIDATED ~~Comprehensive~~FINANCIAL Income Total comprehensive income was $100.4 million and $84.4 million for the three months ended September 30, 2002 and 2001, respectively. Total comprehensive income was $229.2 million and $135.9 million for the nine months ended September 30, 2002 and 2001, respectively. Comprehensive income includes net income and the change in the unrealized gain or loss on securities available for sale arising during the period. Note E - Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share STATEMENTS—(~~in thousands, except per share data~~Continued):

	Three months endedSeptember 30,				Nine months endedSeptember 30,
	2002		2001		2002		2001
Numerator:
Net income	$	94,329	$	81,456	$	211,756	$	126,646
Denominator:
Denominator for basic earnings per share, weighted-average shares		512,546		503,193		510,973		491,102
Effect of dilutive stock options		15,310		21,317		19,282		21,217
Denominator for diluted earnings per share, adjusted weighted-average shares, and assumed conversions		527,856		524,510		530,255		512,319
Basic earnings per share	$	0.18	$	0.16	$	0.41	$	0.26
Diluted earnings per share	$	0.18	$	0.16	$	0.40	$	0.25

(Unaudited)

~~Excluding acquisition, restructuring, write-off, and litigation~~ aside ~~settlement~~or ~~charges~~awarding ~~and~~rescissory ~~related~~damages ~~taxes,~~to ~~diluted~~members ~~earnings~~of ~~per share for~~ the ~~three~~putative ~~months ended September 30~~class, ~~2002~~ and ~~2001~~ directing ~~were~~the ~~$0.17~~defendants ~~and~~to ~~$0.16,~~account ~~respectively,~~to ~~and for~~ the ~~nine~~putative ~~months~~class ~~ended~~members ~~September~~for ~~30, 2002 and 2001 were $0.50 and $0.42,~~unspecified ~~respectively~~damages. ~~Earnings per share and related per share data have been restated to reflect all stock splits. Note F - Common Stock Repurchase Plan~~ On ~~August~~June 525, ~~2002~~2003 ~~Concord~~this ~~announced~~complaint ~~that~~was ~~its~~transferred ~~Board~~to ~~of Directors approved~~ the ~~repurchase~~Shelby ofCounty upCircuit toCourt ~~$250.0~~in ~~million~~which ~~of Concord’s common stock. Under~~ the ~~repurchase~~now ~~plan,~~consolidated ~~Concord~~class ~~may~~actions ~~buy~~filed ~~back~~April ~~shares~~3 ofand ~~its~~4 ~~outstanding~~are ~~stock~~pending. ~~from~~This ~~time~~ complaint tois ~~time~~proceeding ~~either~~as ona ~~the~~separate ~~open~~complaint ~~market~~from orthat ~~through~~consolidated complaint ~~privately~~but ~~negotiated~~has ~~transactions.~~been Aconsolidated ~~total~~with ofthat ~~4.5~~complaint ~~million~~for ~~shares~~pre-trial ~~at an aggregate cost of $68~~purposes.4 ~~million~~Although ~~have~~this ~~been~~matter ~~purchased~~is ~~and~~in ~~retired for~~ the ~~three~~preliminary ~~months ended September 30~~stages, ~~2002. On November 7, 2002~~ Concord ~~announced~~believes that ~~its Board of Directors approved~~ the ~~repurchase~~ ofclaims anare ~~additional~~without ~~$150.0 million~~merit ofand ~~Concord’s common~~intends ~~stock. The Board’s approval brings the total potential repurchase~~ to ~~$400.0 million. Concord~~vigorously ~~immediately~~contest ~~retires~~these ~~its common stock when purchased~~claims. ~~Upon retirement, Concord reduces retained earnings for the excess of purchase price over par value.~~

On April 1, 2003 First Data and Concord entered into a definitive agreement to merge in an all-~~11-~~stock transaction. The transaction is subject to regulatory approval by the Antitrust Division of the Department of Justice and certain state Attorneys General. These agencies are investigating the transaction for possible antitrust concerns. The Department of Justice issued a Request for Additional Information and Documentary Materials to Concord on June 12, 2003. Concord is endeavoring to comply with that request as quickly as possible. First Data and Concord may be unable to obtain the regulatory approvals required to complete the merger or, in order to do so, the combined company may be required to comply with material restrictions or conditions.

Although Concord anticipates that antitrust regulatory clearance will be achieved within the second half of this year, delay, denial or condition of such clearance could result in loss or disadvantage to Concord.

In June 2002 Concord EFS National Bank, Concord, and John Doe Corporations were named as defendants in a purported class action lawsuit filed in the United States District Court for the Western District of Tennessee. The plaintiffs allege that Concord changed fees and charges without providing the requisite notice, charged merchants for transactions that never occurred, and failed to route payments in accordance with the plaintiffs’ instructions. The plaintiffs allege fraud, breach of contract, conversion, and causes of action under the Tennessee Consumer Protection Act and the Racketeer Influenced and Corrupt Organizations Act (RICO). The class plaintiffs seek to certify consists of all merchant customers of Concord EFS National Bank, Concord, or John Doe Corporations, who were subject to charges that were not fully disclosed on their statements, charges for transactions which the merchant never undertook, and/or charges in excess of the amount agreed upon in their contracts. The lawsuit seeks unspecified compensatory and punitive damages, attorneys’ fees, and other relief. Concord has moved to dismiss all claims, but the court has not yet ruled on the motion. Although this matter is in the preliminary stages, Concord believes that the claims against it are without merit and intends to vigorously defend against all claims.

In November 2002 Concord EFS National Bank was named one of several defendants in a lawsuit in the Superior Court of California, County of Santa Clara. The plaintiff makes several allegations, including breach of contract, fraud and negligent misrepresentation arising out of business transactions between the plaintiff and Purchase Plus Buyers Group, an entity which formerly processed credit card transactions through Concord EFS National Bank. This lawsuit, for which Concord EFS National Bank was recently served, seeks compensatory damages in the amount of $55,000 and punitive damages in the amount of $195.0 million. Although this matter is in the very preliminary stages, Concord believes that the claims are without merit and intends to vigorously contest these claims.

In September 2002 Concord was named as a defendant in a purported class action lawsuit filed in New Jersey state court. The plaintiff alleges that Concord wrongfully allowed and facilitated surcharges on electronic benefits transfer (EBT) withdrawals at ATMs within its network. The plaintiff’s four original claims were for violation of N.J.S.A. 44:10-75(c) (which concerns New Jersey’s EBT program), violation of New Jersey’s Consumer Fraud Act, negligence, and breach of contract (as an alleged third-party beneficiary). The plaintiff seeks certification of a class consisting of all New Jersey public assistance recipients participating in the New

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

~~Note~~NOTES GTO -CONSOLIDATED ~~Stock~~FINANCIAL ~~Split~~STATEMENTS—(Continued) The Board of Directors approved a two-for-one stock split on August 30, 2001. Shareholders of record as of September 14, 2001 were distributed additional shares on September 28, 2001. All share data, earnings per share, and per share data have been restated to reflect the stock split. Note H - Offering of Common Stock In June 2001 Concord issued and sold approximately 17.8 million shares of its common stock pursuant to a registration statement filed with the Securities and Exchange Commission. Pursuant to the same registration statement, the selling stockholders named in the registration statement sold approximately 34.1 million shares of Concord common stock. Most of the selling stockholders were the previous owners of STAR who received unregistered common stock of Concord in connection with the February 1, 2001 acquisition. Net of the underwriting discount and other expenses of the offering, Concord received $420.6 million for the common stock it issued and sold. Concord did not receive any proceeds from the sale of shares by the selling stockholders. Note I - Operations by Business Segment Concord has two reportable segments: Network Services and Payment Services. Network Services revenue consists of processing fees for driving and monitoring ATMs, processing fees for managing debit card records, and access and switching fees for network access, plus the network fees charged by the debit networks and collected by Concord. Revenue from Payment Services primarily includes discount fees charged to merchants, which are a percentage of the dollar amount of each credit card transaction Concord processes, as well as a flat fee per transaction. The discount fee, primarily charged to smaller merchants, is negotiated with each merchant and typically constitutes a bundled rate for the transaction authorization, processing, settlement, and funds transfer services Concord provides, plus the interchange fees charged by the credit card associations and collected by Concord. The balance of Payment Services revenue is derived from transaction fees for processing debit card and electronic benefits transfer card transactions, check verification and authorization services, and sales of POS terminals from inventory.

~~-12-~~ (Unaudited)

Jersey EBT program who, since March 24, 1997, withdrew their cash benefits from ATMs serviced and processed by Concord and incurred a surcharge per EBT withdrawal. The lawsuit seeks unspecified compensatory and punitive damages, attorneys’ fees, and injunctive and other relief.

Concord moved to dismiss all four claims. At a hearing on March 7, 2003, the court found that the claim for violation of N.J.S.A. 44:10-75(c) should be dismissed with prejudice and that the claims for violation of New Jersey’s Consumer Fraud Act and for breach of contract should be dismissed without prejudice, but the court denied Concord’s motion to dismiss as to the negligence claim. On April 6, 2003 an Amended Complaint was filed alleging violation of New Jersey’s Consumer Fraud Act and negligence and seeking unspecified compensatory and punitive damages, attorneys’ fees, and injunctive and other relief. Although this matter is in the preliminary stages, Concord believes that the claims against it are without merit and intends to vigorously defend against all claims.

In October 1996 Commonwealth Savings Bank (Commonwealth) filed a lawsuit against CoreStates Financial Corp. (CoreStates) in the Court of Common Pleas of Chester County, Pennsylvania. On August 6, 1997 Commonwealth added MONEY ACCESS SERVICE INC. (MASI), a Concord subsidiary, as a defendant therein, alleging that MASI is liable to Commonwealth for an amount in excess of $3.6 million based on claims arising out of alleged errors in the conversion of certain Meridian Bank branches to the MAC network and MASI processing at the time the branches were acquired by Commonwealth from CoreStates and CoreStates’ affiliates. Discovery is complete. The court has struck various reports and portions of reports submitted by Commonwealth’s damages experts. At a deposition in March 2000, Commonwealth’s expert testified to a damages calculation of $4.2 million. On November 15, 2002 CoreStates and MASI filed motions for partial summary judgment on all but a small part of Commonwealth’s remaining claim, which were denied on April 15, 2003. This case has been set for trial in February 2004. Concord believes that the claims against it are without merit and intends to continue to vigorously defend against all claims.

Concord is also a party to various routine lawsuits arising out of the conduct of its business, none of which is expected to have a material adverse effect upon Concord’s financial condition or results of operations.

Note F—Stockholders’ Equity

During the third and fourth quarters of 2002, Concord’s Board of Directors approved the repurchase of up to $500.0 million of its common stock. On July 29, 2003 Concord announced that its Board of Directors approved the repurchase of an additional $200.0 million of its common stock. Under the repurchase plan, Concord may buy back shares of its outstanding stock from time to time either on the open market or through privately negotiated transactions. The Board’s approvals bring the total potential repurchase to $700.0 million. As of June 30, 2003, a total of 26.9 million shares at an aggregate cost of $393.5 million had been purchased and retired pursuant to the repurchase plan since the plan was initiated. All repurchases were made in the third and fourth quarters of 2002 in the open market without the use of any derivative instruments. Due to the imposition of a blackout period during and following the negotiation and execution of the merger agreement with First Data, there were no shares repurchased during the six months ended June 30, 2003. Concord immediately retires its common stock when purchased. Upon retirement, Concord reduces retained earnings for the excess of purchase price over par value.

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

~~Note~~NOTES ITO -CONSOLIDATED ~~Operations~~FINANCIAL ~~by Business Segment, continued Business segment information for the three months and nine months ended September 30, 2002 and 2001 is presented below~~ STATEMENTS—(~~in thousands~~Continued):

	Three months ended September 30, 2002
	NetworkServices		PaymentServices		Other			Total
Revenue	$	209,407	$	358,889	$	—		$	568,296
Cost of operations		115,129		305,957		—			421,086
Selling, general and administrative expenses		—		—		31,233			31,233
Acquisition, restructuring and write-off charges		—		—		—			—
Litigation settlement charges (credits)		—		—		(11,000	)		(11,000	)
Other income		—		—		1,023			1,023
Investment income		—		—		20,653			20,653
Interest expense		—		—		3,054			3,054
Income taxes		—		—		50,959			50,959
Minority interest in subsidiary		—		—		311			311
Net income (loss)	$	94,278	$	52,932	$	(52,881	)	$	94,329
	Three months ended September 30, 2001
	NetworkServices		PaymentServices		Other			Total
Revenue	$	165,009	$	271,189	$	—		$	436,198
Cost of operations		84,239		220,175		—			304,414
Selling, general and administrative expenses		—		—		22,348			22,348
Acquisition, restructuring and write-off charges		—		—		—			—
Litigation settlement charges (credits)		—		—		—			—
Other income		—		—		876			876
Investment income		—		—		19,702			19,702
Interest expense		—		—		3,510			3,510
Income taxes		—		—		44,910			44,910
Minority interest in subsidiary		—		—		138			138
Net income (loss)	$	80,770	$	51,014	$	(50,328	)	$	81,456

(Unaudited)

~~-13-~~ Note G—Earnings Per Share

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

	Three months ended June 30,				Six months ended June 30,
	2003		2002		2003		2002
Numerator:
Net income	$	86,116	$	63,218	$	163,833	$	117,427

Denominator:
Denominator for basic earnings per share, weighted-average shares		486,642		511,673		486,554		510,186
Effect of dilutive stock options		11,520		20,965		10,106		21,269

Denominator for diluted earnings per share, weighted-average shares and assumed conversions		498,162		532,638		496,660		531,455

Basic earnings per share	$	0.18	$	0.12	$	0.34	$	0.23

Diluted earnings per share	$	0.17	$	0.12	$	0.33	$	0.22

The number of anti-dilutive stock options not included above was 14,720,501 shares and 7,043,500 shares for the three months ended June 30, 2003 and 2002, respectively. The number of anti-dilutive stock options not included above was 16,768,173 shares and 6,790,750 shares for the six months ended June 30, 2003, and 2002, respectively.

Note H—Operations by Business Segment

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

Network Services revenue consists of access and switching fees for network access, processing fees for driving and monitoring ATMs, and processing fees for managing debit card records, plus network fees charged to Concord by other networks and billed to its customers.

Revenue from Payment Services includes discount fees charged to merchants, which are a percentage of the dollar amount of each credit card or signature debit card transaction Concord processes, as well as a flat fee per transaction. These discount and flat fees constitute a bundled rate for the transaction authorization, processing, settlement, and funds transfer services Concord provides, plus the interchange fees charged to Concord by the card associations. Payment Services revenue also includes fees for debit card and EBT card transactions, check verification and authorization services, and sales of POS terminals from inventory. Debit card and EBT card transactions are similar to credit card transactions in that the bundled fee Concord charges to a merchant includes the transaction authorization, processing, settlement, and funds transfer services Concord provides, plus the interchange and network fees charged to Concord by the debit networks.

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

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

~~Note~~NOTES ITO -CONSOLIDATED ~~Operations~~FINANCIAL ~~by Business Segment, continued~~STATEMENTS—(Continued)

	Nine months ended September 30, 2002
	NetworkServices		PaymentServices		Other			Total
Revenue	$	600,213	$	968,403	$	—		$	1,568,616
Cost of operations		319,018		806,343		—			1,125,361
Selling, general and administrative expenses		—		—		88,372			88,372
Acquisition, restructuring and write-off charges		—		—		76,506			76,506
Litigation settlement charges (credits)		—		—		9,761			9,761
Other income		—		—		7,937			7,937
Investment income		—		—		59,723			59,723
Interest expense		—		—		8,816			8,816
Income taxes		—		—		115,033			115,033
Minority interest in subsidiary		—		—		671			671
Net income (loss)	$	281,195	$	162,060	$	(231,499	)	$	211,756
	Nine months ended September 30, 2001
	NetworkServices		PaymentServices		Other			Total
Revenue	$	468,995	$	761,911	$	—		$	1,230,906
Cost of operations		254,288		620,013		—			874,301
Selling, general and administrative expenses		—		—		69,450			69,450
Acquisition, restructuring and write-off charges		—		—		125,362			125,362
Litigation settlement charges (credits)		—		—		—			—
Other income		—		—		3,068			3,068
Investment income		—		—		50,424			50,424
Interest expense		—		—		9,890			9,890
Income taxes		—		—		78,438			78,438
Minority interest in subsidiary		—		—		311			311
Net income (loss)	$	214,707	$	141,898	$	(229,959	)	$	126,646

(Unaudited)

~~-14-~~Concord’s reportable segments are business units that are managed separately because they offer distinct products for different end users. No single customer of Concord accounts for a material portion of Concord’s revenue.

As previously disclosed, Concord had expected to organize a new segment during the 2003 fiscal year. The new Risk Management Services segment would provide software, information, and analysis to financial institutions, retailers, government service providers, and other businesses to assist in fraud prevention and reduction. In part as a result of Concord’s recently announced agreement and plan of merger with First Data, it has not yet determined when Concord will organize a Risk Management Services segment.

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

	Three months ended June 30, 2003
	Network Services		Payment Services		Other			Total
Revenue	$	164,127	$	405,919	$	—		$	570,046
Cost of operations		66,030		355,355		—			421,385
Selling, general and administrative expenses		—		—		34,428			34,428
Merger, acquisition, restructuring and write-off charges		2,260		3,302		—			5,562
Litigation settlement charges		—		—		—			—
Investment income		—		—		14,553			14,553
Interest expense		—		—		2,000			2,000
Other income, net		—		—		11,689			11,689
Income taxes		—		—		46,519			46,519
Minority interest in subsidiary		—		—		278			278

Net income (loss)	$	95,837	$	47,262	$	(56,983	)	$	86,116

	Three months ended June 30, 2002
	Network Services		Payment Services		Other			Total
Revenue	$	155,153	$	333,028	$	—		$	488,181
Cost of operations		58,954		272,944		—			331,898
Selling, general and administrative expenses		—		—		32,357			32,357
Merger, acquisition, restructuring and write-off charges		19,500		9,506		—			29,006
Litigation settlement charges		—		—		20,761			20,761
Investment income		—		—		19,498			19,498
Interest expense		—		—		2,656			2,656
Other income, net		—		—		6,388			6,388
Income taxes		—		—		34,086			34,086
Minority interest in subsidiary		—		—		85			85

Net income (loss)	$	76,699	$	50,578	$	(64,059	)	$	63,218

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

~~Note~~NOTES JTO -CONSOLIDATED ~~Contingencies~~FINANCIAL STATEMENTS—(Continued)

In(Unaudited) September 2000 EFS National Bank was named as a defendant in a purported class action lawsuit filed in the Circuit Court of Tennessee for the Thirtieth Judicial District at Memphis alleging that certain of EFS National Bank’s rate and fee changes were improper under Tennessee law due to allegedly deficient notice. On May 14, 2002 the plaintiffs filed a second amended complaint alleging that the class consists of over 100,000 merchants who were subjected to the allegedly improper rate and fee changes over a several-year period. The second amended complaint sought damages in excess of $70.0 million as well as injunctive relief and unspecified punitive damages, treble damages, attorney fees, and costs.

On May 16, 2002 the parties entered into a settlement agreement relating to this litigation and received preliminary approval from the trial court therefor. On August 6, 2002 the trial court rejected the only objection filed against the settlement agreement and gave the settlement agreement its final approval. The objector and his counsel subsequently reached an agreement with EFS National Bank, plaintiffs and counsel for the plaintiffs, pursuant to which EFS National Bank contributed an immaterial amount. As a result, no appeal was taken, and thus the settlement is now final and unappealable. The maximum amount of the credits and payments by EFS National Bank under the settlement is $37.6 million, payable over a five-year period. In connection with the settlement, Concord initially recorded a charge of $20.8 million ($13.5 million, net of taxes) for the three months ended June 30, 2002. The charge was less than $37.6 million, because the credits and payments are contingent upon merchant retention and submission of claims.

	Six months ended June 30, 2003
	Network Services		Payment Services		Other			Total
Revenue	$	319,173	$	770,732	$	—		$	1,089,905
Cost of operations		131,596		667,250		—			798,846
Selling, general and administrative expenses		—		—		66,254			66,254
Merger, acquisition, restructuring and write-off charges		3,704		4,245		—			7,949
Litigation settlement charges		—		—		—			—
Investment income		—		—		29,263			29,263
Interest expense		—		—		4,369			4,369
Other income, net		—		—		11,148			11,148
Income taxes		—		—		88,514			88,514
Minority interest in subsidiary		—		—		551			551

Net income (loss)	$	183,873	$	99,237	$	(119,277	)	$	163,833

On September 17, 2002 EFS National Bank paid plaintiffs’ counsel and the named plaintiffs a total of $5.0 million, as required by the settlement agreement. The deadline for the submission of claims by class members was September 16, 2002. Approximately 150,000 class members were eligible to make claims, but less than 3,000 valid claims were actually submitted. In the fourth quarter the court-appointed claims administrator is expected to submit a report on the total amount of the valid claims submitted. Based on the low number of valid claims submitted, Concord has reduced the charge by $11.0 million ($7.2 million, net of taxes) for the three months ended September 30, 2002. EFS National Bank is also responsible for the costs of claims administration and for its own costs and expenses, including attorneys’ fees.

	Six months ended June 30, 2002
	Network Services		Payment Services		Other			Total
Revenue	$	300,348	$	609,514	$	—		$	909,862
Cost of operations		113,431		500,386		—			613,817
Selling, general and administrative expenses		—		—		57,139			57,139
Merger, acquisition, restructuring and write-off charges		31,278		45,228		—			76,506
Litigation settlement charges		—		—		20,761			20,761
Investment income		—		—		39,070			39,070
Interest expense		—		—		5,762			5,762
Other income, net		—		—		6,914			6,914
Income taxes		—		—		64,074			64,074
Minority interest in subsidiary		—		—		360			360

Net income (loss)	$	155,639	$	63,900	$	(102,112	)	$	117,427

A17 purported class action complaint with similar allegations and requests for relief was filed in St. Charles County, Missouri. That action was dismissed with prejudice in connection with the settlement of the Tennessee case.

Concord and its directors and certain of its officers have been named as defendants in a number of securities fraud class action lawsuits and shareholder derivative actions. The lawsuits all raise allegations relating to Concord’s financial performance between October 2001 and September 2002, changes in the price of Concord’s common stock during that time, alleged failures to disclose material facts, and alleged insider trading by certain officers and directors. The lawsuits seek unspecified compensatory and punitive damages, attorneys’ fees, and injunctive and other relief. Certain of these lawsuits have been consolidated. Although these matters are in the preliminary stages, Concord believes that the claims against it and its directors and officers are without merit and intends to vigorously defend against all claims.

-15-

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

~~Note~~MANAGEMENT’S KDISCUSSION -AND ~~Other~~ANALYSIS ~~Income~~ OF

~~Other~~FINANCIAL ~~income~~CONDITION ~~for~~AND ~~the~~RESULTS ~~nine~~OF ~~months~~OPERATIONS ended September 30, 2002 includes $5.9 million representing the sale of certain terminal hardware and related future rental payments. The remaining other income represents net realized gain on sales of securities available for sale.

~~Note~~Item L2. Management’s -Discussion ~~Investment~~and ~~Income~~Analysis of Financial Condition and Results of Operations

~~Investment~~You ~~income~~should ~~for~~read the following ~~three~~discussion together with our consolidated financial statements and ~~nine~~ the ~~months~~notes ~~ended~~to ~~September~~those 30financial statements, ~~2002~~which ~~includes~~are $1included in this report.8 ~~million~~This ~~representing~~report ~~unrealized~~may ~~gains~~contain or incorporate by reference forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and ~~losses~~Section ~~from~~21E ~~alternative~~of ~~investments~~the Securities Exchange Act of 1934, as amended. ~~The~~These ~~remaining~~statements ~~investment~~reflect ~~income~~management’s ~~represents~~ expectations, ~~interest~~estimates, ~~income~~and assumptions, based on information ~~securities~~available at the time of the statement or, with respect to any document incorporated by reference, available ~~for~~at ~~sale~~the time that such document was prepared. Forward-looking statements include, but are not limited to, statements regarding future events, plans, goals, objectives, and ~~other~~expectations. ~~investments~~The ofwords ~~available~~“anticipate,” “ believe,” “estimate,” “expect,” “plan,” “intent,” “likely,” “will,” “should,” ~~cash~~and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors, including those set forth below, which may cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by those statements.

~~-16-~~Important factors that could cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by those statements include, but are not limited to: (i) the failure to successfully execute our corporate consolidation plans, (ii) the loss of key personnel or inability to attract additional qualified personnel, (iii) the loss of key customers or renewal of customer contracts on less favorable terms, (iv) increasing competition and its effect on our margins, (v) changes in card association rules and practices, (vi) the inability to remain current with rapid technological change, (vii) risks related to acquisitions, (viii) the imposition of additional state taxes, (ix) continued consolidation in the banking and retail industries, (x) business cycles and the credit risk of our merchant customers, (xi) the outcome of litigation involving VISA and MasterCard, (xii) utility and system interruptions or processing errors, (xiii) information theft, (xiv) susceptibility to merchant fraud and credit and fraud risk of entities we sponsor into networks, (xv) changes in card association fees or products, (xvi) automated teller machine market saturation or restrictions on surcharging, (xvii) rules and regulations governing financial institutions and other networks and changes in such rules and regulations, (xviii) the timing and extent of changes in interest rates, (xix) volatility of the price of our common stock, (xx) litigation risks, and (xxi) the receipt of regulatory and shareholder approvals required for the planned merger with First Data Corporation, as well as the timing of the anticipated completion and possible conditions of the planned merger and their consequences.

~~Table~~We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of ~~Contents~~anticipated or unanticipated events, or changes to future results over time. See the cautionary statements included as Exhibit 99.1 to this quarterly report on Form 10-Q for a more detailed discussion of certain of the factors that could cause our actual results to differ materially from those included in the forward-looking statements.

CONCORD EFS, INC. AND SUBSIDIARIESMANAGEMENT’S DISCUSSION & ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with our condensed consolidated financial statements and the notes to those financial statements, which are included in this report. This report may contain forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors, including those set forth in this paragraph. Important factors that could cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by those statements include, but are not limited to: (i) the failure to successfully execute our corporate consolidation plans, (ii) the loss of key personnel or inability to attract additional qualified personnel, (iii) the loss of key customers, (iv) increasing competition, (v) changes in card association rules and practices, (vi) the inability to remain current with rapid technological change, (vii) risks related to acquisitions, (viii) the imposition of additional state taxes, (ix) continued consolidation in the banking and retail industries, (x) business cycles and the credit risk of our merchant customers, (xi) the outcome of litigation involving VISA and MasterCard, (xii) utility and system interruptions or processing errors, (xiii) susceptibility to fraud at the merchant level, (xiv) changes in card association fees, products, or practices, (xv) market saturation or restrictions on surcharging, (xvi) rules and regulations governing financial institutions and changes in such rules and regulations, (xvii) the timing and extent of changes in interest rates, (xviii) volatility of the price of our common stock, and (xix) litigation risks. We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time. See the cautionary statements included as Exhibit 99.4 to this quarterly report on Form 10-Q for a more detailed discussion of the foregoing and other factors.

Overview

Concord EFS, Inc. (Concord), isan ~~a leading vertically integrated~~ electronic transaction processor~~. We acquire~~, ~~route,~~provides ~~authorize,~~ the ~~capture,~~technology and ~~settle~~network ~~virtually~~systems ~~all~~that ~~types~~make ofpayments ~~electronic payment~~ and ~~deposit~~other ~~access~~financial transactions ~~for~~faster, ~~financial~~more ~~institutions~~efficient, and ~~merchants~~more ~~nationwide.~~secure ~~Our~~than ~~primary~~paper-based ~~activities~~ alternatives. ~~consist~~As ofa ~~Network~~vertically ~~Services,~~integrated ~~which~~service ~~provides~~provider, ~~automated~~we ~~teller~~acquire, ~~machine (ATM) processing~~route, ~~debit card processing~~authorize, ~~deposit risk management~~capture, and ~~coast-to-coast~~settle ~~debit~~virtually ~~network~~ all ~~access~~types ~~principally~~of ~~for~~electronic ~~financial~~payment ~~institutions,~~ and ~~Payment~~deposit ~~Services, which provides~~access transactions ~~payment processing~~ for ~~supermarkets,~~financial ~~major~~institutions ~~retailers, petroleum dealers, convenience stores, restaurants, trucking companies,~~ and ~~independent~~merchants ~~retailers~~nationwide.

~~Network~~On ~~Services~~April 1, 2003 First Data Corporation (First Data) and Concord entered into a definitive agreement to merge in an all-stock transaction. Upon completion of the transaction, the combined company is expected to have approximately $10.0 billion in annual revenues with more than 31,000 employees worldwide.

~~Network~~18 Services includes terminal driving and monitoring for ATMs, transaction routing and authorization via the combined STARsm, MAC®, and Cash Station® debit network as well as other debit networks, deposit risk management, and real-time card management and authorization for personal identification number (PIN)-secured debit and signature debit cards. In addition, we operate the network switch that connects a coast-to-coast network of ATMs and point of sale (POS) locations that accept debit cards issued by our member financial institutions. Our network access services include transaction switching and settlement.

-17-

CONCORD EFS, INC. AND ~~SUBSIDIARIESMANAGEMENT’S~~SUBSIDIARIES ~~DISCUSSION & ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

OnMANAGEMENT’S ~~May~~DISCUSSION ~~17,~~AND ~~2002~~ANALYSIS weOF acquired Core Data Resources, Inc., a privately held electronic transaction processor based in Amarillo, Texas. Core Data provides ATM processing and related services to financial institutions, retailers, and independent sales organizations nationwide. This acquisition was accounted for as a purchase transaction in which we exchanged approximately 2.0 million shares of our common stock for all of Core Data’s outstanding common stock.

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

OnFirst ~~February~~Data 1,will ~~2001~~exchange we0.40 ~~completed~~First ~~our~~Data ~~acquisition~~ common ofshares ~~Star~~for ~~Systems,~~every ~~Inc~~Concord common share. ~~(STAR),~~Upon completion of the ~~nation’s~~transaction, ~~largest~~based ~~PIN-secured~~on ~~debit~~the ~~network~~current shares outstanding, ~~based~~Concord instockholders ~~Maitland,~~are ~~Florida.~~expected ~~The~~to ~~merger~~own ~~was~~approximately ~~accounted~~21% ~~for~~of asthe aoutstanding ~~pooling-~~shares of~~-interests~~ ~~transaction~~First inData. ~~which~~The wetransaction ~~exchanged~~is ~~approximately~~subject ~~48.0~~to ~~million~~approval ~~shares~~by stockholders of ~~our~~Concord ~~common~~and First Data, ~~stock~~various ~~for~~regulatory ~~all~~approvals ofand ~~STAR’s~~other ~~outstanding~~customary ~~common~~closing ~~stock~~conditions.

AsWe aorganize ~~result~~our ofbusiness ~~our~~into ~~acquisition~~two ofsegments ~~STAR~~based ~~and~~ upon ~~subsequent~~the ~~purchase~~different ofproducts ~~shares,~~and weservices ~~acquired~~that awe ~~majority~~offer ~~interest~~to inthe ~~Primary~~different ~~Payment~~ industries ~~Systems,~~we ~~Inc~~serve., aOur ~~company~~reportable ~~providing~~business ~~deposit~~segments ~~risk~~are ~~management~~Network ~~services~~Services, towhich ~~merchants~~provides automated ~~and~~teller ~~financial~~machine ~~institutions.~~(ATM) Weprocessing, ~~own~~debit ancard ~~85.5%~~processing, ~~interest~~deposit inrisk ~~Primary Payment Systems~~management, ~~with~~and ~~the~~coast-to-coast ~~remainder~~debit ~~owned~~network byaccess ~~certain~~principally for financial institutions, and aPayment ~~credit~~Services, ~~union~~which ~~service~~ provides ~~provider.~~point ~~Primary~~of ~~Payment~~sale ~~Systems’~~(POS) ~~deposit~~processing, settlement, ~~risk~~and ~~management~~related services, ~~provide~~ with ~~advance~~specialized ~~notification~~systems offocusing ~~potential~~on ~~losses~~supermarkets, ~~associated~~major ~~with~~retailers, ~~fraudulent~~gas ~~checks~~stations, orconvenience ~~high~~ stores, ~~risk~~restaurants, ~~accounts~~and ~~utilizing~~trucking ~~a national database~~companies.

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

Network Services provides the systems and processing that allow financial institutions to offer their customers access to their deposit accounts at ATMs and POS locations. Our network access services include transaction switching and settlement, plus related support services to our customers. We operate the network switch for the combined STAR_sm, MAC_®, and Cash Station^® debit networks that connects over 1.2 million ATMs and POS locations that accept debit cards issued by our member financial institutions. In addition, we provide ATM processing and monitoring, transaction routing and authorization via credit card associations and debit networks, deposit risk management, and card management, authorization, and fraud protection for PIN-secured debit and signature debit cards.

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

Payment Services

Payment Services provides the systems and processing that allow retail clients to accept virtually any type of electronic payment, including all card types–—credit, debit, electronic benefits transfer (EBT), prepaid, and proprietary cards–—as well as a variety of check-based options. We ~~focus~~provide onPOS ~~providing payment~~ processing, ~~services~~settlement, toand ~~selected~~related ~~segments~~services, with specialized systems ~~designed~~focusing ~~for~~on supermarkets, major retailers, gas stations, convenience stores, ~~and~~ restaurants. , ~~Payment~~and ~~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 generally turn-key, providing merchants with POS terminal equipment, transaction routing and authorization, settlement, funds movement, and sponsorship into all credit card associations (such as VISA and MasterCard) and debit networks (such as STAR, Pulse, and NYCE).

~~-18-~~As previously disclosed, we had expected to organize a new segment during the 2003 fiscal year. Our new Risk Management Services segment would provide software, information, and analysis to financial institutions, retailers, government service providers, and other businesses to assist in fraud prevention and reduction. In part as a result of our recently announced agreement and plan of merger with First Data, we have not yet determined when we will organize a Risk Management Services segment.

CONCORD EFS, INC. AND ~~SUBSIDIARIESMANAGEMENT’S~~SUBSIDIARIES ~~DISCUSSION & ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

WeMANAGEMENT’S ~~own~~DISCUSSION ~~one~~AND ~~insured~~ANALYSIS ~~depository~~OF institution, EFS National Bank, which supports our payment processing business. As part of our effort to consolidate our insured depository operations and terminate local deposit taking and lending activities, EFS Federal Savings Bank, another subsidiary, was merged into EFS National Bank on August 26, 2002.

OnFINANCIAL ~~January~~CONDITION 1,AND ~~2002~~RESULTS weOF ~~acquired~~OPERATIONS—(Continued) H & F Services, Inc., an independent sales organization. Prior to the acquisition, we had purchased merchant contracts through H & F Services. Through the acquisition, we have improved our control over this sales channel with product, pricing, compensation, and productivity initiatives. This acquisition will significantly increase selling, general and administrative expenses, reduce the average cost of acquiring merchant contracts, and reduce the cost of operations.

Consolidation Plans

In the second quarter of 2002 we initiated a consolidation plan ~~in conjunction with the Core Data acquisition~~ and continued our consolidation initiatives to improve overall operating efficiencies. This ~~The~~ plan includes contract terminations, exiting a non-strategic business, closing and consolidating certain facilities, and eliminating 24 positions~~, and writing off impaired assets~~. We incurred acharges ~~charge~~ of $1827.9 million, ~~net of taxes,~~ related to ~~the~~this plan. ~~During~~The ~~the~~consolidation ~~next~~activities ~~nine~~that were initiated ~~months,~~in wethe ~~expect~~second toquarter ~~complete~~of ~~the~~2002 ~~plan~~were tosubstantially ~~improve~~completed ~~our~~by ~~overall~~June ~~operating~~30, ~~efficiencies~~2003.

In the first quarter of 2002 we initiated a consolidation plan to continue improvements in overall operating efficiency and integrate recent acquisitions. ~~The~~This plan includes closing and consolidating certain facilities, exiting several non-strategic businesses, and eliminating approximately 165 positions~~, and writing off impaired assets~~. We incurred acharges ~~charge~~ of $3046.61 million, ~~net of taxes,~~ related to ~~the~~this consolidation plan. ~~During~~The ~~the~~consolidation ~~next~~activities ~~six~~that ~~months,~~were we initiated ~~expect~~in ~~to complete~~ the ~~plan~~first ~~and~~quarter ~~focus~~of ~~on consolidation activities for operational~~2002 were ~~improvements~~substantially incompleted ~~our~~by ~~Payment~~March ~~Services~~31, ~~segment~~2003.

In the first quarter of 2001 we initiated a company-wide consolidation plan to address areas of operating redundancies created through acquisitions. The plan included consolidation of data centers and other facilities to eliminate redundancies, the reassignment or termination of certain employees timed to coincide with the integration of redundant processing platforms, and the functional integration of the STAR organization into Concord. We incurred a charge of $86.4 million, net of taxes, related to our consolidation plan, including costs incurred in combining operating platforms and facilities, communications conversion costs, asset write-offs, and severance and compensation costs, as well as investment banking fees and advisory, legal, and accounting fees incurred in connection with the acquisition of STAR. Our consolidation activities to capture synergies within our network operations and align our resources across the enterprise for greater efficiency and improved service delivery were substantially completed as of March 31, 2002.

Restatement of Historical Financial Information

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

-19-

CONCORD EFS, INC. AND SUBSIDIARIESMANAGEMENT’S DISCUSSION & ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

Components of Revenue and Expenses

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

A principal component of our revenue is derived from Network Services (3628.8% and 3731.8% ~~for~~in the three months ended ~~September~~ June 30, ~~2002~~2003 and ~~2001~~2002, and 3829.3% and 38 33.10% ~~for~~in the ~~nine~~six months ended ~~September~~June 30, ~~2002~~ 2003 and ~~2001~~2002). Network Services revenue consists of access and switching fees for network access, processing fees for driving and monitoring ATMs, and processing fees for managing debit card records, ~~access and switching~~plus ~~fees for~~ network ~~access, and network~~ fees charged byto ~~the~~us ~~debit~~by other networks and ~~collected~~ billed byto usour customers. We recognize this revenue at the time of the transaction.

The majority of our revenue (6371.2% and 6268.2% ~~for~~in the three months ended ~~September~~June 30, ~~2002~~2003 and ~~2001~~2002, and 6170.7% and 6167.90% ~~for~~in the ~~nine~~six months ended ~~September~~June 30, ~~2002~~ 2003 and ~~2001~~2002) is ~~generated~~derived from ~~fee~~transaction fees and other 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 or signature debit card transaction we process, as well as a flat fee per transaction. ~~The~~These discount ~~fee, primarily charged to smaller merchants, is negotiated with each merchant~~ and ~~typically~~flat ~~constitutes~~fees constitute a bundled rate for the transaction authorization, processing, settlement, and funds transfer services we provide, plus the interchange fees ~~charged~~ charged to us by the ~~credit~~ card associations ~~and collected by us~~. The ~~balance~~fee ofstructure ~~Payment~~for ~~Services~~ smaller ~~revenue~~merchants isincludes ~~derived~~the ~~from~~flat ~~transaction~~fee ~~fees~~per ~~for~~transaction ~~processing~~and ~~credit~~a ~~card~~discount ~~transactions~~ rate ~~for~~generally ~~larger~~greater ~~merchants,~~than ~~debit~~the card ~~and~~association ~~EBT~~interchange ~~card~~rate. ~~transactions,~~The ~~check~~fee ~~verification~~structure ~~and~~ for ~~authorization~~larger ~~services,~~merchants ~~and~~includes the ~~sales~~flat offee ~~POS~~per ~~terminals~~transaction ~~from~~and ~~inventory.~~a Wediscount ~~recognize~~ rate ~~this~~generally ~~revenue~~equal atto the ~~time~~card ofassociation ~~the~~interchange ~~transaction~~rate. One result of having revenue ~~dependent~~ partially based on a percentage of the ~~total~~transaction dollar ~~volume~~amount ~~processed~~ is that lower ticket size ~~or other reduction in total purchases~~ causes a reduction in ~~our~~ revenue. However, net income is not always correspondingly affected because transactions with large merchants, where the ~~majority~~discount ofrate ~~our~~is ~~transactions~~generally ~~are~~equal ~~priced~~to on the card association interchange rate, have a ~~fixed~~direct ~~fee~~dollar ~~per~~for ~~transaction~~dollar ~~basis~~decrease ~~plus~~in ~~interchange~~revenue and ~~fees~~cost of operations.

Payment Services revenue also includes fees for debit card and EBT card transactions, check verification and authorization services, and sales of POS terminals from inventory. Debit card and EBT transactions are similar to credit card transactions in that the bundled fee we charge to a merchant includes the transaction authorization, processing, settlement, and funds transfer services we provide, plus the interchange and network fees charged to us by the debit networks. We recognize this revenue at the time of the transaction.

CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

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

	Three monthsended September 30,						Nine monthsended September 30,
		Three months endedJune 30,						Six months endedJune 30,
	2002			2001			2002			2001
		2003			2002			2003			2002
Network Services	$	~~209.4~~$	164.1	$	~~165.0~~$	155.2	$	~~600.2~~$	319.2	$	~~469.0~~$	300.4
Payment Services		~~358.9~~	405.9		~~271.2~~	333.0		~~968.4~~	770.7		~~761.9~~	609.5
Total	$	~~568.3~~$	570.0	$	~~436.2~~$	488.2	$	~~1,568.6~~$	1,089.9	$	~~1,230.9~~$	909.9

~~-20-~~Payment Services revenue, net of interchange fees, is an alternative generally accepted accounting principles (GAAP) revenue recognition method that Concord believes is useful to investors because it enables comparison with certain industry peers. The following table provides the impact of interchange fees on our reported revenue for the periods indicated (in millions):

	Three months ended June 30, 2003
	Network Services		Payment Services		Total
Revenue per the income statement	$	164.1	$	405.9	$	570.0
Interchange fees included in revenue		—		266.4		266.4

Revenue, net of interchange fees	$	164.1	$	139.5	$	303.6


	Three months ended June 30, 2002
	Network Services		Payment Services		Total
Revenue per the income statement	$	155.2	$	333.0	$	488.2
Interchange fees included in revenue		—		200.5		200.5

Revenue, net of interchange fees	$	155.2	$	132.5	$	287.7


	Six months ended June 30, 2003
	Network Services		Payment Services		Total
Revenue per the income statement	$	319.2	$	770.7	$	1,089.9
Interchange fees included in revenue		—		497.8		497.8

Revenue, net of interchange fees	$	319.2	$	272.9	$	592.1


	Six months ended June 30, 2002
	Network Services		Payment Services		Total
Revenue per the income statement	$	300.4	$	609.5	$	909.9
Interchange fees included in revenue		—		360.4		360.4

Revenue, net of interchange fees	$	300.4	$	249.1	$	549.5

Cost of operations includes all costs directly attributable to our providing services to our customers. In Payment Services the most significant component of cost of operations is interchange fees, which amounted to $266.4 million and $200.5 million in the three months ended June 30, 2003 and 2002, and $497.8 million and

CONCORD EFS, INC. AND ~~SUBSIDIARIESMANAGEMENT’S~~SUBSIDIARIES ~~DISCUSSION & ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Components~~MANAGEMENT’S ofDISCUSSION ~~Revenue~~AND ~~and~~ANALYSIS ~~Expenses,~~OF ~~continued~~

~~Cost~~FINANCIAL ofCONDITION ~~operations~~AND ~~includes~~RESULTS ~~all~~OF ~~costs~~OPERATIONS—(Continued) directly attributable to our providing services to our customers. The most significant component of cost of operations is interchange and network fees, which represent amounts charged by the credit and debit networks. Interchange and network fees are billed primarily as a percentage of dollar volume processed and, to a lesser extent, as a transaction fee. This amount is a direct expense of the revenue component described above, so that when total dollar volume processed declines, due to lower ticket size or other reduction in total purchases, there is a corresponding decline in cost of operations. Cost of operations also includes telecommunications costs, personnel costs, occupancy costs, depreciation, the cost of equipment leased and sold, the cost of operating our debit network, and other miscellaneous merchant supplies and services expenses.

$360.4 million in the six months ended June 30, 2003 and 2002. In most instances, the interchange fee is a percentage of the transaction amount and is charged to us by the credit card associations and debit networks. Cost of operations in both Network Services and Payment Services also includes telecommunications costs, personnel costs, occupancy costs, depreciation, and the cost of equipment leased and sold.

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

	Three monthsended September 30,						Nine monthsended September 30,
		Three months endedJune 30,						Six months endedJune 30,
	2002			2001			2002			2001
		2003			2002			2003			2002
Network Services	$	~~115.1~~$	66.0	$	~~84.2~~$	59.0	$	~~319.0~~$	131.6	$	~~254.3~~$	113.4
Payment Services		~~306.0~~	355.4		~~220.2~~	272.9		~~806.4~~	667.2		~~620.0~~	500.4
Total	$	~~421.1~~$	421.4	$	~~304.4~~$	331.9	$	~~1,125.4~~$	798.8	$	~~874.3~~$	613.8

Our selling, general and administrative expenses include certain salaries, ~~and~~sales ~~wages~~commissions, and other general administrative expenses, including legal fees, accounting fees, advertising, and marketing expenses. These costs are not allocated to the reportable segments.

~~-21-~~Information regarding our business segments is included under the caption “Note H—Operations by Business Segment” in the notes to our consolidated financial statements and is incorporated herein by reference.

CONCORD EFS, INC. AND SUBSIDIARIESMANAGEMENT’S DISCUSSION & ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

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

	Three months endedSeptember 30,						Nine months endedSeptember 30,
		Three months endedJune 30,						Six months endedJune 30,
	2002			2001			2002			2001
		2003			2002			2003			2002
Revenue	~~100.0~~	%100.0	%	~~100.0~~	%100.0	%	~~100.0~~	%100.0	%	~~100.0~~	%100.0	%
Cost of operations	~~74.1~~	73.9		~~69.8~~	68.0		~~71.8~~	73.3		~~71.0~~	67.5
Selling, general and administrative expenses	~~5.5~~	6.0		~~5.1~~	6.6		~~5.6~~	6.1		~~5.6~~	6.3
Acquisition, restructuring and write-off charges	—			—			4.9			10.2
Merger, acquisition, restructuring and write-off charges		1.0			5.9			0.7			8.4
Litigation settlement charges (credits)	(1.9	)		—			0.6			—
Litigation settlement charges		—			4.3			—			2.3
Operating income	~~22.3~~	19.1		~~25.1~~	15.2		~~17.1~~	19.9		~~13.2~~	15.5
Other income	0.2			0.2			0.5			0.2
Net investment income		2.2			3.4			2.3			3.7
Net investment income	3.1			3.7			3.3			3.3
Other income, net		2.0			1.3			1.0			0.7
Income before taxes	~~25.6~~	23.3		~~29.0~~	19.9		~~20.9~~	23.2		~~16.7~~	19.9
Income taxes	~~9.0~~	8.2		~~10.3~~	7.0		~~7.4~~	8.2		~~6.4~~	7.0
Net income	~~16.6~~	%15.1	%	~~18.7~~	%12.9	%	~~13.5~~	%15.0	%	~~10.3~~	%12.9	%

~~Third~~Second Quarter ~~2002~~2003 Compared to ~~2001~~ 2002

Revenue ~~in the third quarter 2002~~ increased 3016.38% to $~~568~~570.30 million in the second quarter of 2003 from $~~436~~488.2 million in ~~2001~~the same period of 2002. In the ~~third~~second quarter ~~2002~~of 2003 Network Services accounted for 3628.8% of revenue, and Payment Services accounted for 6371.2%. Network Services revenue ~~in the third quarter 2002~~ increased 265.98% ~~compared~~over ~~to 2001 as a result of network price increases,~~ the ~~addition of new network and processing~~same period ~~customers, and increases~~ in transaction volumes from existing customers. The increased transaction volumes resulted primarily from increased use of STAR network debit cards for payment at the point of sale. Revenue from Payment Services in the third quarter 2002 ~~increased 32~~.3% ~~compared~~This ~~to 2001, due primarily to increased transaction volumes.~~ ~~The increased volumes resulted from the addition of new merchants and the increased use of debit, EBT, and credit card transactions at new and existing merchants.~~

~~Cost~~22 of operations increased in the third quarter 2002 to 74.1% of revenue compared to 69.8% in 2001. This percentage increase was due primarily to increased interchange and network fees. These increases resulted from the addition of new lower margin merchants, the expansion of relationships with existing lower margin merchants, and price increases by the credit and debit networks.

-22-

CONCORD EFS, INC. AND ~~SUBSIDIARIESMANAGEMENT’S~~SUBSIDIARIES ~~DISCUSSION & ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Third~~MANAGEMENT’S ~~Quarter~~DISCUSSION ~~2002~~AND ~~Compared~~ ANALYSIS toOF ~~2001, continued~~

InFINANCIAL ~~the~~CONDITION ~~third~~AND ~~quarter~~RESULTS ~~2002~~ OF ~~selling,~~OPERATIONS—(Continued) general and administrative expenses increased as a percentage of revenue to 5.5% from 5.1% in 2001. Overall, selling, general and administrative expenses increased to $31.2 million in the third quarter 2002 from $22.3 million in 2001. This increase is primarily attributable to the expenses related to the acquisition of the H & F Services sales force, increased headcount, and expenses related to the Logix and Core Data acquisitions.

We increase ~~reduced~~was ~~our~~attributable ~~litigation~~ to ~~settlement~~a ~~charges~~7.0% increase in transaction volumes that was offset by ~~$11~~increased amortization of capitalized customer payments and reduced non-transaction processing fees.0 ~~million~~The increased transaction volumes from new and existing network and processing customers resulted from a 16.3% increase in STAR network POS transactions. Revenue from Payment Services increased 21.9% over the ~~third~~same period ~~quarter~~in 2002, due to interchange fee price increases and a 28.6% ~~There~~increase ~~were~~in notransaction ~~such~~ volumes, ~~charges~~offset by price compression. Interchange fees in the ~~third~~second quarter ~~2001~~of 2003 increased 32.9% ~~The~~or ~~charges~~$65.9 ~~represent~~million. ~~credits~~Payment ~~and~~Services ~~payments~~revenue, tonet of interchange fees, increased 5.3% or $7.0 million during this period due to transaction growth from the addition of large lower margin merchants and ~~former~~the expansion of relationships with existing lower margin merchants. Payment Services revenue, ~~legal~~net ~~expenses~~of interchange fees, ~~and~~is ~~claims~~an ~~administration~~alternative ~~expenses~~ GAAP inrevenue ~~connection~~recognition ~~with~~method athat ~~settlement~~Concord ~~agreement~~believes ~~relating~~is useful to ainvestors ~~purported~~because ~~class~~it ~~action~~enables ~~lawsuit~~ comparison ~~alleging~~with ~~that~~ certain ~~rate~~industry ~~and~~peers. ~~fee~~The ~~charges~~transaction ~~were~~volume ~~improper~~increase ~~under~~is ~~Tennessee~~the ~~law~~weighted ~~due~~average of a 29.8% increase in toPIN-debit ~~allegedly~~card ~~deficient~~transactions, ~~notice~~a 34.4% ~~The~~increase ~~reduction~~in ~~was~~EBT ~~due~~card totransactions, ~~the~~a ~~low number~~24.4% ofincrease ~~valid~~in ~~claims~~credit ~~actually~~card ~~submitted~~and signature debit transactions, and a 90. 9% increase in other card transactions at new and existing merchants.

~~Excluding~~Cost of operations increased in the ~~litigation~~second quarter of 2003 to 73.9% of revenue ~~settlement~~compared ~~credit,~~to ~~operating~~68.0% ~~income~~in asthe asame ~~percentage~~period in 2002. Overall, cost of ~~revenue~~operations ~~decreased~~increased to 20$421.4% million in the ~~third~~second quarter ~~2002~~of ~~compared~~2003 tofrom 25$331.1%9 million in ~~2001~~the same period in 2002. This ~~decrease~~increase was due to ~~the~~increased depreciation and amortization, the write-off of excess supplies inventory, and increased transaction volumes that resulted in increased interchange fees in Payment Services. The increased interchange fees as a percentage of revenue resulted from the addition of large lower margin ~~revenue~~merchants, ~~from~~the expansion of relationships with existing large lower margin merchants, and ~~increased~~price ~~selling,~~increases ~~general~~ instituted by the debit and ~~administrative~~credit ~~expenses~~networks.

~~Other~~Selling, ~~income~~general and administrative expenses decreased as a percentage of revenue ~~was~~to 06.20% in the ~~third~~second quarter of ~~both~~2003 from 6.6% in the same period in 2002. Overall, selling, general and ~~2001~~administrative expenses increased to $34.4 million in the second quarter of 2003 from $32.4 million in the same period in 2002. This increase was attributable to increased sales commissions and professional fees offset by reduced marketing expenses.

~~Net~~Merger, ~~investment~~acquisition, ~~income~~restructuring ~~decreased~~ and aswrite-off acharges ~~percentage~~decreased ~~of revenue~~ to 3$5.1%6 million in the ~~third~~second quarter ~~2002~~of ~~compared~~2003 tofrom 3$29.7%0 million in ~~2001.~~the ~~Overall,~~same ~~net~~period ~~investment~~in ~~income increased 8~~2002.7% toThe ~~$17.6~~charges ~~million~~incurred in the ~~third~~ second quarter ~~2002~~of ~~compared~~2003 toincluded $166.21 million representing inprofessional ~~2001.~~fees ~~This~~related ~~increase~~to ~~resulted~~the ~~primarily~~ First ~~from~~Data ~~increased~~merger ~~investments~~offset inby ~~various~~a ~~securities~~$0.5 ofmillion ~~available~~change ~~cash~~in ~~flow~~estimate ~~from~~related ~~operations~~ to ~~offset~~our byfirst ~~lower~~and ~~than~~second ~~anticipated~~quarter ~~rates~~2002 ofconsolidation ~~return~~plans. ~~Net~~The ~~investment~~charges ~~income~~incurred ~~includes~~ in the same period in 2002 included $116.8 million offor contract ~~unrealized~~terminations, ~~gains~~$4.1 ~~and~~million ~~losses~~for ~~from~~exiting ~~alternative~~a ~~investments~~non-strategic inbusiness, ~~the~~ and ~~third~~$8.1 ~~quarter~~million offor ~~2002~~other activities.

~~Our~~There ~~overall~~were ~~tax~~no ~~rate~~litigation ~~was~~ settlement ~~35.0%~~charges in the ~~third~~second quarter of 2003. Such charges in the same period in 2002 ~~compared~~amounted to 35$20.5%8 million and represent credits and payments to merchants and former merchants, legal expenses, and claims administration expenses in ~~2001.~~connection with a settlement agreement relating to a purported class action lawsuit alleging that certain rate and fee charges were improper under Tennessee law due to allegedly deficient notice.

~~Net~~Operating income as a percentage of revenue ~~decreased~~increased to 1619.61% in the ~~third~~second quarter ~~2002~~of 2003 from 1815.72% in ~~2001.~~the ~~Excluding~~ same ~~the~~period ~~litigation~~in ~~settlement~~2002. ~~credit,~~This ~~net~~increase ~~income~~was asdue to a ~~percentage~~decrease of ~~revenue decreased to 15~~$23.3%4 million in ~~the~~merger, ~~third~~acquisition, ~~quarter~~restructuring, ~~2002~~and ~~compared~~write-off charges toand ~~18.7%~~a ~~in 2001. This~~ decrease ~~is the result~~ of ~~lower~~$20.8 ~~operating~~million ~~margins,~~in ~~increased~~litigation ~~selling,~~settlement ~~general and administrative expenses~~charges, ~~and~~offset ~~decreased~~by ~~net~~the ~~investment~~addition ~~income~~of aslower amargin ~~percentage~~revenue offrom ~~revenue~~large merchants.

ANet ~~slower~~investment ~~than~~income ~~anticipated~~ decreased ~~economy~~as ~~and~~ a ~~significant~~percentage ~~increase~~of ~~in our implementation backlog, which measures new contract~~ revenue ~~not~~to ~~yet~~2.2% ~~implemented, have had an impact on our results of operations~~ in the ~~third~~second quarter of ~~2002.~~2003 ~~The~~from ~~delay~~3.4% in ~~implementations~~the issame ~~attributable~~period toin ~~our continuing migration of existing customers between our various processing platforms~~2002. ~~In addition~~Overall, wenet investment ~~have~~income ~~experienced~~decreased ~~larger~~25.5% ~~than~~to ~~anticipated~~$12.6 ~~merchant~~million ~~losses~~in ~~and~~the ~~lower~~ second ~~than forecasted September transactions.~~

-23-

CONCORD EFS, INC. AND ~~SUBSIDIARIESMANAGEMENT’S~~SUBSIDIARIES ~~DISCUSSION & ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Nine~~MANAGEMENT’S ~~Months~~DISCUSSION ~~Ended~~AND ~~September~~ ANALYSIS ~~30,~~OF ~~2002 Compared to 2001~~

~~Revenue~~FINANCIAL inCONDITION ~~the~~AND ~~nine~~RESULTS ~~months~~ OF ~~ended~~OPERATIONS—(Continued) September 30, 2002 increased 27.4% to $1,568.6 million from $1,230.9 million in 2001. In the nine months ended September 30, 2002 Network Services accounted for 38.3% of revenue, and Payment Services accounted for 61.7%. Network Services revenue in the nine months ended September 30, 2002 increased 28.0% compared to 2001 as a result of network price increases, the addition of new network and processing customers, and increases in transaction volumes from existing customers. The increased transaction volumes resulted primarily from increased use of STAR network debit cards for payment at the point of sale. Revenue from Payment Services in the nine months ended September 30, 2002 increased 27.1% compared to 2001, due primarily to increased transaction volumes. The increased volumes resulted from the addition of new merchants and the increased use of debit, EBT, and credit card transactions at new and existing merchants.

~~Cost~~ quarter of ~~operations~~2003 ~~increased~~ compared ~~in the nine months ended September 30, 2002~~ to 71$16.8% ofmillion ~~revenue~~in ~~compared~~the tosame ~~71.0%~~ period in ~~2001~~2002. This ~~percentage~~decrease ~~increase~~resulted ~~was~~from ~~due~~lower torates ~~increased~~of ~~interchange~~return and ~~network~~ less ~~fees~~cash ~~partially~~available ~~offset~~for investment bydue ~~improvements~~to inthe ~~operating~~repurchase ~~efficiencies~~during ~~and~~the ~~economies~~third ~~of scale. The increased interchange~~ and ~~network~~fourth ~~fees~~quarters ~~resulted~~in ~~from~~2002 ~~the addition~~ of ~~new~~$393.5 ~~lower~~million ~~margin merchants, the expansion~~ of ~~relationships~~our ~~with~~common ~~existing lower margin merchants, and price increases by the credit and debit networks~~stock.

~~Selling,~~Other ~~general~~income ~~and~~increased ~~administrative expenses~~ as a percentage of revenue ~~was~~to 52.60% in the ~~nine~~second ~~months~~quarter ~~ended~~of ~~September~~ 2003 ~~30,~~from ~~2002 and 2001~~1.3% ~~Overall, selling, general and administrative expenses increased to $88.4 million~~ in the ~~nine~~same ~~months~~period ~~ended~~in ~~September 30,~~ 2002 ~~from $69~~.5 ~~million in 2001.~~ This increase iswas ~~primarily~~due ~~attributable~~ to increased ~~the~~gain ~~expenses~~on ~~related to~~ the ~~acquisition~~sale of ~~the~~securities Hin ~~& F Services sales force, increased headcount, and expenses related to~~ the ~~Logix~~second ~~and~~quarter ~~Core~~of ~~Data acquisitions~~2003.

~~Acquisition,~~Our ~~restructuring~~ overall ~~and~~tax ~~write-off~~rate ~~charges~~was ~~decreased to $76~~35.50% ~~million~~ in ~~2002 from $125.4 million in 2001. In~~ the second quarter of ~~2002~~both we2003 ~~initiated a plan in conjunction with the Core Data acquisition~~ and ~~continued consolidation initiatives to improve overall operating efficiencies~~2002. The plan includes contract terminations, exiting a non-strategic business, closing and consolidating certain facilities, eliminating 24 positions, and writing off impaired assets. The charge of $29.0 million ($18.9 million, net of taxes) consisted of $16.8 million for contract terminations, $4.1 million for exiting a non-strategic business, $1.0 million for closing and consolidating certain facilities, and $0.7 million for compensation and severance. In addition, the charge included stock compensation charges of $4.8 million related to the modification of stock options of terminated employees and asset impairment charges of $1.6 million recorded as an adjustment to the write-off of non-performing purchased merchant contracts.

InNet ~~the~~income ~~first~~as ~~quarter~~a percentage of ~~2002~~revenue weincreased ~~initiated a consolidation plan~~ to ~~continue~~15.1% ~~improvements~~ in ~~overall~~the ~~operating~~ second ~~efficiency~~quarter ~~and~~of ~~integrate~~2003 ~~recent~~from ~~acquisitions~~12.9% ~~The~~in ~~plan~~the ~~includes~~same ~~closing~~period ~~and~~in ~~consolidating certain facilities, exiting several non-strategic businesses, eliminating approximately 165 positions, and writing off impaired assets~~2002. The ~~charge~~components of ~~$47.5~~this ~~million~~increase ~~($30.6~~ are ~~million,~~explained ~~net of taxes) consisted of $6~~above.7 million for closing and consolidating certain facilities, $5.9 million for compensation and severance, and $4.5 million for exiting non-strategic businesses. In addition, asset impairment charges of $22.5 million were incurred for the write-off of non-performing purchased

~~-24-~~ Six months ended June 30, 2003 compared to 2002

Revenue increased 19.8% to $1.1 billion in the six months ended June 30, 2003 from $909.9 million in the same period of 2002. In the six months ended June 30, 2003 Network Services accounted for 29.3% of revenue, and Payment Services accounted for 70.7%. Network Services revenue increased 6.3% over the same period in 2002. This increase was attributable to a 10.8% increase in transaction volumes that was offset by increased amortization of capitalized customer payments and favorable buyout and other fees in the six months ended June 30, 2002. The increased transaction volumes from new and existing network and processing customers resulted from a 19.1% increase in STAR network POS transactions. Revenue from Payment Services increased 26.5% over the same period in 2002, due to interchange fee price increases and a 30.1% increase in transaction volumes, offset by price compression. Interchange fees in the six months ended June 30, 2003 increased 38.1% or $137.4 million. Payment Services revenue, net of interchange fees, increased 9.6% or $23.8 million during this period due to transaction growth from the addition of large lower margin merchants and the expansion of relationships with existing lower margin merchants. Payment Services revenue, net of interchange fees, is an alternative GAAP revenue recognition method that Concord believes is useful to investors because it enables comparison with certain industry peers. The transaction volume increase is the weighted average of a 30.6% increase in PIN-debit card transactions, a 31.5% increase in EBT card transactions, a 26.6% increase in credit card and signature debit transactions, and a 91.4% increase in other card transactions at new and existing merchants.

Cost of operations increased in the six months ended June 30, 2003 to 73.3% of revenue compared to 67.5% in the same period in 2002. Overall, cost of operations increased to $798.8 million in the six months ended June 30, 2003 from $613.8 million in the same period in 2002. This increase was due to increased depreciation and amortization, the write-off of excess supplies inventory, and increased transaction volumes that resulted in increased interchange fees in Payment Services. The increased interchange fees as a percentage of revenue resulted from the addition of large lower margin merchants, the expansion of relationships with existing large lower margin merchants, and price increases instituted by the debit and credit networks.

Selling, general and administrative expenses decreased as a percentage of revenue to 6.1% in the six months ended June 30, 2003 from 6.3% in the same period in 2002. Overall, selling, general and administrative expenses increased to $66.3 million in the six months ended June 30, 2003 from $57.1 million in the same period in 2002. This increase was attributable to increased sales commissions and professional fees.

Merger, acquisition, restructuring and write-off charges decreased to $7.9 million in the six months ended June 30, 2003 from $76.5 million in the same period in 2002. The charges incurred in the six months ended

CONCORD EFS, INC. AND SUBSIDIARIES ~~MANAGEMENT’S~~ ~~DISCUSSION & ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Nine~~MANAGEMENT’S ~~Months~~DISCUSSION ~~Ended~~AND ~~September~~ ANALYSIS ~~30,~~OF ~~2002 Compared to 2001, continued~~

~~merchant contracts~~FINANCIAL ~~identified~~CONDITION inAND ~~the~~RESULTS ~~first~~ OF ~~quarter~~OPERATIONS—(Continued) ~~and $7.9 million was incurred for the write-off of capitalized software and computer and communications equipment no longer in use.~~

~~Litigation settlement charges~~ June 30, ~~were~~2003 included $9.8.9 million inrepresenting professional fees related to the ~~nine~~First ~~months~~Data ~~ended~~merger ~~September~~offset ~~30,~~by ~~2002~~a $1.0 ~~There~~million ~~were~~change noin ~~such~~estimate related to ~~charges~~our infirst ~~the~~and ~~nine~~second ~~months~~quarter ~~ended~~2002 ~~September~~consolidation ~~30, 2001~~plans. The charges ~~represent~~incurred ~~credits~~ in ~~and~~the ~~payments~~same toperiod ~~merchants~~in ~~and~~2002 ~~former~~included ~~merchants,~~$24.1 ~~legal~~million ~~expenses,~~for ~~and~~the ~~claims~~write-off ~~administration~~ of ~~expenses~~non-performing inpurchased ~~connection~~merchant ~~with~~contracts, a$16.8 ~~settlement~~million ~~agreement~~for ~~relating~~contract toterminations, a$7.9 ~~purported class~~million for ~~action~~the ~~lawsuit~~write-off ~~alleging~~of ~~that~~capitalized ~~certain~~software ~~rate~~ and ~~fee~~equipment ~~charges~~no ~~were~~longer ~~improper~~in ~~under~~use, ~~Tennessee~~ and ~~law~~$27.7 ~~due~~million tofor ~~allegedly~~other ~~deficient notice~~activities.

~~Excluding~~There ~~acquisition,~~were ~~restructuring,~~ no ~~write-off, and~~ litigation settlement charges, ~~operating~~in ~~income~~the assix amonths ~~percentage~~ended of June ~~revenue~~30, ~~decreased~~2003. toSuch ~~22.6%~~charges in the ~~nine~~same ~~months~~period ~~ended~~in ~~September 30,~~ 2002 ~~from~~amounted 23to $20.3%8 million and represent incredits ~~2001.~~and ~~This~~payments ~~decrease~~to inmerchants ~~operating~~and ~~income~~former ~~resulted~~merchants, ~~from~~legal ~~the~~expenses, ~~addition~~and ofclaims ~~lower~~ administration ~~margin~~expenses ~~revenue~~in ~~from~~connection ~~large~~with ~~merchants~~a ~~partially~~settlement ~~offset~~agreement byrelating ~~improved~~to ~~efficiencies~~a purported class action lawsuit alleging that certain rate and fee charges were ~~economies~~improper ofunder ~~scale~~Tennessee law due to allegedly deficient notice.

~~Other~~Operating income ~~increased~~ as a percentage of revenue increased to 019.59% in the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003 from 015.25% in ~~2001~~the same period in 2002. This increase ~~resulted~~was ~~from~~due ~~the~~to ~~sale~~a decrease of ~~certain~~$68.6 ~~terminal~~million ~~hardware~~in merger, acquisition, restructuring, and write-off charges and ~~related~~a ~~future~~decrease ~~rental~~of ~~payments~~$20.8 million in ~~the~~litigation ~~second~~settlement ~~quarter~~charges, offset by the addition of ~~2002~~lower margin revenue from large merchants.

Net investment income decreased as a percentage of revenue ~~was~~to 32.3% in the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003 ~~and~~ from ~~2001~~3.7% in the same period in 2002. Overall, net investment income ~~increased~~decreased 25.63% to $5024.9 million in the ~~nine~~ six months ended ~~September~~June 30, ~~2002~~2003 compared to $4033.53 million in ~~2001~~the same period in 2002. This ~~increase~~ decrease resulted ~~primarily~~ from ~~increased~~lower ~~investments~~rates inof ~~various~~return ~~securities~~and ofless ~~available~~ cash ~~flow~~available ~~from~~for ~~operations~~investment ~~plus~~due ~~approximately~~to ~~$420.6 million in proceeds from our~~the repurchase ~~June~~during ~~2001~~the ~~stock~~third ~~offering~~and ~~offset~~fourth byquarters ~~lower~~in ~~than~~2002 ~~anticipated rates~~ of ~~return. Net investment income includes~~ $1393.85 million of ~~unrealized~~our ~~gains~~common ~~and losses from alternative investments in the nine months ended September 30, 2002~~stock.

~~Our~~Other ~~overall~~income ~~tax~~increased ~~rate~~as ~~decreased~~ a percentage of revenue to ~~35.~~1.0% in the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003 ~~compared~~from ~~to 38~~0.27% in ~~2001~~the same period in 2002. ~~Excluding~~This ~~acquisition,~~increase ~~restructuring,~~was ~~write-off,~~due ~~and~~to ~~litigation~~increased ~~settlement~~gain ~~charges,~~ on the ~~tax~~sale ~~rate~~of ~~was~~securities ~~35.2%~~ in ~~2002~~the ~~and~~six ~~35.5%~~months ended inJune ~~2001~~30, 2003.

~~Net~~Our ~~income~~overall astax arate ~~percentage~~ decreased ~~of revenue increased~~ to 1335.50% in the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003 ~~from~~compared 10to 35.32% in ~~2001.~~the ~~Excluding~~same ~~acquisition,~~period ~~restructuring, write-off, and litigation settlement charges, net income as a percentage of revenue was 17.1%~~ in 2002 ~~compared to 17~~.3% ~~in 2001.~~

ANet ~~slower~~income ~~than~~as ~~anticipated~~ a ~~economy,~~percentage ~~lower~~of ~~than~~revenue ~~anticipated~~increased ~~ticket~~to ~~size,~~15.0% ~~and a significant increase~~ in ~~our~~the ~~implementation~~ six ~~backlog,~~months ~~which~~ended ~~measures~~June ~~new contract revenue not yet implemented~~30, ~~have~~2003 ~~had~~from an12.9% ~~impact on our results of operations~~ in the ~~third~~same ~~quarter~~period ofin 2002. The ~~delay~~components ~~in implementations is attributable to our continuing migration~~ of ~~existing~~this ~~customers~~increase ~~between~~are ~~our~~explained ~~various processing platforms~~above. ~~In addition, we have experienced larger than anticipated merchant losses and lower than forecasted September transactions.~~

-25-

CONCORD EFS, INC. AND SUBSIDIARIESMANAGEMENT’S DISCUSSION & ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

In the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003 we generated cash of $~~366~~540.59 million from operating activities. ~~excluding~~ Included ~~the~~in ~~timing~~this ofamount ~~settlement~~is ~~operations~~$325.6 ~~Including~~million from the ~~timing~~change ofin settlement ~~operations,~~ receivables weand ~~generated $334~~payables.1 ~~million~~Fluctuations in ~~operating~~settlement ~~activities.~~receivable Weand ~~received~~payable ~~$97.8~~balances ~~million~~ are inaffected ~~proceeds~~by ~~from~~the ~~Federal~~timing ~~Home~~of ~~Loan~~settlements. ~~Bank~~If ~~advances,~~the ~~net~~end of ~~payments,~~a reporting ~~$53.5~~period ~~million~~ occurs ~~from~~on ~~sales~~a ofSaturday ~~loans~~or Sunday, ~~and~~we ~~$22.8~~are ~~million~~due cash from ~~stock~~the ~~issued~~credit ~~for~~card ~~exercises~~associations ofthat ~~options~~ is ~~under~~payable to our ~~stock~~merchants. ~~option~~If ~~plan.~~the Weend ~~liquidated~~of ~~$24.3~~a ~~million~~reporting inperiod ~~securities~~occurs on a Monday, ~~net~~we of hold ~~purchases~~multiple ~~and~~days ~~maturities,~~of ~~and~~cash ~~invested~~that ~~$195.5~~is ~~million~~payable into ~~alternative~~our ~~investments~~merchants. This Wemay ~~spent~~inflate ~~$100.4~~the ~~million~~period-end cash balance and cash provided by operating activities on ~~capital~~our ~~additions,~~cash ~~$68~~flow statement.4 ~~million~~Conversely, ~~repurchasing~~cash ~~our~~provided ~~common~~by operating activities may be adversely affected for the next reporting period depending on what day of the week ~~stock,~~the ~~and~~reporting ~~$17~~period ends.2 ~~million~~All ~~for~~settlement cash balances are cleared in one or two business ~~acquisitions~~days. ~~Our~~Inclusion ~~capital~~of ~~additions~~settlement ~~were~~ in ~~primarily~~GAAP ~~for~~cash ~~capitalized~~flows ~~and~~is ~~purchased~~not ~~software~~indicative ~~and~~of ~~computer~~cash ~~facilities~~provided by operating activities unless settlement receivable and ~~equipment.~~payable amounts are consistent from period to period.

AsWe ~~of September 30, 2002~~generally hold ~~our~~a ~~assets~~significant ~~were~~amount ~~primarily monetary, consisting~~ of cash, ~~assets~~and ~~convertible into cash,~~ securities, ~~alternative~~because ~~investments, and receivables. Because~~ of ~~their liquidity, these assets are not significantly affected by inflation; however, earnings and asset values are impacted by~~ the ~~interest~~capital ~~rate~~requirements ~~environment. We believe that anticipated replacement costs~~ of ~~software,~~banking ~~facilities,~~regulators and ~~equipment~~because ~~will~~of ~~not materially affect operations. However,~~ the ~~rate~~liquidity ofrequirements ~~inflation~~associated ~~affects~~with ~~our~~conducting ~~expenses,~~settlement ~~such~~operations ~~as those~~ ~~for employee compensation and telecommunications, which may not be readily recoverable in the price of services offered by us.~~

As25 of September 30, 2002 our investment in alternative investments totaled $197.4 million in two hedge fund-of-funds entities. A total of 85 individual hedge funds are included in our fund-of-funds investments. In response to negative perceptions among shareholders of potential risks, on August 9, 2002, we announced we would be liquidating these alternative investments in an orderly process which began immediately after the announcement and will take place over the next two quarters. Under the terms of the investment agreements, all of the funds require advance notice to redeem and withdraw our investment. These notices to redeem are required to be given from 30 to 60 days prior to the end of a quarter. There were no redemption fees required to be paid by us as a result of our negotiations to exit the funds. As of October 31, 2002 cash redemptions of $120.1 million have been received from the liquidation process, with an additional amount of $57.3 million expected to be received in the last two months of 2002 and the remainder expected to be received in the first quarter of 2003.

On August 5, 2002 we announced that our Board of Directors approved the repurchase of up to $250.0 million of our common stock. Under the repurchase plan, we may buy back shares of our outstanding stock from time to time either on the open market or through privately negotiated transactions. As of September 30, 2002 a total of 4.5 million shares at an aggregate cost of $68.4 million had been purchased and retired pursuant to the repurchase plan. On November 7, 2002 we announced that our Board of Directors approved the repurchase of an additional $150.0 million of our common stock. The Board’s approval brings the total potential repurchase to $400.0 million.

During the third quarter we entered into agreements for the financing, construction and leasing of a new corporate headquarters in Memphis, Tennessee with an estimated total cost of $55.0 million. The agreements qualify for operating lease accounting treatment under Statement of Financial Accounting Standards 13, “Accounting For Leases,” and, as such, the related assets and obligations are not recorded on our balance sheet. The term of the lease is seven years. Upon the completion of construction, which is expected in the fourth quarter of 2003, rent payments will begin and will be expensed in our statement of income. The anticipated minimum lease payments

-26-

CONCORD EFS, INC. AND ~~SUBSIDIARIESMANAGEMENT’S~~SUBSIDIARIES ~~DISCUSSION & ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Liquidity~~MANAGEMENT’S ~~and~~DISCUSSION ~~Capital~~AND ~~Resources,~~ ANALYSIS ~~continued~~ OF

~~under~~FINANCIAL ~~these~~CONDITION ~~agreements~~ AND ~~are~~RESULTS ~~not~~OF ~~material~~OPERATIONS—(Continued) to us. At the end of the lease term, we have options which include the renewal of the lease and a fixed-price purchase option on the land and facility. We have guaranteed the residual value of the land and facility at the end of the lease term to the owner / lessor. Under this guarantee, we would be responsible for a decline in fair value during the lease term up to an estimated maximum amount of approximately $45.9 million. Based on current market conditions, we do not expect to be required to make payments under this residual value guarantee. We also hold separate agreements with similar provisions on properties we currently occupy in Wilmington, Delaware and Atlanta, Georgia. The combined total cost financed under these agreements at their inception was approximately $35.0 million.

We and ~~believe~~owning ~~that~~ATM ~~our~~machines. ~~cash~~ During ~~and~~the ~~cash~~six ~~equivalents~~months ended June 30, 2003 we liquidated $119.8 million in securities, available ~~credit~~for ~~(unused~~sale, ~~lines~~net of ~~credit~~acquisitions. ~~with~~As of June ~~the~~30, ~~Federal~~2003, ~~Home~~we ~~Loan~~held ~~Bank~~securities ~~and~~with ~~unsecured~~a ~~lines~~market value of ~~credit~~$1.0 ~~with~~billion, ~~financial~~including ~~institutions),~~ $172.9 ~~and~~million ~~cash~~pledged ~~generated~~as ~~from~~collateral ~~operations~~for ~~are~~Federal ~~adequate~~Home toLoan ~~meet~~Bank ~~our~~(FHLB) ~~capital~~advances. ~~and~~We ~~operating~~ invested ~~needs~~$54.6 ~~EFS~~million ~~National~~in ~~Bank,~~the ~~our~~six ~~wholly~~months ~~owned~~ended ~~financial~~June ~~institution subsidiary~~30, ~~exceeded~~2003 in capital expenditures, ~~the~~which ~~required~~were ~~regulatory~~for ~~capital~~capitalized ~~ratios~~and purchased software and computer facilities and equipment.

~~-27-~~We have historically financed our operations through net cash provided by operating activities, the issuance of equity, and the exercise of stock options. Our last public offering of common stock occurred in June 2001 when we received $420.6 million, net of underwriting and other expenses, for the 17.8 million shares of common stock we issued and sold. Proceeds from the exercise of stock options has decreased from historical amounts due to the per share market value of our common stock.

As of June 30, 2003, we had a line of credit with a financial institution totaling $20.0 million and no amounts were outstanding on this line of credit. This line of credit expired on July 1, 2003. As of June 30, 2003, we had $165.1 million of advances outstanding to, and $10.7 million in unused lines of credit with, the FHLB. In the six months ended June 30, 2003 we paid $32.9 million on FHLB advances, net of proceeds.

During the third and fourth quarters of 2002, we announced that our Board of Directors approved the repurchase of up to $500.0 million of our common stock. On July 29, 2003 we announced that our Board of Directors approved the repurchase of an additional $200.0 million of our common stock. Under the repurchase plan, we may buy back shares of our outstanding stock from time to time either on the open market or through privately negotiated transactions. The Board’s approvals bring the total approved repurchase to $700.0 million. Due to the imposition of a blackout period during and following the negotiation and execution of the merger agreement with First Data, there were no shares repurchased during the six months ended June 30, 2003.

During the second quarter of 2003, we entered into amended and restated agreements for the financing, construction and leasing of a new corporate headquarters in Memphis, Tennessee. These agreements amend the previous agreements entered into during the third quarter of 2002 for the Memphis facility to include leasing existing facilities in Wilmington, Delaware, and Marietta, Georgia that were covered under other leasing agreements. The agreements qualify for operating lease accounting treatment under Statement of Financial Accounting Standards 13, “Accounting For Leases,” and, as such, the related assets and obligations are not recorded on our balance sheet. Upon completion of construction of the Memphis facility, which is expected in the fourth quarter of 2003, rent payments will begin and will be expensed in our statements of income. The minimum lease payments under these agreements are not material to us. At the end of the lease term, we have options that include the renewal of the leases and fixed-price purchase options on the land and facilities. We have guaranteed the residual value of the land and facilities at the end of the lease term to the owner / lessor for each facility. Under these guarantees, we would be responsible for a decline in fair value during the lease term up to an estimated maximum amount if we do not exercise our option to acquire the land and facilities at the end of the term of the leases. The following table summarizes the guarantees and certain aspects of the agreements:

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

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

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

~~Quantitative~~MANAGEMENT’S ~~and~~DISCUSSION ~~Qualitative~~ AND ~~Disclosures~~ANALYSIS ~~About~~OF ~~Market Risk~~

AsFINANCIAL ofCONDITION ~~September~~AND ~~30,~~RESULTS ~~2002~~ OF ~~there~~OPERATIONS—(Continued) were no changes with regard to market risk that would require further quantitative or qualitative disclosure. For our quantitative and qualitative disclosures about market risk for the fiscal year ended December 31, 2001, refer to Exhibit 13 to our annual report on Form 10-K, filed on February 26, 2002.

~~-28-~~We are actively pursuing the renewal of our most significant Network Services customer contracts that would, if not renewed, terminate on December 31, 2004. These contracts accounted in 2002 for less than $100.0 million in revenue. There can be no assurance that such customer contracts will be renewed. We may be required to make material expenditures in order to secure the renewals. As negotiations of most of the renewals are in the early stages, we cannot currently predict the amount, if any, of such expenditures.

We and certain of our directors and certain of our officers have been named as defendants in a number of securities fraud class action lawsuits and shareholder derivative actions. Also, we are party to lawsuits in the normal course of our business. Litigation can be expensive, lengthy, and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable resolution or settlement of a particular lawsuit could have an adverse effect on our business, operating results, and financial condition.

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

We believe that our cash and cash equivalents, securities, available credit (unused lines of credit with the FHLB), and cash generated from operations are adequate to meet our capital and operating needs. Concord EFS National Bank, our wholly owned financial institution subsidiary, exceeded all required regulatory capital ratios as of June 30, 2003.

Effects of Inflation

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

CONCORD EFS, INC. AND ~~SUBSIDIARIESCONTROLS~~SUBSIDIARIES ~~AND PROCEDURES~~

~~Controls~~QUANTITATIVE ~~and~~AND ~~Procedures~~ QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Based on their evaluation~~ Item as3. Quantitative ~~of a date within 90 days prior to the filing of this quarterly report on Form 10-Q, our Chief Executive Officer, President,~~ and ~~Chief~~Qualitative ~~Financial~~Disclosures ~~Officer~~About ~~have~~Market ~~concluded~~ Risk that our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) are effective. As of the date of this quarterly report on Form 10-Q, there have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of such evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

~~-29-~~As of June 30, 2003 there were no changes with regard to market risk that would require further quantitative or qualitative disclosure. For our quantitative and qualitative disclosures about market risk for the fiscal year ended December 31, 2002, refer to Exhibit 13 to our annual report on Form 10-K filed on March 27, 2003.

CONCORD EFS, INC. AND ~~SUBSIDIARIESPART~~SUBSIDIARIES ~~IIOTHER INFORMATION~~

CONTROLS AND PROCEDURES

Item 4. Controls and Procedures

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

CONCORD EFS, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

From time to time ~~Concord~~ we isare involved in various litigation matters arising out of the conduct of ~~its~~our business. ~~Pending~~Previously ~~proceedings~~pending ~~and~~matters ~~developments~~ that ~~may~~are bematerial ~~considered~~to ~~material~~us were reported in our ~~annual~~Annual ~~report~~Report on Form 10-K for the year ended December 31, ~~2001~~2002 (filed on ~~February~~March 2627, ~~2002),~~2003 and our quarterly report on Form 10-Q for the quarter ended March 31, ~~2002~~2003 (filed on May 9, ~~2002), our current report on Form 8-K (filed on May 16, 2002), and our quarterly report on Form 10-Q for the quarter ended June 30, 2002 (filed on August 8, 2002)~~2003. ~~During~~There ~~the quarter ended September 30, 2002, there~~ were no material developments in ~~any~~the litigation ~~matter~~matters previously disclosed except for the developments discussed below.

As previously disclosed, ~~in September 2000 EFS National Bank was named as~~ a ~~defendant in a~~ purported securities class action ~~lawsuit~~and ~~filed~~two inpurported ~~the~~stockholder ~~Circuit~~derivative ~~Court~~actions ofare ~~Tennessee~~pending ~~for~~against ~~the~~us ~~Thirtieth~~and ~~Judicial District at Memphis alleging that~~ certain of ~~EFS~~our ~~National~~current ~~Bank’s rate~~ and ~~fee~~ former ~~changes~~officers ~~were~~and ~~improper~~directors, ~~under~~as ~~Tennessee~~well ~~law~~as ~~due~~other ~~to allegedly deficient notice~~defendants. On The ~~May~~following ~~14,~~table ~~2002~~lists ~~the~~certain ~~plaintiffs~~information ~~filed a second amended complaint alleging that the class~~with respect ~~consists~~to ofthese ~~over 100~~actions,~~000~~ ~~merchants~~as ~~who were subjected to the allegedly improper rate and fee changes over a several-year period. The second amended complaint sought damages in excess~~ of ~~$70.0~~July ~~million as well as injunctive relief and unspecified punitive damages~~22, ~~treble~~2003: ~~damages, attorney fees, and costs.~~

As previously disclosed, on May 16, 2002 the parties entered into a settlement agreement relating to this litigation and received preliminary approval from the trial court therefor. On August 6, 2002 the trial court rejected the only objection filed against the settlement agreement and gave the settlement agreement its final approval. The objector and his counsel subsequently reached an agreement with EFS National Bank, plaintiffs and counsel for the plaintiffs, pursuant to which EFS National Bank contributed $50,000. As a result, no appeal was taken, and thus the settlement is now final and unappealable. The maximum amount of the credits and payments by EFS National Bank under the settlement is $37.6 million, payable over a five-year period.

Name of Proceeding	Filing Date†	Type of Case
In re Concord EFS, Inc. Derivative Litigation	September 9, 2002*	Derivative
In re Concord EFS, Inc. Securities Litigation	September 6, 2002**	Securities Fraud
In re Concord EFS, Inc. Derivative Litigation	September 13, 2002**	Derivative

It† ~~appears~~For ~~that~~consolidated ~~the total cost to EFS National Bank of the settlement will be significantly less than $37.6 million. On September 17~~matters, ~~2002 EFS National Bank paid plaintiffs’ counsel and~~ the ~~named~~filing ~~plaintiffs~~date arepresents ~~total of $5.0 million, as required by~~ the ~~settlement~~ date ~~agreement.~~on ~~The~~which ~~deadline for~~ the ~~submission~~first ofcomponent ~~claims~~case ~~by class members~~ was ~~September 16, 2002~~filed. Approximately 150,000 class members were eligible to make claims, but less than 3,000 valid claims were actually submitted. In the fourth quarter the court-appointed claims administrator is expected to submit a report on the total amount of the valid claims submitted. EFS National Bank is also responsible for the costs of claims administration and for its own costs and expenses, including attorneys’ fees.

A* ~~purported~~Pending ~~class action complaint with similar allegations and requests for relief was filed~~ in ~~St.~~Tennessee ~~Charles~~ state ~~County,~~court ~~Missouri. That action was dismissed with prejudice~~ in ~~connection~~Memphis ~~with~~(Circuit ~~the settlement of the Tennessee case.~~ Court)

~~-30-~~ ** Pending in the United States District Court for the Western District of Tennessee

All of the above lawsuits raise allegations relating to our financial performance between March 2001 and September 2002, changes in the price of our common stock during that time, alleged failures to disclose material facts, and alleged insider trading and breaches of fiduciary duties by certain officers and certain directors. On April 21, 2003 the plaintiffs in the Tennessee state court derivative action filed a consolidated complaint which adds allegations that the defendants arranged the proposed merger with First Data at a below market price in return for indemnification against alleged prior wrong doing and for other benefits to them personally. The lawsuits seek unspecified compensatory and punitive damages, attorneys’ fees and other relief. In addition, the Tennessee state court derivative action seeks an injunction against the proposed merger.

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

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

On June 20, 2003 we filed a motion to dismiss the consolidated complaint filed in Tennessee state court in In re Concord EFS, Inc. Derivative Litigation. This motion has yet to be ruled on by the court.

Although these matters are in the preliminary stages, we believe that the claims against us and our directors and officers are without merit and intend to vigorously defend against all claims.

On or about April 3 and 4, 2003 two purported class action complaints were filed in the Circuit Court of Tennessee for the Thirtieth Judicial District at Memphis by Charles Reed and Coralyn Stransky. The defendants in these actions are certain of our current and former officers and directors. The complaints generally allege breaches of the defendants’ duty of loyalty and due care in connection with the defendants’ alleged attempt to

CONCORD EFS, INC. AND ~~SUBSIDIARIESPART~~SUBSIDIARIES ~~IIOTHER INFORMATION~~

~~Item~~PART ~~1. Legal~~II ~~Proceedings, continued~~

~~The~~OTHER ~~following~~INFORMATION—(Continued) table lists certain information with respect to the securities fraud purported class action lawsuits and shareholder derivative actions filed as of November 8, 2002 against Concord and various of its officers and directors:

Name of Plaintiff	Filing Date	Type of Case
Matt L. Brody	September 6, 2002*	Securities Fraud
James Weir and Chemical Valley Pension Fund of West Virginia	September 9, 2002**	Derivative
Colbert Birnet, L.P.	September 12, 2002*	Securities Fraud
Carolyn France	September 12, 2002**	Derivative
Terry Prince	September 13, 2002*	Derivative
Stanley Tseng	September 16, 2002*	Derivative
Marc Abrams	September 20, 2002*	Securities Fraud
John Morgan	September 20, 2002**	Derivative
Michele Rafkin	September 25, 2002***	Derivative
Jason Counts	October 1, 2002*	Securities Fraud
Gerald Goldberg	October 22, 2002***	Derivative
Dan Miller	October 24, 2002****	Derivative
Kathy Schmersahl	October 24, 2002*	Securities Fraud
John Norwood	November 4, 2002*	Securities Fraud
GF Partnership	November 6, 2002*	Securities Fraud

sell Concord without maximizing the value to shareholders in order to advance the defendants’ alleged individual interests in obtaining indemnification agreements related to the securities and other derivative litigation discussed above. The complaints seek class certification, injunctive relief directing the defendants’ conduct in connection with an alleged sale or auction of Concord, reasonable attorneys’ fees, experts’ fees and other costs and relief the court deems just and proper. These complaints were consolidated into one action (In Re Concord EFS, Inc. Shareholder Litigation) and transferred to the division of the Shelby County Circuit Court in which the Tennessee consolidated state-court derivative action (In Re Concord EFS, Inc. Derivative Litigation, filed September 9, 2002) is pending. Although these matters are in the preliminary stages, we believe that the claims against our officers and directors are without merit and we intend to vigorously contest these claims.

* FiledOn or about April 2, 2003 a purported class action complaint was filed in the ~~United~~Chancery ~~States~~Court for Shelby County, Tennessee, by Barton K. O’Brien. The defendants ~~District~~are ~~Court~~Concord, ~~for~~certain of our current and former officers and directors, and First Data. The complaint contains allegations regarding the ~~Western~~individual ~~District~~defendants’ alleged insider trading and alleged violations of ~~Tennessee** Filed~~securities and other laws and asserts that this alleged misconduct reduced the consideration offered to our shareholders in ~~Tennessee~~the ~~state~~proposed merger between Concord and First Data. The complaint seeks class certification, attorneys’ fees, expert fees, costs and other relief the court indeems ~~Memphis~~just (and proper. The complaint seeks an order enjoining consummation of the merger, rescinding the merger if it is consummated and setting it aside or awarding rescissory damages to members of the putative class, and directing the defendants to account to the putative class members for unspecified damages. On June 25, 2003 this complaint was transferred to the Shelby County Circuit Court~~)*** Filed~~ in ~~Tennessee~~which ~~state~~In ~~court~~Re inConcord ~~Memphis~~EFS, Inc. Shareholder Litigation is pending. This complaint is proceeding ~~(Chancery~~as ~~Court)**** Filed~~a inseparate ~~Delaware~~complaint ~~state~~from ~~court~~In re Concord EFS, Inc. Shareholder Litigation but has been consolidated with that case for pre-trial purposes. Although this matter is in ~~New~~the ~~Castle~~preliminary ~~County~~stages, ~~(Chancery~~ we ~~Court)~~believe that the claims are without merit and we intend to vigorously contest these claims.

~~The~~As previously ~~lawsuits~~disclosed, on April 1, 2003 we entered into a definitive agreement with First Data to merge in an all-stock ~~raise~~transaction. ~~allegations~~ The ~~relating~~transaction is subject to ~~Concord’s~~regulatory ~~financial~~approval ~~performance~~by ~~between~~the ~~October~~Antitrust ~~2001~~Division of the Department of Justice and ~~September~~certain state ~~2002,~~Attorneys ~~changes~~General. inThese agencies are investigating the ~~price~~transaction for possible antitrust concerns. The Department of ~~Concord’s~~Justice ~~common~~issued ~~stock~~a ~~during~~Request ~~that~~for ~~time,~~Additional ~~alleged~~ Information ~~failures~~and Documentary Materials to ~~disclose~~us ~~material~~on ~~facts~~June 12, ~~and~~2003. ~~alleged~~We ~~insider~~are ~~trading~~endeavoring byto comply ~~certain~~with ~~officers~~ that ~~and~~request ~~directors~~as quickly as possible. ~~The~~We ~~lawsuits~~may ~~seek~~be ~~unspecified~~unable ~~compensatory~~to ~~and~~obtain ~~punitive~~the ~~damages~~regulatory approvals required to complete the merger or, ~~attorneys’~~in ~~fees~~order to do so, ~~and~~the ~~injunctive~~combined ~~and~~company ~~other~~may ~~relief.~~be ~~Certain~~required ~~of these~~to ~~lawsuits~~comply ~~have~~with ~~been~~material ~~consolidated.~~restrictions or conditions. Although ~~these~~we ~~matters~~anticipate ~~are~~ that inantitrust ~~the~~regulatory ~~preliminary~~clearance ~~stages,~~will ~~Concord~~be ~~believes~~achieved ~~that~~within the ~~claims~~second ~~against~~half itof ~~and~~this ~~its~~year, ~~directors~~ delay, ~~and~~denial ~~officers~~or ~~are~~condition ~~without~~of ~~merit~~such ~~and~~clearance ~~intends~~could toresult ~~vigorously~~in ~~defend~~loss ~~against~~or ~~all~~disadvantage ~~claims~~to us.

~~-31-~~On November 5, 2002 Richard R. Sutherland filed a lawsuit against a number of defendants, including Concord EFS National Bank in the Superior Court of California, County of Santa Clara. The plaintiff makes several allegations, including breach of contract, fraud and negligent misrepresentation arising out of business transactions between the plaintiff and Purchase Plus Buyers Group, an entity which formerly processed credit card transactions through Concord EFS National Bank. This lawsuit, for which we were recently served, seeks compensatory damages in the amount of $55,000 and punitive damages in the amount of $195.0 million. Although this matter is in the very preliminary stages, we believe that the claims are without merit and we intend to vigorously contest these claims.

On September 30, 2002 Nancy Canning filed a purported class action lawsuit against Concord in New Jersey state court. The plaintiff alleges that we wrongfully allowed and facilitated surcharges on EBT withdrawals at ATMs within our network. The plaintiff’s four original claims were for violation of N.J.S.A. 44:10-75(c) (which concerns New Jersey’s EBT program), violation of New Jersey’s Consumer Fraud Act,

CONCORD EFS, INC. AND ~~SUBSIDIARIESPART~~SUBSIDIARIES ~~IIOTHER INFORMATION~~

PART II

OTHER INFORMATION—(Continued)

negligence, and breach of contract (as an alleged third-party beneficiary). The plaintiff seeks certification of a class consisting of all New Jersey public assistance recipients participating in the New Jersey EBT program who, since March 24, 1997, withdrew their cash benefits from ATMs serviced and processed by Concord and incurred a surcharge per EBT withdrawal. The lawsuit seeks unspecified compensatory and punitive damages, attorneys’ fees, and injunctive and other relief. We moved to dismiss all four claims. At a hearing on March 7, 2003, the court found that the claim for violation of N.J.S.A. 44:10-75(c) should be dismissed with prejudice and that the claims for violation of New Jersey’s Consumer Fraud Act and breach of contract should be dismissed without prejudice, but the court denied our motion to dismiss as to the negligence claim. On April 6, 2003 Ms. Canning and Danielle Thomas filed an Amended Complaint alleging violation of New Jersey’s Consumer Fraud Act and negligence and seeking unspecified compensatory and punitive damages, attorneys’ fees, and injunctive and other relief. Although this matter is in the preliminary stages, we believe that the claims against us are without merit and intend to vigorously defend against all claims.

On October 31, 1996 Commonwealth Savings Bank (Commonwealth) filed a lawsuit against CoreStates Financial Corp. (CoreStates) in the Court of Common Pleas of Chester County, Pennsylvania. On August 6, 1997 Commonwealth added MONEY ACCESS SERVICE INC. (MASI), a subsidiary of ours, as a defendant therein, alleging that MASI is liable to Commonwealth for an amount in excess of $3.6 million based on claims arising out of alleged errors in the conversion of certain Meridian Bank branches to the MAC network and MASI processing at the time the branches were acquired by Commonwealth from CoreStates and CoreStates’ affiliates. Discovery is complete. The court has struck various reports and portions of reports submitted by Commonwealth’s damages experts. At a deposition in March 2000, Commonwealth’s expert testified to a damages calculation of $4.2 million. On November 15, 2002 CoreStates and MASI filed motions for partial summary judgment on all but a small part of Commonwealth’s remaining claim, which were denied on April 15, 2003. This case has been set for trial in February 2004. We believe that the claims against us are without merit and intend to continue to vigorously defend against all claims.

We are also a party to various routine lawsuits arising out of the conduct of our business, none of which is expected to have a material adverse effect upon our financial condition or results of operations.

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

At the annual meeting of our stockholders held on May 22, 2003, our stockholders elected the following nominees to our Board of Directors, with votes cast as follows:

Douglas C. Altenbern—392,944,256 shares for and 26,049,169 abstentions;

J. Richard Buchignani—392,064,988 shares for and 26,928,437 abstentions;

Richard M. Harter—387,801,562 shares for and 31,191,863 abstentions;

Bond R. Isaacson—391,784,972 shares for and 27,208,453 abstentions;

Richard P. Kiphart—329,518,211 shares for and 89,475,214 abstentions;

Edward A. Labry III—395,535,637 shares for and 23,457,788 abstentions;

Jerry D. Mooney—390,787,804 shares for and 28,205,621 abstentions;

Dan M. Palmer—313,097,769 shares for and 105,895,391 abstentions;

Shirley C. Raines—393,763,699 shares for and 25,229,726 abstentions;

CONCORD EFS, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION—(Continued)

George F. Raymond—393,692,318 shares for and 25,301,107 abstentions;

Arthur N. Seessel III—390,801,626 shares for and 28,191,799 abstentions; and

Paul L. Whittington—390,817,146 shares for and 28,176,279 abstentions.

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

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit
ExhibitNo.		Description
Number		Description of Exhibit
2.1		Agreement and Plan of Merger among Concord EFS, Inc., First Data Corporation and Monaco Subsidiary Corporation, dated as of April 1, 2003, is incorporated herein by reference to Exhibit 2.1 to Concord’s current report on Form 8-K (File No. 001-31527), filed on April 2, 2003.
3.1		Restated Certificate of Incorporation of Concord EFS, Inc. is incorporated herein by reference to Exhibit 4.1 to Concord’s registration statement on Form S-8 (File No. 333-90678), filed on June 18, 2002.
3.2		Amended and Restated Bylaws of Concord EFS, Inc. are incorporated herein by reference to Exhibit 4.2 to Concord’s registration statement on Form S-8 (File No. 333-74215), filed on March 10, 1999.
10.1		~~Master~~Employment Agreement, dated as of ~~July~~April 121, ~~2002~~2003, ~~among~~by and between Concord EFS, Inc., ~~Electronic~~and ~~Payment~~Dan ~~Services, Inc~~M., ~~Star Systems~~Palmer, ~~LLC,~~is ~~certain~~incorporated ~~subsidiaries~~herein ofby ~~Concord~~reference ~~EFS,~~to ~~Inc~~Exhibit 10.4 ~~that~~to ~~may~~Concord’s ~~become~~quarterly areport ~~party~~on toForm ~~such~~10-Q ~~agreement,~~(File ~~Atlantic~~No. ~~Financial Group~~001-31527), ~~Ltd.,~~filed ~~certain~~on ~~financial~~May ~~institutions~~9, ~~and SunTrust Bank~~2003.
10.2		~~Master~~Employment ~~Lease~~ Agreement, dated as of ~~July~~April 121, ~~2002~~2003, ~~among~~by ~~Atlantic~~and ~~Financial~~between ~~Group, Ltd.,~~ Concord EFS, Inc., and ~~certain~~Edward ~~subsidiaries~~Labry, ofis incorporated herein by reference to Exhibit 10.5 to Concord’s ~~EFS~~quarterly report on Form 10-Q (File No. 001-31527), ~~Inc~~filed on May 9, 2003.
10.3		~~Construction~~Amended ~~Agency~~and Restated Employment Agreement, dated asMay ~~of July 12~~29, ~~2002~~2003, ~~between~~by ~~Atlantic~~and ~~Financial~~between ~~Group~~Concord EFS, ~~Ltd~~Inc. and ~~Concord~~Edward ~~EFS, Inc~~T. Haslam
10.4		~~Loan~~Amended and Restated Master Agreement, dated as of ~~July~~June 1226, ~~2002~~2003, ~~between~~among ~~Atlantic~~Concord ~~Financial~~EFS, ~~Group~~Inc., ~~Ltd~~Concord Corporate Services, Inc. and certain other subsidiaries of Concord EFS, Inc. that may thereafter become party thereto, SunTrust Equity Funding, LLC, certain financial institutions parties thereto, and SunTrust Bank
10.5		~~Guaranty~~Amended and Restated Master Lease Agreement, dated as of ~~July~~June 1226, ~~2002~~2003, ~~from~~between SunTrust Equity Funding, LLC, and Concord EFS, Inc., toConcord ~~Atlantic~~Corporate ~~Financial Group~~Services, ~~Ltd~~Inc. and certain ~~financial~~other ~~institutions~~subsidiaries of Concord EFS, Inc.
10.6		~~Letter~~Amended ~~agreement~~and Restated Construction Agency Agreement, dated ~~September~~as 11of June 26, ~~2002~~2003, between ~~Concord~~SunTrust ~~EFS~~Equity Funding, ~~Inc.~~LLC and J.Concord ~~Richard~~EFS, ~~Buchignani~~Inc.
10.7		~~Letter~~Amended ~~agreement,~~and ~~dated~~Restated ~~August~~Loan 30Agreement, ~~2002,~~dated ~~between~~as ~~Concord~~of ~~EFS,~~June ~~Inc. and Bond Isaacson~~26, ~~including the accompanying Sign-On Bonus Re-Pay Agreement~~2003, ~~dated~~among ~~November~~SunTrust 9,Equity ~~2002~~Funding, ~~between Concord EFS~~LLC, ~~Inc. and Bond Isaacson (Confidential material appearing in this document was omitted and filed separately with~~ the ~~Securities~~financial ~~and~~institutions ~~Exchange~~party ~~Commission~~thereto ~~in accordance with the Securities~~ and ~~Exchange~~SunTrust ~~Act of 1934, as amended, and 17 C.F.R. 240.24b-2 and 200.80. Omitted information was replaced with asterisks.)~~Bank
99.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
10.8		Amended and Restated Guaranty Agreement, dated as of June 26, 2003, from Concord EFS, Inc.
99.2		Certification of President Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.3		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.4		Cautionary Statements

CONCORD EFS, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION—(Continued)

Exhibit No.		Description
10.9		Amended and Restated Subsidiary Guaranty Agreement, dated as of June 26, 2003, from Concord Corporate Services, Inc., Star Systems, LLC and the other entities that are signatories thereto as a Guarantor

31.1		Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.3		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.1		Cautionary Statements

(b) Reports on Form 8-K

On ~~August~~April 82, ~~2002~~2003 we filed a current report on Form 8-K to ~~report~~file, under Item 95 of that form, ~~the~~our ~~submission~~ agreement ~~to the Securities~~ and ~~Exchange~~plan ~~Commission~~ of ~~sworn~~merger ~~statements~~with byFirst ~~each~~Data ~~of our Principal Executive Officer, Dan M. Palmer,~~ and ~~Principal Financial Officer, Edward T. Haslam, in accordance with~~ the ~~Securities~~related ~~and~~press ~~Exchange Commission Order No~~release. ~~4-460.~~

On April 29, 2003 we filed a current report on Form 8-~~32-~~K to furnish, under Item 12 of that form, our press release containing earnings information for our first quarter of 2003 ended March 31, 2003.

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

SIGNATURES

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

	~~CONCORD EFS, INC.~~	CONCORD EFS, INC.
Date: November 13, 2002	By: /s/ Dan M. Palmer
Date: August 11, 2003:		By:	/s/ DAN M. PALMER
	Dan M. Palmer
			Dan M. Palmer Director and Co-Chief Executive Officer (Principal Executive Officer)
	Chairman of the Board and
	Chief Executive Officer
Date: November 13, 2002	By: /s/ Edward T. Haslam
	Edward T. Haslam
	Senior Vice President,
	Chief Financial Officer, and Treasurer

-33-

~~CERTIFICATION~~ CONCORD EFS, INC. AND SUBSIDIARIES

~~I, Dan~~FORM M. 10-Q ~~Palmer,~~LISTING ~~certify~~OF ~~that:~~ EXHIBITS

1. I have reviewed this quarterly report on Form 10-Q of Concord EFS, Inc. (the “registrant”);

Exhibit No.		Description

2.1		Agreement and Plan of Merger among Concord EFS, Inc., First Data Corporation and Monaco Subsidiary Corporation, dated as of April 1, 2003, is incorporated herein by reference to Exhibit 2.1 to Concord’s current report on Form 8-K (File No. 001-31527), filed on April 2, 2003.

3.1		Restated Certificate of Incorporation of Concord EFS, Inc. is incorporated herein by reference to Exhibit 4.1 to Concord’s registration statement on Form S-8 (File No. 333-90678), filed on June 18, 2002.

3.2		Amended and Restated Bylaws of Concord EFS, Inc. are incorporated herein by reference to Exhibit 4.2 to Concord’s registration statement on Form S-8 (File No. 333-74215), filed on March 10, 1999.

10.1		Employment Agreement, dated as of April 1, 2003, by and between Concord EFS, Inc. and Dan M. Palmer, is incorporated herein by reference to Exhibit 10.4 to Concord’s quarterly report on Form 10-Q (File No. 001-31527), filed on May 9, 2003.

10.2		Employment Agreement, dated as of April 1, 2003, by and between Concord EFS, Inc. and Edward Labry, is incorporated herein by reference to Exhibit 10.5 to Concord’s quarterly report on Form 10-Q (File No. 001-31527), filed on May 9, 2003.

10.3		Amended and Restated Employment Agreement, dated May 29, 2003, between Concord EFS, Inc. and Edward T. Haslam

10.4		Amended and Restated Master Agreement, dated as of June 26, 2003, among Concord EFS, Inc., Concord Corporate Services, Inc. and certain other subsidiaries of Concord EFS, Inc. that may thereafter become party thereto, SunTrust Equity Funding, LLC, certain financial institutions parties thereto, and SunTrust Bank

10.5		Amended and Restated Master Lease Agreement, dated as of June 26, 2003, between SunTrust Equity Funding, LLC, and Concord EFS, Inc., Concord Corporate Services, Inc. and certain other subsidiaries of Concord EFS, Inc.

10.6		Amended and Restated Construction Agency Agreement, dated as of June 26, 2003, between SunTrust Equity Funding, LLC and Concord EFS, Inc.

10.7		Amended and Restated Loan Agreement, dated as of June 26, 2003, among SunTrust Equity Funding, LLC, the financial institutions party thereto and SunTrust Bank

10.8		Amended and Restated Guaranty Agreement, dated as of June 26, 2003, from Concord EFS, Inc.

10.9		Amended and Restated Subsidiary Guaranty Agreement, dated as of June 26, 2003, from Concord Corporate Services, Inc., Star Systems LLC and the other entities that are signatories thereto as a Guarantor

31.1		Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~2. Based~~36 on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date	November 13, 2002
By	/s/ Dan M. Palmer
	Dan M. Palmer
	Chief Executive Officer

-34-

~~CERTIFICATION~~ CONCORD EFS, INC. AND SUBSIDIARIES

~~I, Edward~~ FORM A.10-Q ~~Labry~~LISTING ~~III,~~OF ~~certify~~EXHIBITS—(Continued) ~~that:~~

1. I have reviewed this quarterly report on Form 10-Q of Concord EFS, Inc. (the “registrant”);

Exhibit No.		Description

32.2		Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.3		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.1		Cautionary Statements

~~2. Based~~37 on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date	November 13, 2002
By	/s/ Edward A. Labry III
	Edward A. Labry III
	President

-35-

CERTIFICATION

I, Edward T. Haslam, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Concord EFS, Inc. (the “registrant”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date	November 13, 2002
By	/s/ Edward T. Haslam
	Edward T. Haslam
	Chief Financial Officer

-36-

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

ExhibitNumber		Description of Exhibit
3.1		Restated Certificate of Incorporation of Concord EFS, Inc. is incorporated herein by reference to Exhibit 4.1 to Concord’s registration statement on Form S-8 (File No. 333-90678), filed on June 18, 2002.
3.2		Amended and Restated Bylaws of Concord EFS, Inc. are incorporated herein by reference to Exhibit 4.2 to Concord’s registration statement on Form S-8 (File No. 333-74215), filed on March 10, 1999.
10.1		Master Agreement, dated as of July 12, 2002, among Concord EFS, Inc., Electronic Payment Services, Inc., Star Systems, LLC, certain subsidiaries of Concord EFS, Inc. that may become a party to such agreement, Atlantic Financial Group, Ltd., certain financial Institutions, and SunTrust Bank
10.2		Master Lease Agreement, dated as of July 12, 2002, among Atlantic Financial Group, Ltd., Concord EFS, Inc., and certain subsidiaries of Concord EFS, Inc.
10.3		Construction Agency Agreement, dated as of July 12, 2002, between Atlantic Financial Group, Ltd. and Concord EFS, Inc.
10.4		Loan Agreement, dated as of July 12, 2002, between Atlantic Financial Group, Ltd. and SunTrust Bank
10.5		Guaranty Agreement, dated as of July 12, 2002, from Concord EFS, Inc. to Atlantic Financial Group, Ltd. and certain financial institutions
10.6		Letter agreement, dated September 11, 2002, between Concord EFS, Inc. and J. Richard Buchignani
10.7		Letter agreement, dated August 30, 2002, between Concord EFS, Inc. and Bond Isaacson, including the accompanying Sign-On Bonus Re-Pay Agreement, dated November 9, 2002, between Concord EFS, Inc. and Bond Isaacson (Confidential material appearing in this document was omitted and filed separately with the Securities and Exchange Commission in accordance with the Securities and Exchange Act of 1934, as amended, and 17 C.F.R. 240.24b-2 and 200.80. Omitted information was replaced with asterisks.)
99.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2		Certification of President Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.3		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.4		Cautionary Statements

Date: August 11, 2003:

/s/ BOND R. ISAACSON

Bond R. Isaacson

Director and Co-Chief Executive Officer

(Principal Executive Officer)

Filing Compare · CONCORD EFS INC