<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 19, 1996
----------------------------
FIRST USA PAYMENTECH, INC.
----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-142244 75-2634185
-------------- -------- ---------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1601 Elm Street, Suite 4700, Dallas, Texas 75201
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 214-849-2000
---------------------
<PAGE>
Reference is made to the Current Report on Form 8-K (the "Form 8-K") filed
by First USA Paymentech, Inc. on September 3, 1996. The Form 8-K is hereby
amended to read in its entirety as follows:
Item 2. Acquisition or Disposition of Assets.
On July 19, 1996, First USA Management Resources, Inc. ("Management
Resources"), a Delaware corporation and a wholly-owned subsidiary of First USA
Paymentech, Inc. (the "Company"), entered into an Agreement and Plan of Merger
(the "Merger Agreement") by and among the Company, Management Resources, First
USA, Inc., a Delaware corporation, First USA Opportunity III, Inc., a Delaware
corporation and a wholly-owned subsidiary of Management Resources (the "Merger
Sub"), GENSAR Holdings, Inc., a Delaware corporation ("GENSAR"), Golder Thoma
Cressey Fund III Limited Partnership ("Golder Thoma") and the other stockholders
of GENSAR (together with Golder Thoma, the "Sellers"). Pursuant to the Merger
Agreement, Merger Sub would merge with and into GENSAR (the "Merger") and each
share of GENSAR Common Stock issued and outstanding immediately prior to the
Merger would be converted into the right to receive (i) an amount in cash per
share equal to (A) $100,000,000 minus certain deductions divided by (B) the
----- ----------
number of shares of GENSAR Common Stock outstanding immediately prior to the
Merger together with (ii) a promissory note in the original principal amount
equal to (A) $100,000,000 divided by (B) the number of shares of GENSAR Common
----------
Stock outstanding immediately prior to the Merger. The aggregate consideration
paid in the transaction by Management Resources to the Sellers was approximately
$169,000,000. The acquisition consideration for the transaction was determined
by negotiations between the parties to the Merger Agreement.
The Merger Agreement was consummated on August 19, 1996.
As a result of the Merger, GENSAR became a wholly-owned subsidiary of
Management Resources. The assets of GENSAR and its subsidiaries include all the
assets and properties, real and personal, tangible and intangible, used by
GENSAR and its subsidiaries in the operation of its business as a third-party
processor of "point-of-sale" electronic funds transfers, credit card
authorizations, and retail data collections for financial institutions and
retail establishments. Management Resources intends to continue such use of
those assets.
To the best knowledge of the Company, there is no material relationship
between GENSAR and the Company, or any of its affiliates, any director or
officer of the Company, or any associate of such director or officer.
The primary sources of funds used in the transaction were funds from the
Company's initial public offering, a loan from First USA Financial, Inc. and
non-interest bearing notes payable to the previous shareholders of GENSAR due on
October 18, 1996.
2
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of business acquired in the Transaction.(*)
(i) Consolidated Balance Sheet.
(ii) Consolidated Statement of Income.
(iii) Consolidated Statement of Cash Flows.
(b) Pro forma Financial Information for the Transaction.(*)
(i) Pro forma Condensed Balance Sheet.
(ii) Pro forma Condensed Consolidated Statement of
Income.
(c) Exhibits.
The following is a list of exhibits filed as part of this Current
Report on Form 8-K:
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Merger dated July 19, 1996
by and among the Company, First USA, Inc., First
USA Management Resource, Inc., First USA
Opportunity III, Inc., GENSAR Holdings Inc.,
Golder Thoma Cressey Fund III Limited Partnership
and the other stockholders of GENSAR Holdings Inc.
(1)
4. None.
23.1 Consent of Deloitte & Touche LLP.(*)
- - --------------------------
* Filed herewith.
(1) Previously filed.
3
<PAGE>
[DELOITTE & TOUCHE LLP LOGO APPEARS HERE]
- - --------------------------------------------------------------------------------
GENSAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Financial Statements for the
Years Ended December 31, 1995, 1994 and 1993 and
Independent Auditors' Report
- - --------------------------------------------------------------------------------
- - ---------------
Deloitte Touche
Tohmatsu
International
- - ---------------
<PAGE>
[DELOITTE & TOUCHE LLP LOGO & LETTERHEAD APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
GENSAR Holdings Inc.
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheets of GENSAR Holdings
Inc. and subsidiaries (the "Company") as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity (deficiency)
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
June 13, 1996
- - ---------------
Deloitte Touche
Tohmatsu
International
- - ---------------
<PAGE>
<TABLE>
<CAPTION>
GENSAR Holdings Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- - ------------------------------------------------------------------------------------------------------------------------------------
ASSETS 1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ($1,990,181 restricted for 1995) $ 3,324,151 $ 770,141
Merchant accounts receivable, Net of allowance for doubtful accounts
of $266,666 for 1995 6,659,245 -
Trade accounts receivable, Net of allowance for doubtful accounts of $107,675
and $112,695 for 1995 and 1994, respectively 1,818,012 1,565,290
Inventory 161,627 89,436
Prepaid expenses and other current assets 181,274 98,625
Deferred tax asset - 83,746
----------- -----------
Total current assets 12,144,309 2,607,238
MARKETABLE EQUITY SECURITIES 10,744 10,744
FURNITURE AND EQUIPMENT, Net 1,551,842 1,429,513
MERCHANT CONTRACTS AND NONCOMPETE AGREEMENTS, Net of accumulated amortization of
$135,260 2,869,539 -
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, Net of accumulated amortization
of $2,663,328 and $1,699,184 for 1995 and 1994, respectively 19,426,338 14,040,839
OTHER ASSETS, Net 305,799 404,467
----------- -----------
TOTAL $36,308,571 $18,492,801
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,138,511 $ 2,395,025
Merchant reserves 7,969,643 -
Deferred compensation payable to related party 323,971 217,500
Demand notes 19,350,000 14,350,000
Capital lease obligations, current portion 273,352 131,534
Due to Principal Shareholder 258,333 -
Long-term debt, current portion 2,432,292 -
----------- -----------
Total current liabilities 33,746,102 17,094,059
----------- -----------
LONG-TERM DEBT 2,373,820 -
DEFERRED RENT 3,275 16,743
DEFERRED TAX LIABILITY - 83,746
CAPITAL LEASE OBLIGATIONS 554,429 751,061
----------- -----------
Total liabilities 36,677,626 17,945,609
----------- -----------
COMMITMENTS
SHAREHOLDERS' EQUITY (DEFICIENCY):
Redeemable preferred stock, $.01 par value - authorized, 40,000 shares;
issued and outstanding, 4,500 shares (liquidation preference of $4,500,000) 1,289,017 848,160
Common stock $.01 par value - authorized, 800,000 shares;
issued and outstanding 524,283 and 479,219 shares in 1995 and 1994, respectively 5,243 4,792
Additional paid-in capital 8,448,570 8,439,238
Notes receivable from shareholders (940,653) (612,222)
Accumulated deficit (9,171,232) (8,132,776)
----------- -----------
Total shareholders' equity (deficiency) (369,055) 547,192
----------- -----------
TOTAL $36,308,571 $18,492,801
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
GENSAR Holdings Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
REVENUES:
<S> <C> <C> <C>
Transaction fees $ 13,901,098 $ 12,587,613 $ 10,948,001
Processing fees 8,900,034 -- --
Customer service 902,098 815,512 638,058
Terminal programming and equipment sales 662,842 247,511 332,575
Other operating revenue 579,087 822,750 456,632
Interest income 196,787 76,588 79,603
-------------- -------------- --------------
Total revenues 25,141,946 14,549,974 12,454,869
-------------- -------------- --------------
EXPENSES:
Salaries, benefits and payroll taxes 6,427,015 4,991,304 4,799,708
Processing expenses 5,610,553 -- --
Transaction expenses 5,377,412 4,856,446 4,982,932
General and administrative 2,821,587 1,707,465 1,490,434
Depreciation and amortization - furniture and equipment,
computer software licenses and organization costs 856,582 640,196 855,016
Office rent 496,107 408,982 436,457
Commissions and residuals 405,917 -- --
Cost of sales 281,709 -- --
Equipment maintenance and rentals 272,114 514,814 739,966
Application software 267,490 227,581 275,804
Provision for doubtful accounts 203,647 48,801 (8,126)
-------------- -------------- --------------
23,020,133 13,395,589 13,572,191
-------------- -------------- --------------
INCOME (LOSS) BEFORE AMORTIZATION OF
INTANGIBLES AND INTEREST 2,121,813 1,154,385 (1,117,322)
Amortization - merchant contracts and noncompete agreements,
excess of purchase price over net assets acquired and purchased
software 1,117,559 2,240,798 2,531,187
Interest and other debt costs 1,784,377 1,080,310 965,396
Debt fee to principal shareholder 258,333 -- --
Income tax benefit -- -- (55,241)
-------------- -------------- --------------
NET LOSS $ 1,038,456 $ 2,166,723 $ 4,558,664
============== ============== ==============
</TABLE>
3
<PAGE>
GENSAR Holdings Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-In
Shares Amount Shares Amount Capital
<S> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1992 4,500 $ 44,425 409,376 $ 4,093 $ 8,545,242
Issuance of common stock 73,751 738 736,772
Redemption of common stock (2,970) (30) (29,670)
Interest income accrued
Undeclared preferred stock
preferential dividends 396,452 (396,452)
Net loss
--------- ------------ ---------- ---------- -------------
BALANCE,
DECEMBER 31, 1993 4,500 440,877 480,157 4,801 8,855,892
Issuance of common stock 1,875 19 18,731
Redemption of common stock (2,813) (28) (28,102)
Interest income accrued
Undeclared preferred stock
preferential dividends 407,283 (407,283)
Net loss
--------- ------------ ---------- ---------- -------------
BALANCE,
DECEMBER 31, 1994 4,500 848,160 479,219 4,792 8,439,238
Issuance of common stock 45,064 451 450,189
Repayments
Interest income accrued
Undeclared preferred stock
preferential dividend 440,857 (440,857)
Net loss
--------- ------------ ---------- ---------- -------------
BALANCE,
DECEMBER 31, 1995 4,500 $ 1,289,017 524,283 $ 5,243 $ 8,448,570
========= ============ ========== ========== =============
<CAPTION>
Notes
Receivable
From Accumulated
Shareholders Deficit Total
<S> <C> <C> <C>
BALANCE,
DECEMBER 31, 1992 $ (90,883) $ (1,407,389) $ 7,095,488
Issuance of common stock (462,050) 275,460
Redemption of common stock 24,510 (5,190)
Interest income accrued (44,477) (44,477)
Undeclared preferred stock
preferential dividends
Net loss (4,558,664) (4,558,664)
------------ --------------- --------------
BALANCE,
DECEMBER 31, 1993 (572,900) (5,966,053) 2,762,617
Issuance of common stock (12,250) 6,500
Redemption of common stock 18,350 (9,780)
Interest income accrued (45,422) (45,422)
Undeclared preferred stock
preferential dividends
Net loss (2,166,723) (2,166,723)
------------ --------------- --------------
BALANCE,
DECEMBER 31, 1994 (612,222) (8,132,776) 547,192
Issuance of common stock (331,608) 119,032
Repayments 59,000 59,000
Interest income accrued (55,823) (55,823)
Undeclared preferred stock
preferential dividends
Net loss (1,038,456) (1,038,456)
------------ --------------- --------------
BALANCE,
DECEMBER 31, 1995 $ (940,653) $ (9,171,232) $ (369,055)
============ =============== ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
GENSAR Holdings Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,038,456) $ (2,166,723) $ (4,558,664)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,974,141 2,880,994 3,386,203
Provision for doubtful accounts 203,647 48,801 (8,126)
Gain on sale of equipment - (18,522) -
Changes in assets and liabilities which provided (used) cash net of
effects from purchase of FirstNet assets and liabilities:
Merchant accounts receivable (7,000,911) - -
Trade accounts receivable (208,029) (8,587) (103,155)
Amount due from former shareholder - - 1,550,000
Inventory 56,816 97,814 (117,058)
Prepaid expenses and other current assets (36,133) (55,373) 59,727
Deferred tax asset 83,746 (35,094) 2,623
Other assets (124,600) 15,501 (108,603)
Accounts payable and accrued expenses 366,026 105,504 280,058
Merchant reserves 7,090,870 - -
Due to Principal Shareholder 258,333 - -
Deferred tax liability (83,746) 35,094 (57,864)
Other liabilities 93,003 83,071 75,736
Interest receivable (55,823) (45,422) -
------------ ------------ ------------
Net cash provided by (used in) operating activities 1,578,884 937,058 400,877
------------ ------------ ------------
INVESTING ACTIVITIES:
Capital expenditures (128,737) (112,578) (223,504)
Proceeds from sale of capital equipment 118,630 100,300 -
FirstNet Corp Acquisition:
Merchant contracts (3,004,799) - -
Goodwill (6,349,643) - -
Purchase of FirstNet assets, net of cash acquired 819,945 - -
------------ ------------ ------------
Net cash used in investing activities (8,544,604) (12,278) (223,504)
------------ ------------ ------------
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 118,630 18,750 737,510
Redemption of common stock - (28,130) (29,700)
Repayments of notes receivable due from shareholders 59,000 18,350 24,510
Borrowings under demand notes 5,000,000 - -
Repayments of amounts outstanding under demand note - - (1,000,000)
Borrowings under loan 4,924,340 - 153,000
Issuance of notes receivable due from shareholders (331,608) (12,250) (506,527)
Repayment of long-term debt (118,228) (267,472) (89,083)
Repayment of capital lease obligations (132,404) (258,355) (332,071)
------------ ------------ ------------
Net cash provided by (used in) financing activities 9,519,730 (529,107) (1,042,361)
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,554,010 395,673 (864,988)
CASH AND CASH EQUIVALENTS, BEGINNING 770,141 374,468 1,239,456
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 3,324,151 $ 770,141 $ 374,468
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -
Cash paid during the period for interest $ 2,038,275 $ 1,029,223 $ 976,159
============ ============ ============
</TABLE>
GENSAR Merchant Processing acquired $1,556,233 of assets, primarily cash and
receivables, and liabilities of $1,256,233, primarily accounts payable and
accrued liabilities. Net cash acquired was $1,119,945.
See notes to consolidated financial statements.
5
<PAGE>
GENSAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
- - --------------------------------------------------------------------------------
1. ORGANIZATION AND BUSINESS
GENSAR Holdings Inc. ("GENSAR Holdings"), a Delaware corporation, was
formed in 1992 to build, through acquisition and internal development, a
nationwide electronic banking network. GENSAR Holding's principal
shareholder is the investment banking firm of Golder, Thoma, Cressey &
Rauner (herein "Principal Shareholder") which owns 100% of the outstanding
preferred stock and 81% of the outstanding common stock of GENSAR Holdings.
On October 26, 1992, GENSAR Holdings acquired 100% of the capital stock of
a corporation now doing business as GENSAR Technologies Inc. ("GENSAR
Technologies"), a Delaware corporation. GENSAR Technologies is a third-
party processor of "point of sale" electronic funds transfers, credit card
authorizations, and retail data collections for financial institutions and
retail establishments.
Effective July 1, 1995, GENSAR Holdings acquired certain assets and
liabilities of FirstNet Corporation. These assets and liabilities were
recorded in GENSAR Merchant Processing, Inc. ("GENSAR Merchant
Processing"), which is a newly formed and wholly owned subsidiary of GENSAR
Holdings. GENSAR Merchant Processing, a Delaware corporation, is a Texas-
based processing provider of bankcard services for merchants in various
retail and service industries. GENSAR Merchant Processing currently
processes VISA, Mastercard and various other bankcard transactions. The
cost of this acquisition was $10,228,000 and was accounted for under the
purchase method of accounting.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
the accounts of GENSAR Holdings and its wholly owned subsidiaries, GENSAR
Technologies Inc. and GENSAR Merchant Processing Inc. (collectively, the
"Company"). All significant intercompany balances and transactions have
been eliminated.
Cash and Cash Equivalents - For purposes of reporting cash flows, the
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Merchant Accounts Receivable - Merchant accounts receivable consist
primarily of merchant funds receivable through settlement from the card
issuing banks.
Trade Accounts Receivable - Trade accounts receivable consist primarily of
the monthly processing fees charged to the Company's customers and other
trade receivables, net of the allowance for doubtful accounts.
6
<PAGE>
Allowance for Doubtful Accounts - The allowance for doubtful accounts
represents provisions for losses charged to earnings, less actual charge-
offs net of recoveries. Trade and merchant accounts receivable are charged
against the allowance for doubtful accounts when management believes the
collectibility of the receivable is unlikely. The provision for doubtful
accounts charged to earnings is the amount which is necessary to establish
the allowance at a level management believes will be adequate to absorb
losses on existing merchant and trade accounts receivable that become
uncollectible, based on evaluation of the collectibility of the receivables
and historical loss experience.
Inventory - Inventory is stated at the lower of cost (first-in, first-out)
or market and consists of point-of-sale terminals and printers, related
software and supplies.
Furniture and Equipment - Furniture and equipment are stated at cost and
are depreciated over their estimated useful lives using the straight-line
method, with such lives ranging from 3 to 7 years. Amortization of assets
recorded under capital leases is included in depreciation expense.
Merchant Contracts and Noncompete Agreements - The costs allocated to
merchant contracts and noncompete agreements are being amortized by the
straight line method over 10 years and 3 years, respectively, from the date
of acquisition.
Excess of Purchase Price Over Net Assets Acquired - The excess of purchase
price over net assets acquired is being amortized by the straight-line
method over 20 years for the GENSAR Technologies stock acquisition and 15
years for the GENSAR Merchant Processing asset acquisition.
Asset Impairment - At least annually, and more often if circumstances
dictate, the Company evaluates the recoverability of the net carrying value
of its furniture and equipment, merchant contracts and noncompete
agreements and the excess of purchase price over net assets acquired on a
consolidated Company-wide basis. As part of this evaluation, the fair value
of these assets is estimated based on discounted cash flows. The fair value
is compared to the carrying amount in the consolidated financial
statements. A deficiency in fair value relative to carrying amount is an
indication of the need for a writedown due to impairment. If the total of
these future undiscounted cash flows were less than the carrying amount of
these assets, they would be written down to their fair value, and a loss on
impairment recognized by a charge to earnings. The Company's accounting
policy complies with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of."
Merchant Reserves - Merchant reserves represent funds collected by the
Company through the interchange system that are not remitted to the
merchant due to an unusual characteristic of a transaction. The Company
then investigates the transaction further before remitting funds to the
merchant. Merchant reserves also include amounts due merchants that
management has determined necessary as additional credit support for
certain merchant processing volumes.
7
<PAGE>
Income Taxes - The Company accounts for income taxes under the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", which requires an asset and liability approach for financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed for differences between the financial statement
carrying values and tax basis of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized. Income
tax expense is the tax payable or refundable during the period plus or
minus the change in the deferred tax assets and liabilities.
Revenue Recognition - Service revenues are recognized as services are
performed and delivered, with transaction and processing fees specifically
recognized at the time the transaction or processing is completed.
Processing Expenses - Processing expenses are comprised of the direct
processing costs related to the VISA, Mastercard and various other bankcard
transactions.
Transaction Expenses - Transaction expenses are comprised of the direct
transaction costs related to third-party processor point-of-sale electronic
funds transfers, credit card authorizations and retail data collections.
Software Development - All costs associated with internally developed
software are expensed as incurred.
Reclassifications - Certain amounts have been reclassified in the 1994 and
1993 financial statements to be comparable to the financial statement
presentation for 1995.
3. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following at December 31, 1995 and
1994:
1995 1994
Furniture and fixtures $ 799,791 $ 441,916
Computer equipment 1,640,990 1,364,048
Telecommunications equipment 216,777 69,793
---------- ----------
2,657,558 1,875,757
Accumulated depreciation (1,105,716) (446,244)
---------- ----------
$1,551,842 $1,429,513
========== ==========
8
<PAGE>
4. OTHER ASSETS
Other assets consist of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Computer software and software licenses acquired $ 900,028 $ 770,399
Other deposits and fees 112,738 117,767
Organization costs 34,840 34,840
--------- --------
1,047,606 923,006
Accumulated amortization (741,807) (518,539)
--------- --------
$ 305,799 $ 404,467
========= ========
</TABLE>
The Company amortizes computer software licenses acquired using the
straight-line method over a period of 5 years from the date the software is
available for its intended use. Organization costs are amortized over a one
year period.
5. MERCHANT CONTRACTS AND NONCOMPETE AGREEMENTS
Merchant contracts and noncompete agreements consist of the following at
December 31, 1995:
<TABLE>
<CAPTION>
1995
<S> <C>
Merchant contracts $ 2,944,799
Noncompete agreement 60,000
----------
3,004,799
Accumulated amortization (135,260)
----------
Total $ 2,869,539
==========
</TABLE>
These amounts represent costs allocated as a result of the acquisition of
certain assets and liabilities of FirstNet Corporation. There were no such
intangibles as of December 31, 1994.
6. DEMAND NOTES
The amounts outstanding under the notes are payable to a bank upon demand
with interest payable monthly at the prime rate of interest, 8.5% as of
both December 31, 1995 and 1994. Repayment of the notes is guaranteed by
the Principal Shareholder of the Company. Should the lender demand
repayment on the demand note, GENSAR Holdings would be dependent upon the
Principal Shareholder to assist in satisfying this obligation and in
supporting the operations of GENSAR Holdings. Management intends to
ultimately refinance such obligation to a long-term obligation. However,
the ability to refinance is primarily dependent upon the further growth of
the Company's operations and more favorable market conditions for borrowing
opportunities.
9
<PAGE>
7. LEASE OBLIGATIONS
Capital Leases - The Company leases computer and telecommunication
equipment, and furniture and fixtures under capital leases for use in its
operations.
Following is a schedule of leased assets included in furniture and
equipment at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Computer equipment $ 937,315 $ 877,786
Personal computer equipment 79,865 79,865
Furniture and fixtures 30,650 30,650
Personal computer software 17,809 17,809
--------- ---------
1,065,639 1,006,110
Accumulated depreciation (433,724) (75,816)
--------- ---------
Total $ 631,915 $ 930,294
========= =========
</TABLE>
<TABLE>
<CAPTION>
Capital lease obligations at December 31, 1995 are as follows:
<S> <C>
Computer equipment, payable $25,266, monthly,
including interest, through October 1998 $ 812,999
Furniture and fixtures, payable $761 monthly,
including interest, through December 1996 8,344
Personal computer software, payable $263 monthly
including interest, through March 1998 6,438
---------
Total 827,781
Less current portion (273,352)
---------
Total - long term portion $ 554,429
=========
</TABLE>
<TABLE>
<CAPTION>
Following is a schedule of future minimum payments required under the
capital leases together with their present value as of December 31, 1995.
<S> <C>
1996 $ 338,313
1997 329,184
1998 272,605
--------
Total minimum lease payments 940,102
Less amount representing interest (112,321)
--------
Present value of minimum lease payments $ 827,781
========
</TABLE>
10
<PAGE>
Operating Leases - The Company leases computer equipment and office
facilities under various operating leases. Following is a schedule of
future minimum lease payments required under noncancelable operating leases
with remaining terms in excess of one year:
1996 $ 419,024
1997 233,568
1998 101,124
1999 97,536
Thereafter 174,752
---------
Total $1,026,004
=========
8. INCOME TAXES
As of December 31, 1995 and 1994, the Company has recorded net deferred tax
assets of $0 and $83,746 and deferred tax liabilities of $0 and $83,746,
respectively. These amounts represent the approximate tax effect of
temporary differences and operating loss carryforwards that give rise to
the Company's deferred tax assets and liabilities, and the change in the
valuation allowance for such deferred tax assets.
As of December 31, 1995, the principal components of the deferred tax
assets are a net operating loss carryforward, and nondeductible accruals
for uncollectible receivables, intangibles, vacation pay and deferred
compensation. A valuation allowance of $2,445,000 and $2,368,880, as of
December 31, 1995 and 1994, respectively, has been recorded for the
deferred tax assets since it is not presently determinable as to whether
the assets will be fully realized in future periods.
At December 31, 1995 and 1994, the Company had net operating loss
carryforwards for U.S. federal income tax purposes of $2,856,000 and
$2,996,605, respectively, which expire in various years ending in the year
2010.
For the year ended December 31, 1995, the Company will file a consolidated
State of Florida income tax return. In prior years, GENSAR Technologies
Inc. filed separately in the State of Florida. At December 31, 1995 and
1994, GENSAR Technologies Inc. had State of Florida net operating loss
carryforwards for state income tax reporting purposes of $305,000 and
$571,000, respectively, which expire in various years ending 2008. These
carryforwards may only be utilized to offset future State of Florida
taxable income generated by GENSAR Technologies Inc.
At December 31, 1995 and 1994, the Company had State of Texas business loss
carryforwards for state income tax reporting purposes of $125,326 and $0,
respectively, which expire in the year 2000.
9. DEFERRED COMPENSATION
The Company has an agreement with a shareholder who is also a member of
management whereby $90,000 of the executive's compensation is deferred
annually. As of December 31, 1995 and 1994, $323,971 and $217,500,
respectively, of deferred compensation and accrued interest was included as
a liability on the Company's balance sheet. Interest is payable to the
executive to the extent of the deferred compensation balance at February 1,
1995 at a rate of 8%.
11
<PAGE>
10. REDEEMABLE PREFERRED AND COMMON STOCKS
The Company is authorized to issue 40,000 shares of preferred stock. As of
December 31, 1995, 1994 and 1993, 4,500 shares were issued and outstanding.
Each preferred share has a preference liquidation value of $1,000 per
share. The preferred stock was recorded at fair value of $4,500,000 on the
date of issuance with a credit of $45 to par value and the remainder to
additional paid-in capital.
Each share of preferred stock entitles its holder to preferential dividends
equal to an amount of 8% per annum of the sum of the liquidation value and
all accumulated but unpaid dividends. At December 31, 1995, 1994 and 1993
there were $1,289,017, $848,160 and $440,877, respectively, of undeclared
and unpaid dividends. These dividends have been reflected as an increase in
preferred stock with a corresponding decrease in additional paid-in
capital.
The Company may at any time redeem all or any portion of the outstanding
shares of preferred stock. The redemption price would be equal to the
liquidation value plus all accrued and unpaid dividends thereon.
The holders of a majority of the Preferred Stock may request redemption at
any time after July 27, 1999. If such notice is given to the Company, the
Company shall be required to redeem all shares with respect to which such
redemption requests have been made. Redemption price per share shall equal
the liquidation value plus all accrued and unpaid dividends thereon.
The Company had reserved 8,750 shares of common stock, at a purchase price
of $10 per share, through agreements with the Company's senior management
as of December 31, 1994. The reserved common stock was issued in June 1995
and there were no common shares reserved as of December 31, 1995.
11. NOTES RECEIVABLE FROM SHAREHOLDERS
Pursuant to the formation of the Company and certain employment agreements,
certain executives obtained the rights to purchase up to 71,719 shares of
common stock of GENSAR Holdings. Additional shares have also been issued to
other key members of management. These shares were purchased for a
combination of cash and the issuance of notes receivable. The notes provide
for payment of principal and interest at 8% and are payable upon demand.
The notes and the accrued interest thereon are recorded as a reduction of
shareholders' equity until paid. During the year ended December 31, 1995
there were repayments of $59,000 on such notes.
12. DEFINED CONTRIBUTION PLANS
GENSAR Technologies has a 401(k) Plan (the "GENSAR Technologies Plan")
covering all employees who meet certain eligibility requirements. Under the
GENSAR Technologies Plan provisions, the Company matches 50% of employee
contributions up to a maximum matching amount of 2% of the employee's
compensation. Contributions for the years ended December 31, 1995, 1994 and
1993 were $49,965, $44,538 and $46,373, respectively.
12
<PAGE>
GENSAR Merchant Processing has a 401(k) Plan (the "GENSAR Merchant
Processing Plan") covering all employees who meet certain eligibility
requirements. Under the GENSAR Merchant Processing Plan, the Company
matches 100% of employee contributions up to a maximum matching amount of
2% of the employee's compensation. Contributions for the six months ended
December 31, 1995 were $8,530. Subsequent to year end, the Company merged
the GENSAR Merchant Processing Plan into the GENSAR Technologies Plan.
13. MAJOR CUSTOMERS
Revenue generated from one customer accounted for approximately $2,612,000,
$3,426,000 and $3,949,000 or 10%, 24% and 32%, respectively, of total
consolidated revenue for the years ended December 31, 1995, 1994 and 1993.
14. RELATED PARTY TRANSACTIONS
On July 18, 1995, the Company entered into an agreement with the Principal
Shareholder for certain services. Under the terms of the agreement, the
Company is to pay a $50,000 monthly fee to be paid as long as the demand
notes outstanding as of July 26, 1995, guaranteed by the Principal
Shareholder, remain outstanding.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of amounts reported in the consolidated financial
statements has been determined by using available market information and
appropriate valuation methodologies. The carrying value of all current
assets and current liabilities approximates fair value because of their
short-term nature. The fair value of long-term assets and long-term debt
approximates their carrying value.
16. BUSINESS COMBINATION
The Company acquired certain assets and liabilities of FirstNet Corporation
effective July 1, 1995. The following unaudited consolidated pro forma
results give effect in all material respects to the purchase of the
FirstNet assets and liabilities as if it had occurred on January 1, 1993.
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Revenue $ 32,745,177 $ 28,139,658 $ 23,631,215
Income before amortization
of intangibles and interest 2,675,756 2,339,996 234,585
------------- ------------- -------------
Net income (loss) $ (1,382,934) $ (3,011,458) $ (5,156,628)
============= ============= =============
</TABLE>
The unaudited pro forma results do not purport to be indicative of the
results of operations that would have actually been obtained if the
purchase had been consummated as of the beginning of the period
13
<PAGE>
presented. In addition, the unaudited pro forma results do not purport to
be indicative of the results of operations which may be achieved in the
future.
The unaudited pro forma results have been prepared using calculations based
on assumptions and adjustments deemed reasonable by the Company.
14
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The unaudited Pro Forma Condensed Consolidated Financial Statements of the
Company set forth on the following pages include the Pro Forma Condensed
Consolidated Balance Sheet as of June 30, 1996 and the Consolidated Statement of
Income for the fiscal year ended June 30, 1996.
The Pro Forma Condensed Consolidated Balance Sheet and the Consolidated
Statement of Income have been prepared by combining the historical results of
the Company and GENSAR Holdings Inc, ("GENSAR") adjusted to give effect to the
purchase transactions as if it had occurred July 1, 1995, excluding the effect
of the after tax merger-related charge of $9.7 million. Pro forma adjustments
reflecting anticipated merger benefits are not included.
Adjustments to reflect the remaining business combinations and merchant
portfolio purchases occurring during the fiscal year ended June 30, 1996, as if
they had occurred on July 1, 1995, in aggregate, did not have a material impact
on the pro forma results of operations and therefore have not been included.
The unaudited Pro Forma Condensed Consolidated Financial Statements include
all material adjustments necessary to present the historical results in a manner
reflecting the assumptions set forth above.
The unaudited Pro Forma Condensed Consolidated Financial Statements do not
purport to be indicative of the results of operations that would have actually
been obtained if the purchase had been consummated as of the beginning of the
period presented. In addition, the unaudited Pro Forma Condensed Consolidated
Financial Statements do not purport to be indicative of the results of
operations which may be achieved in the future.
The unaudited Pro Forma Condensed Consolidated Financial Statements have
been prepared using calculations based on assumptions and adjustments deemed
reasonable by the Company. These assumptions and adjustments are set forth in
the Notes to Pro Forma Condensed Consolidated Financial Statements.
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
As of June 30, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Consolidated Consolidated Pro Forma Pro Forma
ASSETS Paymentech GENSAR Adjustments Consolidated
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 105,804 $ 3,000 $ (74,004)(a) $ 34,800
Receivables 25,952 15,334 - 41,286
Other current assets 18,377 496 - 18,873
------------ ------------ ----------- ------------
Total current assets 150,133 18,830 (74,004) 94,959
Property and equipment, net 30,344 1,256 - 31,600
Intangible assets, net 88,894 21,533 179,411 (b) 289,838
Other assets 20,850 403 - 21,253
------------ ------------ ----------- ------------
$ 290,221 $ 42,022 $ 105,407 $ 437,650
============ ============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Merchant deposits $ 18,353 $ 14,065 $ - $ 32,418
Accounts payable 15,912 4,479 - 20,391
Other current liabilities 24,202 22,605 (19,592)(c) 27,215
------------ ------------ ----------- ------------
Total current liabilities 58,467 41,149 (19,592) 80,024
Long-term debt - 1,479 123,982 125,461
Other liabilities 690 411 - 1,101
Stockholders' Equity 231,064 (1,017) 1,017 (d) 231,064
------------ ------------ ----------- ------------
$ 290,221 $ 42,022 $ 105,407 $ 437,650
============ ============ =========== ============
</TABLE>
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED INCOME STATEMENT
For the year ended June 30, 1996
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Consolidated Consolidated Pro Forma Pro Forma
Paymentech GENSAR (e) Adjustments Consolidated
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
NET REVENUE $ 121,232 $ 25,091 $ (609) (f) $ 145,714
OPERATING EXPENSES
Salaries and employee benefits 38,753 9,148 - 47,901
Data processing and communications 26,951 6,244 (609) (f) 32,586
Other 34,513 8,860 5,924 (b) 49,297
------------ ------------ ----------- ------------
Total operating expenses 100,217 24,252 5,315 129,784
------------ ------------ ----------- ------------
INCOME FROM OPERATIONS 21,015 839 (5,924) 15,930
------------ ------------ ----------- ------------
NET INTEREST INCOME (EXPENSE) 2,737 (2,439) (4,810) (c) (4,512)
------------ ------------ ----------- ------------
INCOME BEFORE INCOME TAXES 23,752 (1,600) (10,734) 11,418
------------ ------------ ----------- ------------
PROVISION FOR INCOME TAXES 9,500 - (4,272) (g) 5,228
------------ ------------ ----------- ------------
NET INCOME $ 14,252 $ (1,600) $ (6,462) $ 6,190
============ ============ =========== ============
Net income per share $ 0.54 $ (0.24) $ 0.23
============ =========== ============
Weighted average common shares outstanding 26,429,673 26,429,673
</TABLE>
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AND STATEMENTS OF INCOME
As of and for the year ended June 30, 1996
(Dollars in thousands)
(a) To record cash paid for GENSAR.
(b) To record the resulting goodwill of $123 million and identifiable
intangibles of $56 million and the corresponding amortization expense
related to the Company's acquisition of GENSAR. The amortization expense was
calculated as if the acquisition had occurred July 1, 1995.
(c) To record the pay-off of the GENSAR debt and record the Company's debt and
related interest expense which was incurred to complete the purchase.
Interest expense was calculated as if the acquisition had occurred July 1,
1995.
(d) To record the elimination of GENSAR stockholders' deficiency.
(e) A reconciliation of the pro forma statements of income to the historical
financial statements of GENSAR is as follows:
<TABLE>
<S> <C>
Net Loss for the fiscal year ended June 30, 1996 $(1,600)
Less net loss for the six months ended June 30, 1996 (649)
Add net loss for the six months ended June 30, 1995 (87)
-------
Net loss for the calendar year ended December 31, 1995 $(1,038)
=======
</TABLE>
(f) To record the elimination of revenue paid by the Company to GENSAR.
(g) To record the pro forma adjustment for income tax. This adjustment results
in a consolidated effective tax rate of 45.79%, which reflects the effect of
the higher level of intangible amortization.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST USA PAYMENTECH, INC.
Date: October 18, 1996 By: /s/ DAVID W. TRUETZEL
--------------------------------
David W. Truetzel
Chief Financial Officer
4
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
23.1 Consent of Deloitte & Touche LLP.
497746.3/D
5
<PAGE>
EXHIBIT 23.1
[DELOITTE & TOUCHE LLP LOGO & LETTERHEAD APPEARS HERE]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Form 8-KA of First USA Paymentech, Inc. of our
report on the consolidated financial statements of GENSAR Holdings Inc and
subsidiaries dated June 13, 1996.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
October 18, 1996
- - ---------------
Deloitte Touche
Tohmatsu
International
- - ---------------
