<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September, 30, 1996
-------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-14224
------------
First USA Paymentech, Inc.
- - --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 75-2634185
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1601 Elm Street, 8th Floor, Dallas, Texas 75201
- - --------------------------------------------------------------------------------
(address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code 214-849-4770
------------
N/A
- - --------------------------------------------------------------------------------
Former Name, Former Address and former Fiscal Year, If Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
---------------------------- ---------------------------------
Common Stock, $.01 par value 31,703,181 shares
<PAGE>
EXPLANATORY NOTE
First USA Paymentech, Inc. ("the Company") is amending its Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 in order to reflect a new
income statement format. This change did not have an effect on the Company's net
income, net cash flow or liquidity.
This Amendment No. 1 on Form 10-Q/A to the Quarterly Report on Form 10-Q of the
Company for the fiscal quarter ended September 30, 1996 contains revised
financial statements (Part I Item 1) and management's discussion and analysis of
financial condition and results of operations (Part I Item 2) resulting from
the above changes. Each of the items included herein has been restated in full.
FIRST USA PAYMENTECH, INC.
FORM 10-Q/A QUARTERLY REPORT
Amendment No. 1
Table of Contents
-----------------
PART I. F I N A N C I A L I N F O R M A T I O N Page
----
ITEM 1. Financial Statements.
Condensed Consolidated Balance Sheets -
September 30, 1996 (Unaudited) and June 30, 1996............. 3
Condensed Consolidated Statements of Income (Unaudited) -
Three Months Ended September 30, 1996 and 1995.............. 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended September 30, 1996 and 1995............... 5
Notes to Interim Condensed Consolidated Financial
Statements (Unaudited)....................................... 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 8
PART II. O T H E R I N F O R M A T I O N
ITEM 6. Exhibits and Reports on Form 8-K
Index of Exhibits............................................ 10
Reports on Form 8-K.......................................... 10
SIGNATURES............................................................ 11
INDEX OF EXHIBITS..................................................... 12
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In thousands, except share data)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996 (A)
---------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 72,829 $105,804
Receivables 41,036 25,952
Credit card loans, net 10,147 7,012
Terminal inventories 5,341 3,747
Prepaid expenses and other current assets 7,063 7,618
-------- --------
Total current assets 136,416 150,133
Investments, at cost (market value of
$12,107 and $12,315 at September 30, 1996
and June 30, 1996, respectively) 12,110 12,379
Property and equipment, net 33,579 30,344
Purchased merchant portfolios, net 90,644 26,519
Goodwill, net 208,099 62,375
Other assets 7,699 8,471
-------- --------
$488,547 $290,221
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable $171,743 $ 16,051
Other accrued expenses 29,166 11,455
Merchant deposits 18,268 18,353
Interest-bearing deposits 8,979 5,335
Accrued assessments 6,322 7,273
-------- --------
Total current liabilities 234,478 58,467
Loan payable to First USA 25,000 -
Interest-bearing deposits, bank notes and other 1,237 690
Stockholders' equity:
Common stock, $.01 par value 317 317
Additional capital 210,485 210,433
Retained earnings 17,030 20,314
-------- --------
227,832 231,064
-------- --------
$488,547 $290,221
======== ========
</TABLE>
(A) Derived from audited financial statements.
See Notes to Interim Condensed Consolidated Financial Statements.
3
<PAGE>
FIRST USA PAYMENTECH, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Revenues
Revenue $ 41,130 $ 24,403
Other income 253 70
--------- --------
Total revenues 41,383 24,473
--------- --------
Expenses
Operating 16,083 13,044
Salaries and employee benefits 11,690 8,290
Depreciation and amortization 3,624 1,512
Interest 500 370
Merger, integration and impairment 15,544 -
--------- --------
Total expenses 47,441 23,216
--------- --------
Income (loss) before income taxes (6,058) 1,257
Provision (benefit) for income taxes (2,774) 568
--------- --------
Net income (loss) $ (3,284) $ 689
========= ========
Net income (loss) per share $ (0.10) $ 0.03
========= ========
Weighted average common and common
equivalent shares outstanding 32,124 24,411
========= ========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
4
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
---------------------
1996 1995
---------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (3,284) $ 689
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Non-cash portion of merger, integration and
impairment charge 7,497 -
Provision for depreciation and amortization 3,624 1,512
Changes in operating assets and liabilities:
Receivables (8,138) (644)
Accounts payable and accrued expenses 58,721 1,049
Accrued assessments (951) -
Merchant deposits (795) 3,597
Other operating activities (800) (850)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 55,874 5,353
INVESTING ACTIVITIES
Purchases of merchant portfolios, processing services
and other acquisitions (188,118) (36,274)
Purchases of property and equipment (6,131) (1,081)
Purchase of investments 269 -
--------- --------
NET CASH USED FOR INVESTING ACTIVITIES (193,980) (37,355)
FINANCING ACTIVITIES
Notes payable 76,556 -
Note payable to First USA Financial, Inc. 25,000 29,975
Capital contribution from First USA Financial, Inc. - 16,140
Issuance of interest-bearing deposits 3,548 -
Issuance of common stock, net 52 -
Other financing activities (25) -
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 105,131 46,115
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (32,975) 14,113
Cash and cash equivalents at beginning of period 105,804 4,623
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 72,829 $ 18,736
========= ========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
5
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
First USA Paymentech, Inc. (the "Company"), a 77%-owned indirect subsidiary
of First USA, Inc. ("First USA") is a Delaware corporation, which engages in the
credit card industry primarily as a payment processor of credit and debit card
transactions. In addition, the Company markets and issues commercial cards
to businesses and other entities. Through its recently acquired subsidiary
GENSAR Holdings Inc ("GENSAR"), the Company also provides credit and debit
authorization services. During the three months ended September 30, 1996, the
Company processed approximately $9.0 billion in sales volume in approximately
264 million total transactions, which included GENSAR volume following the
acquisition.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended September 30, 1996
are not necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
NOTE B - BUSINESS COMBINATIONS AND MERCHANT PORTFOLIO PURCHASES
On August 19, 1996, the Company purchased for approximately $170 million
all of the outstanding stock of GENSAR which owns 100% of GENSAR
Technologies Inc and GENSAR Merchant Processing Inc. The acquisition was
accounted for as a purchase, and accordingly, GENSAR's results have been
included in the Company's results of operations since acquisition.
After all market value adjustments, the purchase resulted in identifiable
intangible assets of approximately $35 million, which have lives of 8-10 years
and goodwill of approximately $165 million.
The following consolidated pro forma results give effect to the purchase of
GENSAR as if it had occurred on July 1, 1995:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
1996 1995
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<S> <C> <C>
Total revenue $43,808 $30,349
Loss before income taxes (7,203) (1,611)
Net loss (3,990) (873)
Net loss per share (0.12) (0.04)
</TABLE>
The pro forma results include the effect of all material adjustments
related to the purchase transaction and have been prepared using calculations
based on assumptions and adjustments deemed reasonable by the Company.
The 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 presented. In addition, the pro
forma results do not purport to be indicative of the results of operations which
may be achieved in the future.
6
<PAGE>
During the first quarter of fiscal 1996, the Company recorded a merger,
integration and impairment charge related to the acquisition of GENSAR, of $15.5
million, which reduced net income by $9.7 million. The charge includes costs
related to the conversion from third party authorization networks to GENSAR's
authorization network, the closure of certain offices and employee severance.
The conversion costs consist primarily of the incremental labor costs to convert
existing merchant customers to the GENSAR authorization network. The charge
related to office closings includes lease termination costs as well as the
write-off of certain intangible assets related to systems that will no longer be
used. The employee related costs are primarily severance for individuals
displaced as result of the office closings.
NOTE C - INCOME TAXES
The Company's consolidated provision for income taxes includes state and
federal income tax components. The Company's effective tax rate was 45.8% and
45.2% for the three months ended September 30, 1996 and 1995, respectively.
NOTE D - SUBSEQUENT EVENT
On November 8, 1996 the Company filed a Registration Statement on Form S-1
with the Securities and Exchange Commission in connection with 6.8 million
shares of the Company's Common Stock to be sold in a public offering. Of such
shares, 2.8 million shares will be issued and sold by the Company and 4 million
shares will be sold by First USA.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
First USA Paymentech, Inc. (the "Company") is a Delaware corporation, which
engages in the credit card industry primarily as a payment processor of credit
and debit card transactions on behalf of merchants, financial institutions and
sales agents. According to published industry sources, the Company is the third
largest payment processor of credit and debit card transactions in the United
States. During fiscal 1996, the Company processed approximately $30.9 billion
sales volume in approximately 574 million bankcard transactions. In addition,
the Company markets and issues commercial cards to businesses and other
entities. Commercial cards facilitate business-to-business payment procedures
and reporting, replacing traditional direct payment methods. The results of
operations and financial condition of the Company include the results of the
Company's commercial card operations since its start-up in the first quarter of
fiscal 1996. Through its recently acquired subsidiary GENSAR, the Company also
provides third-party credit and debit authorization services to financial
institutions, sales agents and the Company's direct merchants. During the three
months ended September 30, 1996, the Company processed approximately $9.0
billion in sales volume in approximately 264 million total transactions, which
included GENSAR volume following the acquisition.
The Company is a 77%-owned indirect subsidiary of First USA, Inc.
BUSINESS COMBINATIONS AND MERCHANT PORTFOLIO PURCHASES
On August 19, 1996, the Company purchased for approximately $170 million
all of the outstanding stock of GENSAR. GENSAR is one of the nation's largest
providers of third-party credit and debit authorization services to financial
institutions and sales agents, processing approximately 300 million transactions
during the twelve months ended June 30, 1996. Prior to its acquisition, GENSAR
engaged in the payment processing business and maintained a merchant payment
processing portfolio with approximately $1 billion in annual sales volume. The
acquisition of GENSAR enables the Company to offer third-party credit and debit
authorization services to financial institutions, sales agents and direct
merchants. GENSAR also enables the Company to directly provide its existing
customers with a full array of point-of-sales products and services that were
previously outsourced. As a result of the GENSAR acquisition, the Company
expects to (1) realize cost savings through vertical integration of formerly
outsourced services, (2) enhance existing products and services and (3) generate
new revenue by establishing itself as a third-party front-end processor. This
acquisition was accounted for as a purchase and accordingly, its results are
included in the Company's results of operation from the date of the acquisition.
RESULTS OF OPERATIONS
The Company recorded a net loss for the three months ended September 30,
1996 of $3.3 million or $0.10 per share compared with net income of $689,000 or
$0.03 per share, for the three months ended September 30, 1995. The results for
the quarter were reduced by a one-time merger, integration and impairment charge
related to the GENSAR acquisition of $15.5 million, $9.7 million and $0.30 per
share on an after tax basis. The charge includes costs related to the conversion
from third-party authorization networks to GENSAR's authorization network, the
closure of certain offices and employee severance. Income excluding the one-
time merger, integration and impairment charge was $6.4 million, or $0.20 per
share.
Revenue increased 68.5% to $41.1 million for the three months ended
September 30, 1996 compared with $24.4 million for the three months ended
September 30, 1995. Bankcard sales volume processed increased 49.3% to $9.0
billion for the three months ended September 30, 1996 compared with $6.0 billion
for the three months ended September 30, 1995. Bankcard items processed
increased 60.9% to 178 million for the three months ended September 30, 1996,
compared with 110 million for the three months ended September 30, 1995. Total
items processed for the three months ended September 30, 1996 were 264 million.
The increase in revenue is the result of the increase in sales volume processed
as a result of the direct sales efforts and the acquisitions of GENSAR and
several merchant portfolios. Other income includes interest income from
investments.
Total expenses, excluding the one-time merger, integration and impairment
charge and the amortization of goodwill and other identifiable intangibles,
increased 32.0% to $30.1 million for the three months ended September 30, 1996
compared with $22.8 million for the three months ended September 30, 1995. The
increase was primarily the result of the GENSAR acquisition and the increase in
sales volume processed. Salaries and employee benefits
8
<PAGE>
increased 41.0% to $11.7 million for the three months ended September 30, 1996
compared with $8.3 million for the three months ended September 30, 1995
primarily due to the increase in the number of employees to approximately 1,000
at September 30, 1996 from approximately 800 at September 30, 1995. Such
increase included employees hired as a result of the Company's acquisitions as
well as those hired to support the growth in sales volume processed. Operating
expenses, which includes the cost of obtaining authorizations and processing
transactions as well as occupancy and equipment costs, increased 23.3% to $16.1
million for the three months ended September 30, 1996 compared with $13.0
million for the three months ended September 30, 1995 due primarily to the
increase in sales volume processed partially offset by favorable price
renegotiations with communications and authorization vendors. The Company has
also emphasized converting existing merchants to, and installing new merchants
on, the Company's internal data processing systems which have lower operating
costs than the costs of obtaining data processing services from third party
vendors.
Depreciation and amortization was $3.6 million for the three months ended
September 30, 1996, compared with $1.5 million for the three months ended
September 30, 1995, respectively, reflecting an increase in amortization of
intangibles and depreciation of property and equipment related to acquisitions.
During the first quarter of fiscal 1997, the Company recorded a one-time
merger, integration and impairment charge of $15.5 million, or $9.7 million and
$0.30 per share on an after tax basis related to the acquisition of GENSAR. The
charge includes costs related to the conversion from third party authorization
networks to GENSAR's authorization network, the closure of certain offices and
employee severance. The conversion costs consist primarily of the incremental
labor costs to convert existing merchant customers to the GENSAR authorization
network. The charge related to office closings includes lease termination costs
as well as the write-off of certain intangible assets related to systems that
will no longer be used. The employee related costs are primarily severance for
individuals displaced as a result of the office closings.
SEASONALITY
The Company's revenue generally reflects the seasonal fluctuations that are
typically associated with traditional peaks in consumer retail sales. As a
result, the Company generally experiences higher revenue during the December
quarter.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $55.9 million for the three
months ended September 30, 1996 compared with $5.4 million for the same period
of 1995. During the three months ended September 30, 1996, the Company used
$188.1 million to acquire GENSAR and other merchant portfolios and processing
services. The GENSAR acquisition was funded by a $100 million non-interest
bearing note payable to the previous shareholders of GENSAR and a $25 million
loan from First USA. During the three months ended September 30, 1995, the
Company used $36.3 million to purchase merchant portfolios, processing services
and other acquisitions.
In February, 1996, the Company entered into the $100 million Revolving
Credit Facility ("Revolving Credit Facility") with a bank syndicate. The
Revolving Credit Facility provides a source of additional liquidity to manage
cash flow, provide capital to subsidiaries for expansion and for other corporate
uses. At September 30, 1996, the Company had no borrowings under the Revolving
Credit Facility. In October 1996, the Company borrowed $100 million under the
Revolving Credit Facility at a rate of LIBOR plus 50 basis points (currently
approximately 5.9%), and increased the line of credit to $200 million in October
1996.
The Company has no current plans to pay dividends on the common stock. The
Company presently intends to retain earnings to support the growth of the
Company's business.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
The following exhibits are incorporated by reference or filed here with:
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
- - ------- ---------------------- ----
2 Agreement and Plan of Merger, dated as of July 19, 1996,
by and among First USA, the Company, First USA Management
Resources, Inc., First USA Opportunity III, Inc., GENSAR
and Golder Thoma Cressey Fund III Limited Partnership and
the other stockholders of GENSAR, filed as Exhibit 2.1 to
the Company's Current Report on Form 8-K filed September
3, 1996 and incorporated by reference herein.
3.1 Certificate of Incorporation of the Company, as amended,
filed as Exhibit 3.1 to the Company's Registration
Statement on Form S-1 (No. 333-262) (the "Registration
Statement") and incorporated by reference herein.
3.2 By-Laws of the Company, filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (No.333-262)
by reference herein.
10.1 Amendment No. 1 to 1996 Stock Option Plan of the Company,
filed as Exhibit 10.1 to the Company's Registration
Statement on Form S-1 filed with the Securities and
Exchange Commission on November 8, 1996 and incorporated by
reference herein.
10.2 Form of Amendment No. 1 to Revolving Credit Agreement dated October
30, 1996 among the Company, the lenders listed therein and
NationsBank of Texas, N.A. as Agent, filed as Exhibit 10.2
to the Company's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on
November 8, 1996 and incorporated by reference herein.
10.3 Deferred Compensation Plan of First USA, filed as
Exhibit 4.3 to the Company's Registration Statement on
Form S-8 (No.333-06979) and incorporated by
reference herein.
10.4 First USA Paymentech Retirement Savings Plan, filed as
Exhibit 99.1 to the Company's Registration Statement on
Form S-8 (No. 333-11249) and incorporated by reference
herein.
10.5 First USA Paymentech Savings Restoration Plan filed as
Exhibit 10.11 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996, and incorporated by
reference herein.
11 Computation of Net Income Per Share filed as Exhibit 11
to the Company's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on
November 8, 1996 and incorporated by reference herein.
27* Financial Data Schedule
- - --------------
*Filed herewith.
b. Reports on Form 8-K filed during the quarter ended September 30, 1996:
Form 8-K filed September 3, 1996
Item 2. Acquisitions or dispositions of assets
Form 8-K/A filed October 18, 1996
Item 2. Acquisitions or dispositions of assets
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
10
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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.
Date: September 26, 1997
FIRST USA PAYMENTECH, INC.
By: /s/ PAMELA H. PATSLEY
-------------------------------------
Pamela H. Patsley
President and Chief Executive Officer
By: /s/ DAVID W. TRUETZEL
-------------------------------------
David W. Truetzel
Chief Financial Officer
(Principal Financial and Accounting Officer)
11
<PAGE>
INDEX OF EXHIBITS
-----------------
Exhibit Sequentially
Number Description of Exhibit Numbered Page**
- - ------- ---------------------- ---------------
27* Financial Data Schedule
- - --------------
*Filed herewith.
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1995
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 72,829 105,804
<SECURITIES> 12,110 12,379
<RECEIVABLES> 41,036 25,952
<ALLOWANCES> 0 0
<INVENTORY> 5,341 3,747
<CURRENT-ASSETS> 136,416 150,133
<PP&E> 33,579 30,344
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 488,547 290,221
<CURRENT-LIABILITIES> 234,478 58,467
<BONDS> 0 0
0 0
0 0
<COMMON> 317 317
<OTHER-SE> 227,515 230,747
<TOTAL-LIABILITY-AND-EQUITY> 488,547 290,221
<SALES> 0 0
<TOTAL-REVENUES> 41,383 24,473
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 47,441 23,216
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (6,058) 1,257
<INCOME-TAX> (2,774) 568
<INCOME-CONTINUING> (3,284) 689
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,284) 689
<EPS-PRIMARY> (0.10) 0.03
<EPS-DILUTED> (0.10) 0.03
</TABLE>
