<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
--------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-14224
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First USA Paymentech, Inc.
- - --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 75-2634185
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1601 Elm Street, 8th Floor, Dallas, Texas 75201
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(address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code 214-849-2000
----------------
N/A
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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 January 31, 1997
- - ----------------------------------- -------------------------------------
Common Stock, $.01 par value 34,943,265 shares
<PAGE>
FIRST USA PAYMENTECH, INC.
FORM 10-Q QUARTERLY REPORT
Table of Contents
-----------------
<TABLE>
<CAPTION>
PART I. F I N A N C I A L I N F O R M A T I O N Page
----
<S> <C> <C>
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets -
December 31, 1996 (Unaudited) and June 30, 1996............................................ 3
Condensed Consolidated Statements of Income (Unaudited) -
Three and Six Months Ended December 31, 1996 and 1995...................................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended December 31, 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 1. Legal Proceedings.......................................................................... 11
Item 2. Changes in Securities...................................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders........................................ 12
Item 6. Exhibits and Reports on Form 8-K
Index of Exhibits.......................................................................... 13
Reports on Form 8-K........................................................................ 13
Signatures........................................................................................... 14
</TABLE>
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
-------------- --------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 69,930 $ 105,804
Receivables.............................................................................. 37,032 25,952
Credit card loans, net................................................................... 12,107 7,012
Terminal inventories..................................................................... 6,678 3,747
Prepaid expenses and other current assets................................................ 10,025 7,618
-------------- --------------
Total current assets................................................................. 135,772 150,133
Investments, at cost (market value of $11,619 and $12,315 at December 31
and June 30, 1996, respectively) ........................................................ 11,561 12,379
Property and equipment, net ................................................................. 37,604 30,344
Purchased merchant portfolios, net........................................................... 76,035 26,519
Goodwill, net................................................................................ 230,926 62,375
Other assets................................................................................. 7,663 8,471
-------------- --------------
$ 499,561 $ 290,221
============== ==============
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable......................................................................... $ 66,555 $ 16,051
Other accrued expenses................................................................... 25,924 11,455
Merchant deposits........................................................................ 17,481 18,353
Interest-bearing deposits................................................................ 11,540 5,335
Accrued assessments...................................................................... 9,182 7,273
-------------- --------------
Total current liabilities............................................................ 130,682 58,467
Loan payable to First USA.................................................................... 25,000 --
Bank notes, interest-bearing deposits and other borrowings................................... 10,285 690
Stockholders equity:
Common stock, $0.01 par value, 200,000,000 shares authorized, 34,719,501 and
31,701,081 issued and outstanding at December 31 and June 30, 1996,
respectively.......................................................................... 347 317
Additional paid-in capital............................................................... 307,821 210,433
Retained earnings........................................................................ 25,426 20,314
-------------- --------------
333,594 231,064
-------------- --------------
$ 499,561 $ 290,221
============== ==============
</TABLE>
See Accompanying Notes.
3
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------------- ------------------------------
1996 1995 1996 1995
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Net revenue................................................. $ 50,406 $ 31,936 $ 90,040 $ 55,761
Operating expenses:
Salaries and employee benefits..................... 12,015 9,473 23,705 17,763
Data processing and communications................. 10,094 7,231 18,897 13,147
Depreciation and amortization...................... 5,060 1,697 8,684 3,209
Occupancy and equipment............................ 1,917 1,534 3,979 2,938
Other.............................................. 5,974 5,134 11,192 10,858
Merger, integration and impairment................. -- -- 15,544 --
------------- -------------- ------------- ------------
Total operating expenses........................ 35,060 25,069 82,001 47,915
------------- -------------- ------------- ------------
Income from operations.................... 15,346 6,867 8,039 7,846
Net interest income (expense)............................... (57) 262 1,192 540
------------- -------------- ------------- ------------
Income before income taxes ............... 15,289 7,129 9,231 8,386
Income tax provision........................................ 6,893 2,884 4,119 3,452
------------- -------------- ------------- ------------
Net income................................ $ 8,396 $ 4,245 $ 5,112 $ 4,934
============= ============== ============= ============
Net income per share........................................ $ 0.26 $ 0.17 $ 0.16 $ 0.20
============= ============== ============= ============
Weighted average common shares outstanding.................. 32,522 24,411 32,322 24,411
============= ============== ============= ============
</TABLE>
See Accompanying Notes.
4
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
---------------------------------
1996 1995
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<S> <C> <C>
Operating Activities
Net income............................................................................. $ 5,112 $ 4,934
Adjustments to reconcile net income to net cash provided by operating
activities:
Non-cash portion of merger, integration and impairment charge................... 7,497 --
Provision for depreciation and amortization..................................... 8,684 3,209
Changes in operating assets and liabilities:
Receivables................................................................ (6,094) (1,875)
Accounts payable and accrued expenses ..................................... 50,291 11,706
Purchase of terminal inventories........................................... (2,898) (576)
Accrued assessments........................................................ 1,909 1,264
Merchant deposits.......................................................... (1,582) 2,873
Other operating activities................................................. (2,378) (3,296)
--------------- ----------------
Net cash provided by operating activities...................... 60,541 18,239
Investing Activities
Purchases of merchant portfolios, processing services and other acquisitions........... (199,428) (39,118)
Purchases of property and equipment.................................................... (11,911) (12,348)
Maturities (purchases) of investments.................................................. 818 (2,500)
--------------- ----------------
Net cash used by investing activities.......................... (210,521) (53,966)
Financing Activities
Issuance of common stock, net .......................................................... 97,418 --
Note payable to First USA............................................................... 25,000 49,673
Notes payable........................................................................... (23,444) --
Capital contribution from First USA..................................................... -- 16,140
Repayments to First USA................................................................. -- (13,046)
Issuance of interest bearing deposits .................................................. 6,205 --
Increase in bank notes and other borrowings............................................. 8,927 --
--------------- ----------------
Net cash provided by financing activities...................... 114,106 52,767
--------------- ----------------
Increase (decrease) in cash and cash equivalents............... (35,874) 17,040
Cash and cash equivalents at beginning of year.................................................. 105,804 4,623
--------------- ----------------
Cash and cash equivalents at end of year...................... $ 69,930 $ 21,663
=============== ================
</TABLE>
See Accompanying Notes.
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 57%-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. According to published industry sources, the Company is the third
largest payment processor of credit and debit card transactions in the United
States. In addition, the Company markets and issues commercial cards to
businesses and other entities. Commercial cards facilitate centralized business-
to-business payment procedures and reporting, replacing traditional direct
payment methods. Through its subsidiary GENSAR Holdings Inc. ("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 six months ended December 31, 1996, the Company processed approximately
$20.1 billion in sales volume in approximately 605 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 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 six months ended December
31, 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 Holdings Inc. 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>
Six Months Ended
December 31,
------------------
1996 1995
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<S> <C> <C>
Net revenue.................... $92,452 $67,460
Income from operations......... 7,542 4,810
Income before income taxes..... 8,140 1,589
Net income..................... 4,424 543
Net income per share........... $ 0.14 $ 0.02
</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.
6
<PAGE>
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.
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 a result of the office closings.
Note C - Offering
In December 1996, the Company completed a public underwritten offering of 3.0
million shares of its common stock, $0.01 par value, at $34.00 per share, which
generated $97.1 million in net proceeds, which included the exercise by the
underwriters in the transaction of certain over-allotment options.
Concurrently, First USA sold 4.3 million shares of the Company's stock.
In January 1997 the underwriters of the public offering exercised additional
over-allotment options, and purchased 97,000 shares of the Company's common
stock which generated proceeds of $3.2 million. Concurrently, First USA sold an
additional 138,000 shares of the Company's stock.
As a result of the above transactions First USA's ownership percentage was
reduced from 77% to 57%.
Note D - Income Taxes
The Company's consolidated provision for income taxes includes state and
federal income tax components. The Company's effective tax rate was 44.6% and
41.2% for the six months ended December 31, 1996 and 1995, respectively.
Note E - Subsequent Event
On January 20, 1997, First USA and BANC ONE Corporation ("BANC ONE") jointly
announced that an agreement had been reached for First USA to merge with BANC
ONE. Upon completion of the merger, which is expected to be in May 1997, the
Company will be a 57%-owned indirect subsidiary of BANC ONE.
In January 1997, a subsidiary of the Company and PHH Vehicle Management
Services, Inc., a subsidiary of PHH Corporation, signed an agreement to form a
joint venture that will provide a single commercial card payment mechanism that
will service fleet, purchasing, travel and entertainment needs. The Company
expects that the joint venture will begin to offer the new fleet product in
1997.
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 bankcard transactions in the United States. During
fiscal 1996, the Company processed approximately $30.9 billion in 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 inception in the first quarter of fiscal
1996. Through its subsidiary GENSAR Holdings Inc. ("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 six
months ended December 31, 1996, the Company processed approximately $20.1
billion in sales volume in approximately 605 million total transactions.
The Company is a 57%-owned indirect subsidiary of First USA, Inc.
("First USA").
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, sales agents and direct merchants, 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
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 its direct merchants. GENSAR also enables the Company to directly provide
its existing customers with a full array of point-of-sale products and services
that were previously primarily 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
processor. This acquisition was accounted for as a purchase and accordingly,
GENSAR's results are included in the Company's results of operation from the
date of the acquisition.
Results of Operations
The Company recorded net income for the three months ended December 31, 1996
of $8.4 million, or $0.26 per share, compared with net income of $4.2 million,
or $0.17 per share, for the three months ended December 31, 1995. The Company
attributes the 97.8% increase in net income primarily to its strong growth
in sales volume and transaction volume, as a result of acquisitions and the
Company's direct marketing efforts.
Net income for the six months ended December 31, 1996 increased 3.6% to $5.1
million, or $0.16 per share, compared with $4.9 million, or $0.20 per share, for
the six months ended December 31, 1995. The six-month results for fiscal 1997
were reduced by a one-time merger, integration and impairment charge related to
the GENSAR acquisition of $15.5 million, or $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. Net income for the six
months ended December 31, 1996, excluding the one-time merger, integration and
impairment charge was $14.8 million, or $0.46 per share.
8
<PAGE>
Net revenue increased 57.8% to $50.4 million for the three months ended
December 31, 1996, compared with $31.9 million for the three months ended
December 31, 1995. The increase in net revenue is the result of the increase in
sales volume processed as a result of the Company's direct sales efforts and the
acquisitions of GENSAR and several merchant portfolios. Bankcard sales volume
processed increased 30.7% to $11.1 billion for the three months ended
December 31, 1996, compared with $8.5 billion for the three months ended
December 31, 1995. Total items processed for the three months ended
December 31, 1996 were 342 million. Bankcard sales volume processed includes
bankcard transactions derived from the Company's merchant portfolio. Total
items processed includes bankcard and other credit and debit card transactions,
and credit and debit authorization transactions. Comparable information for
periods prior to the fiscal quarter ended September 30, 1996 is not available.
For the six months ended December 31, 1996, net revenue increased 61.5% to
$90.0 million compared with $55.8 million for the six months ended December 31,
1995. Bankcard sales volume processed for the six months ended December 31,
1996 increased 38.4% to $20.1 billion compared with $14.5 billion for the same
period of 1995. Total items processed for the six months ended December 31,
1996 were 605 million. The Company attributes the increase in net revenue to
the increase in sales volume processed as a result of the Company's direct sales
efforts and the acquisitions of GENSAR and several merchant portfolios.
Operating expenses, excluding the amortization of goodwill and other
identifiable intangibles, were $32.0 million for the three months ended December
31, 1996, compared with $24.5 million for the three months ended December 31,
1995. The 30.4% increase was primarily the result of the GENSAR acquisition and
the increase in sales volume processed. Salaries and employee benefits increased
26.8% to $12.0 million for the three months ended December 31, 1996, compared
with $9.5 million for the three months ended December 31, 1995, primarily due to
the increase in the number of employees to approximately 1,030 at December 31,
1996 from approximately 810 at December 31, 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. Data processing and
communications, which includes the cost of obtaining authorizations and
processing transactions, increased 39.6% to $10.1 million for the three months
ended December 31, 1996, compared with $7.2 million for the three months ended
December 31, 1995. This increase was attributable to the increase in sales
volume processed partially offset by favorable price renegotiations with
communications and authorization vendors. The Company has also continued to
emphasize 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.
Operating expenses, excluding the one-time merger, integration and impairment
charge and the amortization of goodwill and other identifiable intangibles,
increased 31.1% to $61.6 million for the six months ended December 31, 1996,
compared with $47.0 million for the six months ended December 31, 1995. The
increase was primarily the result of the GENSAR acquisition and the increase in
sales volume processed. Salaries and employee benefits increased 33.5% to $23.7
million for the six months ended December 31, 1996, compared with $17.8 million
for the six months ended December 31, 1995, primarily due to the increase in the
number of employees as a result of the Company's acquisitions and the growth in
sales volume processed. Data processing and communications increased 43.7% to
$18.9 million for the six months ended December 31, 1996, compared with $13.1
million for the six months ended December 31, 1995, due to the increase in sales
volume processed partially offset by favorable price renegotiations with
communications and authorization vendors.
Depreciation and amortization was $5.1 million for the three months ended
December 31, 1996, compared with $1.7 million for the three months ended
December 31, 1995. For the six months ended December 31, 1996, depreciation and
amortization was $8.7 million compared with $3.2 million for the same period in
1995. The increase reflects the increase in amortization of intangibles and
depreciation of property and equipment related to acquisitions.
9
<PAGE>
During the first quarter of fiscal 1996, the Company recorded a one-time
merger, integration and impairment charge related to the acquisition of GENSAR
of $15.5 million, or $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 ($6.4 million), the
closure of certain offices ($7.6 million) and employee severance ($1.5 million).
The conversion costs consist primarily of the incremental labor costs to convert
existing merchant customers to the GENSAR authorization network. The charge of
$7.6 million related to office closings includes lease termination costs as well
as the write-off of $3.7 million pertaining to 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 certain office closings.
The Company's operating margin increased to 30.4% for the three months ended
December 31, 1996 compared with 21.5% for the same period of 1995. The operating
margin before the one-time merger, integration and impairment charge was 26.2%
for the six months ended December 31, 1996 compared with 14.1% for the six
months ended December 31, 1995. This increase is the result of the increased net
revenue and the achievement of operating efficiencies.
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 $60.5 million for the six months
ended December 31, 1996 compared with $18.2 million for the same period of 1995.
During the six months ended December 31, 1996, the Company paid $199.4 million
to acquire GENSAR and other merchant portfolios and processing services compared
with $39.1 million for the same period of 1995 to purchase merchant portfolios,
processing services and other acquisitions. The Company spent $11.9 million and
$12.3 million for capital expenditures during the six months ended December 31,
1996 and 1995, respectively.
In December 1996, the Company completed an equity offering that provided $97.1
million. This cash was used to pay down debt owed by the Company under its
Revolving Credit Facility with a bank syndicate ("Revolving Credit Facility") as
a result of the GENSAR acquisition.
In October 1996, the Company increased its Revolving Credit Facility from $100
to $200 million. The Revolving Credit Facility provides a source of liquidity
to manage cash flow, provide capital to subsidiaries for expansion and for other
corporate uses. At December 31, 1996, the Company had $9 million in borrowings
under the Revolving Credit Facility at a rate of LIBOR plus 50 basis points
(currently approximately 6.25%). The Revolving Credit Facility also allows the
Company to borrow up to $75 million from First USA.
At December 31, 1996, the Company had a loan payable to First USA in the
principal amount of $25 million. At December 31, 1996, the loan accrued
interest at the rate of one month LIBOR plus 0.375% with no stated maturity
rate. The proceeds from the loan were used primarily for the GENSAR
acquisition.
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.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Two subsidiaries of the Company ("Company Subsidiaries") and First USA filed
an action in the Dallas District Court of Texas against LitleNet L.L.C.
("LitleNet"), and LitleNet subsequently filed a companion case against the
Company Subsidiaries in the Superior Court of the State of New Hampshire. In
the Texas lawsuit, the Company Subsidiaries and First USA seek declaratory
relief that they committed no breach under an agreement entered into in
September 1995 (the "Agreement") with LitleNet and relief relating to certain
breaches of the Agreement by LitleNet. In the New Hampshire lawsuit, LitleNet is
seeking declaratory relief, injunctive relief and damages based upon its claim
that the Company Subsidiaries breached the Agreement. Pursuant to the
Agreement, the Company Subsidiaries provided licenses to certain software
programs to LitleNet to assist it in the development of a communication
platform. LitleNet claims that the Company Subsidiaries failed to deliver to
LitleNet all of the software and related documents required by the Agreement. In
the New Hampshire action, temporary restraining orders have been issued against
termination of the relationship between the parties. In the Texas action, the
court has set a trial date for March 1997. The New Hampshire action has been
stayed. Discovery on the merits is being conducted.
The Company believes it and its subsidiaries fully complied with the terms of
the Agreement. Accordingly, the Company intends to vigorously pursue the action
in Texas. While it is impossible to predict the outcome of the lawsuits, the
Company believes that they will not have a material adverse effect on the
consolidated financial position of the Company.
In addition, the Company has been named as a defendant in various additional
legal actions arising from the conduct of its normal business activities.
Although the amount of any liability that could arise with respect to these
actions cannot be accurately predicted, in the opinion of the Company, the
outcome of any such lawsuits will not have a material impact on the Company.
Item 2. Changes in Securities
The Company completed the sale of securities described below.
On January 7, 1997, the Company acquired Merchant-Link, Inc. ("Merchant-Link")
through a transaction in which a wholly owned subsidiary of the Company merged
with and into Merchant-Link. As part of the consideration in the transaction,
the Company issued 125,765 shares of its Common Stock, $0.01 par value, of the
Company (the "Shares") to the sole stockholder of Merchant-Link . No underwriter
was used in connection with the sale or issuance of the Shares. The issuance of
the Shares by the Company in connection with the acquisition was an exempt
transaction under Section 4(2) of the Securities Act of 1933, as amended, as the
sale of the Shares to Merchant-Link's sole stockholder was a private placement
which did not constitute a public offering.
11
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
a. The 1996 Annual Meeting of Stockholders was held on October 23, 1996.
b. The following Directors were elected at such meeting:
<TABLE>
<CAPTION>
Votes Cast to
Votes For Votes Against Withhold Authority
------------- ------------------ ----------------------
<S> <C> <C> <C>
Pamela H. Patsley 30,530,631 -- 13,425
Rupinder S. Sidhu 30,540,431 -- 3,625
</TABLE>
The following Directors will also continue in their offices after such
meeting:
Gene H. Bishop
John C. Tolleson
Richard W. Vague
c. The following other matters were approved at such meeting:
<TABLE>
<CAPTION>
Item Votes For Votes Against Abstain
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Adoption of the First USA Paymentech,
Inc. 1996 Stock Option Plan 29,230,074 814,114 4,670
Adoption of the First USA Paymentech,
Inc. 1996 Restricted Stock Plan 29,806,999 235,339 6,520
Adoption of the First USA Paymentech,
Inc. Employee Stock Purchase Plan 30,030,873 13,665 4,320
Adoption of the First USA, Inc. Deferred
Compensation Plan 30,019,770 22,870 6,218
</TABLE>
No other matter was voted upon at such meeting.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The following exhibits are incorporated by reference or filed
here with:
Exhibit Number Description of Exhibit
- - -------------- ----------------------
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) 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) and
incorporated by reference herein.
10.1 1996 Stock Option Plan of the Company, filed as Exhibit 10.4 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 and incorporated herein by reference.
10.2 Amendment No. 1 to 1996 Stock Option Plan of the Company, filed
as Exhibit 10.5 to the Company's Registration Statement on Form
S-1 (No. 333-15861) and incorporated by reference herein.
10.3 1996 Restricted Stock Plan of the Company, filed as Exhibit 10.5
to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 and incorporated herein by reference.
10.4 Form of Amendment No. 1 to Revolving Credit Agreement dated
October 30, 1996 among the Company, the lenders listed therein
and Nations Bank of Texas, N.A., as Agent, filed as Exhibit 10.8
to the Company's Registration Statement on Form S-1
(No. 333-15861) and incorporated by reference herein.
10.5 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.
10.6 Employee Stock Purchase Plan of the Company, filed as Exhibit
10.8 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.
27* Financial Data Schedule.
- - ---------------------------
* Filed herewith.
b. Reports on Form 8-K filed during or subsequent to the quarter ended
December 31, 1996:
Report on Form 8-K filed January 28, 1997
Item 5. Other Events
Item 7. Financial Statements and Exhibits
13
<PAGE>
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: February 12, 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)
14
<PAGE>
INDEX OF EXHIBITS
-----------------
Sequentially
Exhibit Number Description of Exhibit Numbered Page
- - -------------- ---------------------- --------------
11 Computation of Net Income Per Share.
27 Financial Data Schedule.
15
<PAGE>
EXHIBIT 11
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
Three and Six Months Ended December 31, 1996 and 1995
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------------ --------------------------------
1996 1995 1996 1995
----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Primary
- - -------
Net income................................................. $ 8,396 $ 4,245 $ 5,112 $ 4,934
----------------- ----------------- --------------- ---------------
Weighted average common equivalent shares outstanding
Average common shares outstanding................... 32,141,604 24,411,081 31,922,366 24,411,081
Common stock equivalents -- stock options........... 380,307 -- 399,513 --
----------------- ----------------- --------------- ---------------
Weighted average common and common stock equivalent
shares........................................... 32,521,911 24,411,081 32,321,879 24,411,081
================= ================= =============== ===============
Net income per share...................................... $ 0.26 $ 0.17 $ 0.16 $ 0.20
================= ================= =============== ===============
Fully diluted
- - -------------
Net income................................................ $ 8,396 $ 4,245 $ 5,112 $ 4,934
----------------- ----------------- --------------- ---------------
Weighted average common and common equivalent shares
outstanding
Average common shares outstanding.................... 32,141,604 24,411,081 31,922,366 24,411,081
Common stock equivalents -- stock options............ 379,786 -- 398,863 --
----------------- ----------------- --------------- ---------------
Weighted average common and common stock equivalent
shares........................................... 32,521,390 24,411,081 32,321,229 24,411,081
================= ================= =============== ===============
Net income per share assuming full dilution............... $ 0.26 $ 0.17 $ 0.16 $ 0.20
================= ================= =============== ===============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-START> OCT-01-1996 JUL-01-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 0 69,930
<SECURITIES> 0 11,561
<RECEIVABLES> 0 37,032
<ALLOWANCES> 0 0
<INVENTORY> 0 6,678
<CURRENT-ASSETS> 0 135,772
<PP&E> 0 37,604
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 499,561
<CURRENT-LIABILITIES> 0 130,682
<BONDS> 0 0
0 0
0 0
<COMMON> 0 347
<OTHER-SE> 0 333,247
<TOTAL-LIABILITY-AND-EQUITY> 0 333,594
<SALES> 0 0
<TOTAL-REVENUES> 50,406 90,040
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 35,060 82,001
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 57 (1,192)
<INCOME-PRETAX> 15,289 9,231
<INCOME-TAX> 6,893 4,119
<INCOME-CONTINUING> 8,396 5,112
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,396 5,112
<EPS-PRIMARY> 0.26 0.16
<EPS-DILUTED> 0.26 0.16
</TABLE>
