<PAGE>
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 March 31, 1999
----------------
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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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, 9th Floor, Dallas, Texas 75201
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(address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code 214-849-2149
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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 April 30, 1999
- -------------------------------------- --------------------------------------
Common Stock, $.01 par value 36,417,638 shares
<PAGE>
PAYMENTECH, INC.
FORM 10-Q QUARTERLY REPORT
Table of Contents
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<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> <C>
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets -
March 31, 1999 (Unaudited) and June 30, 1998......................... 3
Condensed Consolidated Statements of Income (Unaudited) -
Three and Nine Months Ended March 31, 1999 and 1998.................. 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended March 31, 1999 and 1998............................ 5
Notes to Interim Condensed Consolidated Financial
Statements (Unaudited)............................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................ 11
Item 3. Quantitative and Qualitative Disclosures About Market Risks.......... 16
PART II. O T H E R I N F O R M A T I O N
Item 1. Legal Proceedings.................................................... 17
Item 2. Changes in Securities................................................ 17
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K.................................................. 17
Index of Exhibits.................................................... 18
Signatures........................................................................ 19
</TABLE>
<PAGE>
PAYMENTECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $323,480 $158,307
Receivables, net..................................... 42,554 23,770
Credit card loans, net............................... 73,985 42,079
Prepaid expenses and other current assets............ 7,697 10,054
-------- --------
Total current assets.............................. 447,716 234,210
Investments, at cost (market value of $5,396
and $6,205 at March 31, 1999 and June 30,
1998, respectively).................................. 6,070 6,212
Notes receivable....................................... 9,102 9,997
Property and equipment, net............................ 58,507 57,873
Goodwill, net.......................................... 268,325 234,711
Purchased merchant portfolios and other
intangibles, net...........................,,,,,,,,,, 120,935 98,817
Other assets........................................... 16,749 7,563
-------- --------
$927,404 $649,383
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $282,239 $103,180
Notes payable to banks............................... 84,005 55,049
Interest-bearing deposits............................ 51,046 34,790
Merchant deposits.................................... 27,864 22,844
Accrued assessments.................................. 10,042 8,881
Other accrued expenses............................... 42,353 25,567
-------- --------
Total current liabilities......................... 497,549 250,311
Stockholders' equity:
Common stock, $0.01 par value, 200,000,000
shares authorized, 36,380,874 and
36,025,944 issued and outstanding at
March 31, 1999 and June 30, 1998,
respectively....................................... 364 360
Additional paid-in capital........................... 361,088 354,274
Accumulated other comprehensive income............... 6,074 621
Retained earnings.................................... 62,329 43,817
-------- --------
Total stockholders' equity........................ 429,855 399,072
-------- --------
$927,404 $649,383
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
PAYMENTECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March, 31
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Revenue......................... $68,561 $52,379 $189,820 $158,178
Other income.................... 213 303 675 7,729
------- ------- -------- --------
Total revenues................ 68,774 52,682 190,495 165,907
------- ------- -------- --------
Expenses:
Operating....................... 27,948 19,575 72,321 65,689
Salaries and employee benefits.. 19,325 17,051 55,716 48,323
Depreciation and amortization... 9,034 6,766 24,358 20,068
Interest........................ 1,927 1,542 5,042 4,966
------- ------- -------- --------
Total expenses................ 58,234 44,934 157,437 139,046
------- ------- -------- --------
Income before income taxes.. 10,540 7,748 33,058 26,861
Income tax provision.............. 4,638 3,414 14,546 11,690
------- ------- -------- --------
Net income.................. $ 5,902 $ 4,334 $ 18,512 $ 15,171
======= ======= ======== ========
Basic and diluted earnings per
share............................ $ 0.16 $ 0.12 $ 0.51 $ 0.43
======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
PAYMENTECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
------------------
1999 1998
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<S> <C> <C>
Operating Activities
Net income............................... $ 18,512 $ 15,171
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Noncash portion of asset write-off... -- 3,533
Provision for depreciation and
amortization....................... 24,358 20,068
Gain on sale of assets............... -- (6,850)
Other cash provided by (used for)
operating activites................ 136,207 (8,776)
-------- --------
Net cash provided by operating
activities.................. 179,077 23,146
Investing Activities
Purchases of merchant portfolios,
processing services and other
acquisitions........................... (53,044) (2,551)
Purchases of property and equipment,
net.................................... (7,932) (17,163)
Proceeds from sale of assets............. -- 27,066
Proceeds from maturities of investments.. 142 2,833
-------- --------
Net cash provided by (used
for) investing activities... (60,834) 10,185
Financing Activities
Net increase (decrease) in notes
payable to banks and other borrowings.. 28,956 (20,000)
Net increase in interest-bearing
deposits............................... 16,256 15,178
Issuance of common stock, net............ 1,718 3,483
-------- --------
Net cash provided by (used
for) financing activities... 46,930 (1,339)
-------- --------
Increase in cash and cash
equivalents................. 165,173 31,992
Cash and cash equivalents at beginning of
period................................... 158,307 119,466
-------- --------
Cash and cash equivalents at
end of period............... $323,480 $151,458
======== ========
Noncash investing and financing activities:
Common stock issuance related to
acquisitions........................... $ 1,239 $ 6,346
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
Paymentech, Inc. ("Paymentech" or the "Company") 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 bankcard transactions in
the United States. The Company also provides third-party credit and debit
authorization services to financial institutions, sales agents and the Company's
direct merchants. 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.
The Company has changed the presentation of its settlement inflows and
outflows effective for the quarter ended September 30, 1998. For a portion of
the Company's business, receivables from credit card associations and the
related payables to merchants were previously presented as cash and cash
equivalents. These payables to merchants are now presented as liabilities in
accounts payable. The change was made to provide reporting consistency across
the Company's businesses.
Effective for the quarter ended September 30, 1998, Paymentech adopted the
Accounting Standards Executive Committee of the American Institute of Certified
Public Accountants Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
SOP 98-1 requires companies to capitalize qualifying computer software costs
incurred during development. Costs incurred in the designing of software
configuration, the coding of programs and the installation of hardware are
examples of qualifying capitalizable costs. These costs will be amortized on a
straight-line basis over the period of benefit and will be periodically reviewed
for possible impairment.
During the nine months ended March 31, 1999, bankcard sales volume processed
increased approximately 23.6% to $45.2 billion compared with $36.6 billion for
the nine months ended March 31, 1998. The Company processed 1.8 billion total
transactions for the nine months ended March 31, 1999, an increase of
approximately 31.7%, compared with 1.4 billion total transactions for the same
period in fiscal 1998. Bankcard sales volume processed included bankcard
transactions derived from the Company's merchant portfolio. Total items
processed included bankcard and other credit and debit card transactions, and
credit and debit authorization transactions.
The Company is a 55%-owned subsidiary of First USA Financial, Inc. ("First
USA"), which is a wholly owned subsidiary of BANK ONE CORPORATION, f/k/a BANC
ONE CORPORATION ("Bank One").
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 nine months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the fiscal
year ending June 30, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K and 10-K/A for the fiscal year ended June 30, 1998.
6
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Note B - Business Combinations, Divestitures and Merchant Portfolio Purchases
During December 1998, Paymentech acquired the merchant processing business of
Mellon Bank Corporation ("Mellon") which directly services a broad range of
retailers and government agencies, as well as processes for merchants through
independent sales organizations and agent banks. Mellon was acquired for $48.5
million, a portion of which is subject to certain adjustments which are
contingent upon the transfer by Mellon of certain of its merchant agreements to
Paymentech. Mellon and the Company also agreed to an exclusive marketing and
referral agreement under which the parties market Paymentech's processing
services to Mellon's merchant customers through Mellon's network of retail
offices and cash management and corporate banking groups. In addition to
Mellon, during the quarter ended December 31, 1998, the Company purchased two
other merchant portfolios. All of these acquisitions were accounted for as
purchases and accordingly, their results are included in Paymentech's results of
operations from the date of acquisition.
During the quarter ended September 30, 1998, Paymentech purchased certain
assets of Prism Processing Services ("Prism") and acquired two merchant
portfolios for a total of $5.8 million. Prism is a company that specializes in
developing merchant business with agent banks. Additional cash payments will be
made when certain performance objectives are met annually by Prism for each of
the next eight years. These acquisitions were accounted for as purchases and
accordingly, their results are included in the Company's result of operations
from the date of acquisition.
The Company paid $1.2 million in common stock in August 1998, $2.5 million in
February 1998 and $1.5 million in August 1997 to the former sole stockholder of
Merchant-Link, Inc. ("Merchant-Link") as a result of the achievement of certain
performance criteria following the Company's acquisition of Merchant-Link in
January 1997. The 125,765 shares of common stock originally issued in
connection with the acquisition in January 1997 were also subject to a price
guarantee by the Company. In January 1999, Paymentech paid 163,675 shares of
common stock to the former sole stockholder of Merchant-Link as a result of this
price guarantee.
In December 1997, the Company sold its share of PHH/Paymentech L.L.C.
("PHH/Paymentech"), a Delaware limited liability company, to PHH Vehicle
Management Services Corporation's ("PHH") new parent company, Cendant
Corporation ("Cendant") for $30.0 million. This sale generated a $6.0 million
pretax gain after deducting the Company's basis in its investment in
PHH/Paymentech and consideration for a preferred alliance agreement with
Cendant. This gain is included in other income. The Company and PHH had formed
the joint venture PHH/Paymentech to offer a MasterCard-branded single card
payment system for fleet, purchasing, travel and entertainment needs. The
Company will continue its relationship as the exclusive issuer of corporate
fleet cards for PHH.
During the quarter ended September 30, 1997, the Company sold its terminal
leasing portfolio to Northern Leasing Systems Inc. ("Northern Leasing") for cash
and a note receivable. This sale generated a pretax gain of $626,000, or $0.01
per diluted share, which is included in other income. In addition, a deferred
gain up to approximately $450,000 will be recognized when certain performance
criteria are met with respect to lease payments made by the Company's merchants
to Northern Leasing. The Company now leases terminals to merchants through a
contract with Northern Leasing which generates fee income.
In September 1997, the Company sold the assets of its Ask! Technical Group
unit, a non-core business, to TASQ Technology, Inc. ("TASQ") for cash and a note
paid in December 1997. In addition, TASQ has agreed to purchase certain
terminal inventories and supplies at book value. The sale generated a gain of
$273,000 which is included in other income. TASQ is an outsourcing provider of
information systems, inventory management services and logistics to the credit
card processing industry. In connection with the sale, the Company also entered
into an ongoing servicing agreement with TASQ to provide deployment, repair and
inventory management services to the Company.
7
<PAGE>
Note C - Notes Receivable
As partial consideration for the sale of the Company's terminal leasing
portfolio during the quarter ended September 30, 1997, the Company accepted a
$1.3 million note receivable from Northern Leasing which earns a fixed market
rate which compounds quarterly. Principal and interest are payable once certain
performance criteria are met with respect to lease payments made by the
Company's merchants to Northern Leasing. Based on current information
available, the Company anticipates that the performance criteria will be met and
payments of principal and interest will be made during the quarter ended
September 1999 with the final payment expected during the second quarter of
fiscal 2001.
The Company has a $1.8 million note receivable which was the result of the
sale of agent bank contracts in fiscal 1997. The note matures in the fourth
quarter of fiscal 2000 and earns interest at a market rate with principal and
interest payments due quarterly.
The Company has a $6.4 million note from LitleNet L.L.C. as part of a
litigation settlement. This note is discounted to earn a market rate of
interest with principal and interest due in the third quarter of fiscal 2003.
Note D - Revolving Credit Facility
The revolving credit facility payable to Bank One ("Revolving Credit
Facility") provides a source of liquidity to manage cash flow, as well as
provide capital to subsidiaries for expansion and for other corporate uses. In
February 1999, Paymentech entered into the Revolving Credit Facility after its
revolving credit facility with a bank syndicate expired. Proceeds from the
Revolving Credit Facility were used to pay off $84 million in borrowings
outstanding under the previous revolving credit facility. The terms of the
Revolving Credit Facility are similar to the prior facility's terms and
conditions. The Revolving Credit Facility allows borrowings up to $150 million
and bears interest based on the London Interbank Offering Rate ("LIBOR") plus 35
basis points. The Revolving Credit Facility expires in February 2000 with the
option of a one-year extension. Certain financial conditions must be met to
utilize the full amount of the Revolving Credit Facility. Additionally,
Paymentech's ability to pay dividends is conditioned upon the observance of
certain financial covenants in the agreement. The financial covenants require
Paymentech to maintain specified (i) debt to capitalization ratios, (ii) debt to
cash flow ratios, (iii) minimum interest coverage ratios, and (iv) minimum
levels of consolidated stockholders' equity.
At March 31, 1999, Paymentech had $84 million in borrowings under the
Revolving Credit Facility in the form of a note at a rate of LIBOR plus 35 basis
points (currently approximately 5.31%).
Note E - Components of Comprehensive Income
As of July 1, 1998, Paymentech adopted Statement No. 130, "Reporting
Comprehensive Income" (SFAS 130). This Statement establishes standards for the
reporting and display of comprehensive income and its components; however, the
adoption of SFAS 130 had no impact on the Company's net income or stockholders'
equity. SFAS 130 requires that the unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported separately
in stockholders' equity, to be included in comprehensive income. Prior year
financial statements have been reclassified to conform to the requirements of
SFAS 130.
The market value of the Company's investment in MessageMedia, Inc., f/k/a
First Virtual Holdings, Inc., was $13.8 million as of March 31, 1999, resulting
in a pretax unrealized holding gain of $8.8 million, or $5.5 million on an
after-tax basis.
8
<PAGE>
Components of comprehensive income are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------------- ----------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income.................................. $ 5,902 $ 4,334 $ 18,512 $ 15,171
Unrealized holding gain (loss) on securities
available for sale......................... 3,107 (1,566) 5,453 (1,566)
--------------- --------------- --------------- ---------------
Total comprehensive income.................. $ 9,009 $ 2,768 $ 23,965 $ 13,605
=============== =============== =============== ===============
</TABLE>
Note F - Income Taxes
The Company's consolidated provision for income taxes includes state and
federal income tax components. The Company's effective tax rate was 44.0% and
43.5% for the nine months ended March 31, 1999 and 1998, respectively. The
provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes primarily due to
the Company's high level of nondeductible amortization of goodwill, purchased
merchant portfolios and other intangibles.
Note G - Earnings per Share
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------------------- -------------------------------------
1999 1998 1999 1998
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Basic
- -----
Net income....................... $ 5,902 $ 4,334 $ 18,512 $ 15,171
----------------- ---------------- ---------------- -----------------
Weighted average shares
outstanding.................... 36,358 35,788 36,226 35,428
----------------- ---------------- ---------------- -----------------
Basic earnings per share......... $ 0.16 $ 0.12 $ 0.51 $ 0.43
================= ================ ================ =================
Diluted
- -------
Net income....................... $ 5,902 $ 4,334 $ 18,512 $ 15,171
----------------- ---------------- ---------------- -----------------
Weighted average shares
outstanding.................... 36,358 35,844 36,226 35,547
Dilutive effect of common stock
equivalents..................... 420 215 325 130
Dilutive effect of contingently
issuable shares................. -- 63 109 21
----------------- ---------------- ---------------- -----------------
Adjusted weighted average shares
outstanding..................... 36,778 36,122 36,660 35,698
================= ================ ================ =================
Diluted earnings per share........ $ 0.16 $ 0.12 $ 0.51 $ 0.43
================= ================ ================ =================
</TABLE>
Note H - Merger with First Data Corporation
On March 22, 1999, the Company and First Data Merchant Services Corporation
("FDMS"), a wholly owned subsidiary of First Data Corporation ("FDC"),
announced the execution of a definitive Processing Agreement pursuant to which
the Company will outsource to FDMS certain processing functions for the
Company's general merchant acquiring business.
9
<PAGE>
In addition, on March 22, 1999, the Company announced that it had entered into
a Merger Agreement with FDC providing for the acquisition by a wholly-owned
subsidiary of FDC of all of the outstanding shares of the Company's common stock
(the "Shares"), other than Shares owned by Bank One and its subsidiaries, at a
price of $25.50 per Share in cash. Pursuant to the Merger Agreement, among
other things, a newly-formed subsidiary of FDC will be merged with and into the
Company (the "Merger"), with the Company continuing as the surviving
corporation. As a result of the Merger, all of the issued and outstanding
Shares (other than Shares owned by the Company, FDC, Bank One or any of their
respective subsidiaries) will be converted into the right to receive $25.50 in
cash per Share. Consummation of the Merger is conditioned upon, among other
things, approval of the Merger by holders of a majority of the outstanding
Shares, including at least 66 2/3% of the outstanding Shares not owned by Bank
One or its affiliates, and certain other conditions. Concurrently with the
execution of the Merger Agreement, FDC, Bank One and certain of their
subsidiaries entered into a Stockholder Agreement, pursuant to which, among
other things, Bank One has agreed to vote its Shares in favor of the Merger.
Following completion of the Merger, pursuant to a Contribution Agreement entered
into between FDC and Bank One, the Company will contribute substantially all of
its assets, liabilities and businesses to Banc One Payment Services LLC, the
existing merchant bank alliance between Bank One and FDC.
The foregoing descriptions of the Merger Agreement, the Stockholder Agreement,
the Contribution Agreement and the Processing Agreement are qualified in their
entirety by reference to the Company's Forms 8-K, filed with the Commission on
February 17, 1999 and March 23, 1999, and incorporated herein by reference.
On March 12, 1999 and March 15, 1999, FDC and Bank One filed the necessary
documents with the Department of Justice (the "DOJ") and the Federal Trade
Commission in connection with the merger. On May 13, 1999, the Company and FDC
announced that, in connection with the merger, the parties received clearance
from the DOJ under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended. The merger remains subject to shareholder approval and other
conditions. Management expects the merger to close in the third calendar quarter
of 1999.
Note I - Litigation
The Company is a defendant in a putative class action suit commenced in
October 1997 against the Company, and a current and a former officer of the
Company alleging, among other things, that the defendants violated United States
securities laws by publicly issuing false and misleading statements and omitting
to disclose material adverse information regarding the Company's business. The
Company has notified its insurance carriers of this action. It is premature to
determine whether the Company will have any liability in the action or whether,
if so, that liability will be material.
The Company is a defendant in three putative class action suits in March 1999
against the Company and certain of its officers and directors, as well as Bank
One and First Data Corporation, alleging, among other things, that Bank One and
individual defendants breached their fiduciary duties to the class by failing to
require First Data Corporation to pay a fair price for the Company's minority
shares in the pending merger of a wholly-owned subsidiary of First Data
Corporation into the Company. The Company has notified its insurance carriers of
these claims. It is premature to determine whether the Company will have any
liability in the actions or, if so, whether that liability will be material.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Paymentech, Inc. ("Paymentech" or 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. Paymentech also provides third-party credit and
debit authorization services to financial institutions, sales agents and the
Company's direct merchants. According to published industry sources, the
Company is the third largest payment processor of bankcard transactions for
merchants in the United States. In addition, Paymentech 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.
During the nine months ended March 31, 1999, bankcard sales volume
processed increased approximately 23.6% to $45.2 billion compared with $36.6
billion for the nine months ended March 31, 1998. Paymentech processed 1.8
billion total transactions for the nine months ended March 31, 1999, an increase
of approximately 31.7%, compared with 1.4 billion total transactions for the
same period in fiscal 1998.
The Company is a 55%-owned subsidiary of First USA Financial, Inc. ("First
USA"), which is a wholly owned subsidiary of BANK ONE CORPORATION, f/k/a BANC
ONE CORPORATION ("Bank One").
Business Combinations, Divestitures and Merchant Portfolio Purchases
During December 1998, Paymentech acquired the merchant processing business
of Mellon Bank Corporation ("Mellon") which directly services a broad range of
retailers and government agencies, as well as processes for merchants through
independent sales organizations and agent banks. Mellon was acquired for $48.5
million, a portion of which is subject to certain adjustments which are
contingent upon the transfer by Mellon of certain of its merchant agreements to
Paymentech. Mellon and the Company also agreed to an exclusive marketing and
referral agreement under which the parties market Paymentech's processing
services to Mellon's merchant customers through Mellon's network of retail
offices and cash management and corporate banking groups. In addition to Mellon,
during the quarter ended December 31, 1998, the Company purchased two other
merchant portfolios. All of these acquisitions were accounted for as purchases
and accordingly, their results are included in Paymentech's results of
operations from the date of acquisition.
During the quarter ended September 30, 1998, Paymentech purchased certain
assets of Prism Processing Services ("Prism") and acquired two merchant
portfolios for a total of $5.8 million. Prism is a company that specializes in
developing merchant business with agent banks. Additional cash payments will be
made when certain performance objectives are met annually by Prism for each of
the next eight years. These acquisitions were accounted for as purchases and
accordingly, their results are included in the Company's result of operations
from the date of acquisition.
The Company paid $1.2 million in common stock in August 1998, $2.5 million
in February 1998 and $1.5 million in August 1997 to the former sole stockholder
of Merchant-Link, Inc. ("Merchant-Link") as a result of the achievement of
certain performance criteria following the Company's acquisition of Merchant-
Link in January 1997. The 125,765 shares of common stock originally issued in
connection with the acquisition in January 1997 were also subject to a price
guarantee by the Company. In January 1999, Paymentech paid 163,675 shares of
common stock to the former sole stockholder of Merchant-Link as a result of this
price guarantee.
11
<PAGE>
In December 1997, the Company sold its share of PHH/Paymentech L.L.C.
("PHH/Paymentech"), a Delaware limited liability company, to PHH Vehicle
Management Services Corporation's ("PHH") new parent company, Cendant
Corporation ("Cendant") for $30.0 million. This sale generated a $6.0 million
pretax gain after deducting the Company's basis in its investment in
PHH/Paymentech and consideration for a preferred alliance agreement with
Cendant. This gain is included in other income. The Company and PHH had formed
the jointly-owned PHH/Paymentech to offer a MasterCard-branded single card
payment system for fleet, purchasing, travel and entertainment needs. The
Company will continue its relationship as the exclusive issuer of corporate
fleet cards for PHH.
During the quarter ended September 30, 1997, the Company sold its terminal
leasing portfolio to Northern Leasing Systems Inc. ("Northern Leasing") for cash
and a note receivable. This sale generated a pretax gain of $626,000, or $0.01
per diluted share, which is included in other income. In addition, a deferred
gain up to approximately $450,000 will be recognized when certain performance
criteria are met with respect to lease payments made by the Company's merchants
to Northern Leasing. The Company now leases terminals to merchants through a
contract with Northern Leasing which generates fee income.
In September 1997, the Company sold the assets of its Ask! Technical Group
unit, a non-core business, to TASQ Technology, Inc. ("TASQ") for cash and a note
paid in December 1997. In addition, TASQ has agreed to purchase certain
terminal inventories and supplies at book value. The sale generated a gain of
$273,000 which is included in other income. TASQ is an outsourcing provider of
information systems, inventory management services and logistics to the credit
card processing industry. In connection with the sale, the Company also entered
into an ongoing servicing agreement with TASQ to provide deployment, repair and
inventory management services to the Company.
Results of Operations
For the Three Months Ended March 31, 1999 Compared With the Three Months
------------------------------------------------------------------------
Ended March 31, 1998
--------------------
Paymentech recorded net income for the three months ended March 31, 1999 of
$5.9 million, or $0.16 per diluted share, compared with net income of $4.3
million, or $0.12 per diluted share, for the same period in the prior year.
Revenue increased 30.9% to $68.6 million for the three months ended March 31,
1999, compared with $52.4 million for the three months ended March 31, 1998.
Excluding the impact of Mellon, revenue increased 19.5% over the same period in
the fiscal 1998. This increase was primarily the result of increased sales
volume processed partially offset by margin compression due to increased
competition within the industry.
Bankcard sales volume processed increased 34.8% to $15.9 billion for the
three months ended March 31, 1999, compared with $11.8 billion for the same
period in the prior year. Total items processed for the three months ended March
31, 1999 increased 33.3% to 616.8 million, compared with 462.7 million for the
three months ended March 31, 1998. Bankcard sales volume processed included
bankcard transactions derived from the Company's merchant portfolio. Total items
processed included bankcard and other credit and debit card transactions, and
credit and debit authorization transactions.
Total expenses for the three months ended March 31, 1999 increased 29.6% to
$58.2 million, compared with $44.9 million for the three months ended March 31,
1998. Total expenses, excluding amortization of goodwill, purchased merchant
portfolios and other intangibles, were $52.3 million for the quarter ended March
31, 1999, compared with $40.8 million for the same period in the prior year.
12
<PAGE>
Operating expenses for the three months ended March 31, 1999, increased
42.8% to $27.9 million, compared with $19.6 million for the same period of
fiscal 1998. This increase is primarily the result of data processing and
communication expenses related to Mellon. Salaries and employee benefits
increased 13.3% to $19.3 million for the three months ended March 31, 1999,
compared with $17.1 million for the same period in fiscal 1998. This increase is
primarily due to increased incentive compensation as well as increased number of
employees. The increase in salaries and employee benefits is partially offset by
the Company's adoption, during the first quarter of fiscal 1999, of Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"), which allowed for the capitalization
certain software development costs. Interest expense was $1.9 million for the
three months ended March 31, 1999, an increase of 25.0% due primarily to a
higher quarterly average balance on the Company's borrowings under its revolving
credit facility with Bank One ("Revolving Credit Facility") for the quarter
ended March 31, 1999.
Depreciation and amortization increased 33.5% to $9.0 million for the three
months ended March 31, 1999, compared with $6.8 million for the three months
ended March 31, 1998. The amortization of goodwill, purchased merchant
portfolios and other intangibles increased to $5.9 million for the quarter ended
March 31, 1999, compared with $4.1 million for the same period in fiscal 1998,
primarily due to the Mellon acquisition. Depreciation of property and equipment
increased to $3.1 million for the three months ended March 31, 1999, compared
with $2.6 million for the three months ended March 31, 1998. This increase in
depreciation was primarily the result of the Company's capital expenditures for
technology.
For the Nine Months Ended March 31, 1999 Compared With the Nine Months Ended
----------------------------------------------------------------------------
March 31, 1998
--------------
Paymentech recorded net income for the nine months ended March 31, 1999 of
$18.5 million, or $0.51 per diluted share, compared with net income of $15.2
million, or $0.43 per diluted share, for the same period in the prior year. For
the nine months ended March 31, 1998, earnings excluding a $6.0 million pretax
gain related to the sale of the Company's interest in PHH/Paymentech, the
$626,000 pretax gain on the sale of the Company's terminal leasing portfolio,
and a significant unusual pretax charge of $3.5 million related to reserves,
were $13.5 million or $0.38 per diluted share.
Revenue increased 20.0% to $189.8 million for the nine months ended March
31, 1999, compared with $158.2 million for the nine months ended March 31, 1998.
The increase in revenue was the result of the increase in sales volume processed
partially offset by margin compression due to increased competition within the
industry. Contributing to the increase in sales volume processed and revenue was
the Mellon acquisition. Bankcard sales volume processed increased 23.6% to $45.2
billion for the nine months ended March 31, 1999, compared with $36.6 billion
for the same period in the prior year. Total items processed for the nine months
ended March 31, 1999 increased 31.7% to 1.8 billion, compared with 1.4 billion
for the nine months ended March 31, 1998.
Other income for the nine months ended March 31, 1998 included a $6.0
million pretax gain related to the sale of the Company's interest in
PHH/Paymentech. For the first quarter of fiscal 1998, other income included a
$626,000 pretax gain, or $0.01 per diluted share, related to the sale of the
Company's terminal leasing portfolio and a $273,000 pretax gain related to the
sale of assets of the Company's Ask! unit. Other income also included interest
income from investments.
Total expenses for the nine months ended March 31, 1999 increased 13.2% to
$157.4 million, compared with $139.0 million for the nine months ended March 31,
1998. Total expenses, excluding amortization of goodwill, purchased merchant
portfolios and other intangibles, were $142.3 million for the quarter ended
March 31, 1999, compared with $126.6 million for the same period in the prior
year.
13
<PAGE>
Operating expenses for the nine months ended March 31, 1999, were $72.3
million, compared with $65.7 million for the same period of fiscal 1998. Data
processing and communication expenses related to Mellon are the primary reason
for this increase. Excluding $3.5 million in charges related primarily to a
reserve for loss on terminal inventory and a reserve for loss on receivables
recorded during the quarter ended December 31, 1997, operating expenses
increased 16.4% for the nine months ended March 31, 1999, primarily due to
increased sales volume processed. Salaries and employee benefits increased
15.3% to $55.7 million for the nine months ended March 31, 1999, compared with
$48.3 million for the same period in fiscal 1998. This increase is primarily
due to increased incentive compensation as well as increased number of
employees. The increase in salaries and employee benefits is partially offset
by the Paymentech's adoption of SOP 98-1. Interest expense was $5.0 million for
the nine months ended March 31, 1999, a slight increase over the prior fiscal
year.
Depreciation and amortization increased 21.4% to $24.4 million for the nine
months ended March 31, 1999, compared with $20.1 million for the nine months
ended March 31, 1998. The amortization of goodwill, purchased merchant
portfolios and other intangibles increased to $15.1 million for the nine months
ended March 31, 1999, compared with $12.5 million for the same period in fiscal
1998, primarily due to the Mellon acquisition. Depreciation of property and
equipment increased to $9.2 million for the nine months ended March 31, 1999,
compared with $7.6 million for the nine months ended March 31, 1998. This
increase in depreciation was primarily the result of the Company's capital
expenditures for technology.
Seasonality
The Company's revenue generally reflects the seasonal fluctuations that are
typically associated with traditional peaks in consumer spending. Such peaks
fall in different quarters for different divisions of the Company due to the
varying nature of the Company's market niches and the varying nature of consumer
trends in such markets.
Liquidity and Capital Resources
Net cash provided by operating activities was $179.1 million for the nine
months ended March 31, 1999, compared with $23.1 million used for operating
activities in the same period of fiscal 1998. This increase in cash provided by
operating activities for the nine months ended March 31, 1999, is primarily the
result of the Company's change in its presentation of settlement inflows and
outflows. For a portion of the Company's business, receivables from credit card
associations and the related payables to merchants were previously presented as
cash and cash equivalents. These payables to merchants are now presented as
liabilities in accounts payable. Effective for the quarter ended September 30,
1998, this change was made to provide reporting consistency across the Company's
businesses.
The Company used $53.0 million for acquisitions and $7.9 million for
capital expenditures, primarily for technology, during the nine months ended
March 31, 1999, compared with $2.6 million for acquisitions and $17.2 million
for capital expenditures during the nine months ended March 31, 1998.
The Company's Revolving Credit Facility provides a source of liquidity to
manage cash flow, provide capital to subsidiaries for expansion and for other
corporate uses. In February 1999, Paymentech entered into the Revolving Credit
Facility after its revolving credit facility with a bank syndicate expired.
Proceeds from the Revolving Credit Facility were used to pay off $84 million in
borrowings outstanding under the previous revolving credit facility. The terms
of the Revolving Credit Facility are similar to the prior facility's terms and
conditions. At March 31, 1999, the Company had $84 million in borrowings under
the $150 million Revolving Credit Facility in the form of a note at the London
Interbank Offering Rate ("LIBOR") plus 35 basis points (currently approximately
5.31%). Certain financial conditions must be met to utilize the full amount of
the Revolving Credit Facility.
In December 1998, under the Company's prior revolving credit facility, $44
million in proceeds were used to fund the acquisition of the Mellon portfolio,
while in September 1998, Paymentech paid off a $15 million note it had
outstanding under the prior revolving credit facility.
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.
14
<PAGE>
Merger With First Data Corporation
On March 22, 1999, the Company and First Data Merchant Services Corporation
("FDMS"), a wholly owned subsidiary of First Data Corporation ("FDC"), announced
the execution of a definitive Processing Agreement pursuant to which the Company
will outsource to FDMS certain processing functions for the Company's general
merchant acquiring business.
In addition, on March 22, 1999, the Company announced that it had entered
into a Merger Agreement with FDC providing for the acquisition by a wholly-owned
subsidiary of FDC of all of the outstanding shares of the Company's common stock
(the "Shares"), other than Shares owned by Bank One and its subsidiaries, at a
price of $25.50 per Share in cash. Pursuant to the Merger Agreement, among other
things, a newly-formed subsidiary of FDC will be merged with and into the
Company (the "Merger"), with the Company continuing as the surviving
corporation. As a result of the Merger, all of the issued and outstanding Shares
(other than Shares owned by the Company, FDC, Bank One or any of their
respective subsidiaries) will be converted into the right to receive $25.50 in
cash per Share. Consummation of the Merger is conditioned upon, among other
things, approval of the Merger by holders of a majority of the outstanding
Shares, including at least 66 2/3% of the outstanding Shares not owned by Bank
One or its affiliates, and certain other conditions. Concurrently with the
execution of the Merger Agreement, FDC, Bank One and certain of their
subsidiaries entered into a Stockholder Agreement, pursuant to which, among
other things, Bank One has agreed to vote its Shares in favor of the Merger.
Following completion of the Merger, pursuant to a Contribution Agreement entered
into between FDC and Bank One, the Company will contribute substantially all of
its assets, liabilities and businesses to Banc One Payment Services LLC, the
existing merchant bank alliance between Bank One and FDC.
The foregoing descriptions of the Merger Agreement, the Stockholder
Agreement, the Contribution Agreement and the Processing Agreement are qualified
in their entirety by reference to the Company's Forms 8-K, filed with the
Commission on February 17, 1999 and March 23, 1999, and incorporated herein by
reference.
On March 12, 1999 and March 15, 1999, FDC and Bank One filed the necessary
documents with the Department of Justice (the "DOJ") and the Federal Trade
Commission in connection with the merger. On May 13, 1999, the Company and FDC
announced that, in connection with the merger, the parties received clearance
from DOJ under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended. The merger remains subject to shareholder approval and other
conditions. Management expects the merger to close in the third calendar quarter
of 1999.
Year 2000
As a result of computer programs written using two digits rather than four
to define the applicable year, certain systems may require modifications in
order to properly function beginning with the year 2000. Based on an assessment
of its systems, the Company has developed a plan to ensure that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. Many of the Company's computer systems already comply with year 2000
requirements, primarily because of the Company's application of internal
resources and new year 2000 compliant software and equipment
Paymentech's core data processing hardware has been tested and is currently
considered year 2000 compliant. Additionally, the Company has completed the
required software renovations for the core data processing systems.
Approximately 95% of this software has been successfully tested for year 2000
compliance, with the remainder targeted to be tested and installed by the end of
June 1999. Approximately 85% of the Company's desktop computer,
telecommunication and non-information technology hardware is currently believed
to be year 2000 compliant with the remainder of the hardware targeted to be
compliant by the end of June 1999. For the Company's remaining noncompliant
computer systems, the Company believes that existing internal resources can be
used to modify existing software and hardware, and that the associated costs
will not be significant. However, if such modifications are not made, or are not
completed on a timely basis, year 2000 noncompliance could have a material
impact on the operations of the Company.
15
<PAGE>
Paymentech is actively monitoring the progress of its significant third-
party vendors and customers in their efforts to become year 2000 compliant, and
is planning actions deemed necessary in order to mitigate its exposure to year
2000 noncompliance. There is no guarantee that the systems of other companies on
which the Company's systems rely will be corrected on a timely basis and will
not have a material adverse effect on the Company's systems.
Paymentech is identifying the most reasonably likely scenarios involving
year 2000 noncompliance and is currently developing contingency plans to support
the Company's core systems.
Cautionary Statements
Information or statements provided by the Company herein and from time to
time may contain certain "forward-looking information," including information
relating to anticipated growth in earnings per share, anticipated returns on
equity, anticipated growth in revenue, year 2000 compliance costs and
implementation and the impact of third-party year 2000 non-compliance, account
origination and growth, customer base, anticipated growth via acquisitions,
anticipated consummation of the merger of the Company into a wholly-owned
subsidiary of First Data Corporation (subject to shareholder approval and
certain other conditions), potential customer reactions to the Company's
ownership, anticipated operations costs and employment growth, anticipated
marketing expense, or anticipated credit and other losses. Factors which could
cause the Company's actual financial and other results to differ materially from
any results that might be projected, forecast, estimated or budgeted by the
Company in forward-looking statements include, but are not limited to, the
factors that are described under "Business-Cautionary Statements" in the
Company's Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended
June 30, 1998. These cautionary statements are made pursuant to the provisions
of the Private Securities Litigation Reform Act of 1995 (the "Act") and with the
intention of obtaining the benefits of the "safe harbor" provisions of the Act
for any such forward-looking information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes from the fiscal year 1998 Annual Report
on Form 10-K and Form 10-K/A related to the Company's exposure to market risk
from interest rates.
16
<PAGE>
[PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously disclosed in the Company's Annual Report on Form 10-K for
fiscal year ended June 30, 1998 (as amended by Form 10-K/A), Quarterly Reports
on Form 10-Q for the quarters ended September 30, 1998, March 31, 1998,
December 31, 1997 and September 30, 1997 and in a Current Report on Form 8-K
filed October 20, 1997, the Company is a defendant in a putative class action
suit commenced on October 10, 1997, by a stockholder of the Company in the
United States District Court, Northern District of Texas. On September 2, 1998,
plaintiffs filed an amended complaint entitled Raffaele Branca, Carl C. Conrad,
--------------------------------
and Michael P. Fuchs v. Paymentech, Inc., Pamela H. Patsley and David W.
- ---------------------------------------------------------------------
Truetzel. The defendants in the amended complaint are the Company and a current
- --------
and a former officer of the Company. The amended complaint alleges, among other
things, that the defendants violated United States securities laws by publicly
issuing false and misleading statements and omitting material adverse
information regarding the Company's business. The amended complaint seeks to
represent all stockholders who purchased stock during the period from January
22, 1997, the date on which the Company issued a press release announcing its
financial results for the second quarter of fiscal year 1997, to September 24,
1997, the date on which the Company announced that it was restating and revising
its previously announced results for the fourth quarter of fiscal year 1997. The
defendants have filed a motion to dismiss this amended complaint. The Company
has notified its insurance carriers of this action. It is premature to determine
whether the Company will have any liability in the action or, if so, whether
that liability will be material.
On March 22, 1999, Paymentech announced it had signed a definitive merger
agreement for the acquisition by First Data Corporation of Paymentech's
outstanding shares of common stock, other than shares owned by Bank One, at a
purchase price of $25.50 per share. The Company is a defendant in three
putative class action suits arising out of the pending merger, in each case
commenced in the Court of Chancery of the State of Delaware by a stockholder of
Paymentech against Paymentech, Bank One, First Data Corporation and certain of
its directors. Each of the three complaints allege, among other things, that
Bank One and individual defendants breached their fiduciary duties to the class
by failing to require First Data Corporation to pay a fair price for
Paymentech's minority shares. The three complaints, entitled Sherry Simmons vs.
------------------
Paymentech, Inc., Bank One Corporation, First Data Corporation, Richard W.
- --------------------------------------------------------------------------
Vague, John B. McCoy, William P. Boardman, Gene H. Bishop, Pamela H. Patsley and
- --------------------------------------------------------------------------------
Rupinder S. Sidhu, Crandon Capital Partners vs. John B. McCoy, William P.
- ----------------- ------------------------------------------------------
Boardman, Gene H. Bishop, Ronald G. Steinhart, Pamela H. Patsley, Rupinder S.
- -----------------------------------------------------------------------------
Sidhu, John C. Tolleson, Paymentech, Inc., First Data Corporation and Bank One
- ------------------------------------------------------------------------------
Corporation and Malcolm Rosenwald, as Beneficiary of the IRA for the Benefit of
- ----------- ---------------------------------------------------------------
Malcolm Rosenwald vs. John B. McCoy, William P. Boardman, Gene H. Bishop, Ronald
- --------------------------------------------------------------------------------
G. Steinhart, Pamela H. Patsley, Rupinder S. Sidhu, John C. Tolleson,
- ---------------------------------------------------------------------
Paymentech, Inc., First Data Corporation and Bank One Corporation were filed on
- -----------------------------------------------------------------
March 23, 1999, March 23, 1999 and March 24, 1999, respectively. The Company
anticipates that these cases will be consolidated into a single action. The
defendants have not yet responded to these complaints. It is premature to
determine whether the Company will have any liability in the actions or, if so,
whether that liability will be material.
Item 2. Changes in Securities
In January 1999, the Company issued 163,675 shares of common stock to the
former sole stockholder of Merchant-Link as a result of the achievement of
certain performance criteria following the Company's acquisition of Merchant-
Link in January 1997. No underwriter was used in connection with the sale or
issuance of the shares, and such issuance was an exempt transaction under
Section 4(2) of the Securities Act of 1933, as amended. The resale of such
shares has been registered on a shelf registration statement on Form S-3 (File
No. 333-72539).
Item 6. Exhibits and Reports on Form 8-K
a. Reports on Form 8-K filed during the third quarter of fiscal 1999:
Report on Form 8-K filed February 17, 1999
Item 5. Other Events
Exhibit 99. Press Release
17
<PAGE>
Report on Form 8-K filed March 23, 1999
Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
b. Reports on Form 8-K filed subsequent to the third quarter of fiscal
1999:
Report on Form 8-K filed April 15, 1999
Item 5. Other Events
Exhibit 99. Press Release
c. Exhibits
The following exhibits are incorporated by reference or filed herewith:
Exhibit Number Description of Exhibit
- -------------- ----------------------
27* Financial Data Schedule.
- -------------------------
* Filed herewith.
18
<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: May 14, 1999
Paymentech, Inc.
By: /s/ Pamela H. Patsley
----------------------------------------
Pamela H. Patsley
President and Chief Executive Officer
By: /s/ Kathryn J. Kessler
----------------------------------------
Kathryn J. Kessler
Chief Financial Officer
19
<PAGE>
INDEX OF EXHIBITS
-----------------
Sequentially
Exhibit Number Description of Exhibit Numbered Page
- -------------- ---------------------- -------------
27 Financial Data Schedule.
20
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 323,480
<SECURITIES> 6,070
<RECEIVABLES> 42,554
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 447,716
<PP&E> 58,507
<DEPRECIATION> 0
<TOTAL-ASSETS> 927,404
<CURRENT-LIABILITIES> 497,549
<BONDS> 0
0
0
<COMMON> 364
<OTHER-SE> 429,491
<TOTAL-LIABILITY-AND-EQUITY> 927,404
<SALES> 0
<TOTAL-REVENUES> 190,495
<CGS> 0
<TOTAL-COSTS> 157,437
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,042
<INCOME-PRETAX> 33,058
<INCOME-TAX> 14,546
<INCOME-CONTINUING> 18,512
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,512
<EPS-PRIMARY> 0.51
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