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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (date of earliest event reported): November 12, 1997
SPS TRANSACTION SERVICES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-10993 36-3798295
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(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
2500 Lake Cook Road, Riverwoods, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 405-3700
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Item 7. Financial Statements and Exhibits.
(c) Exhibits
20.1 1997 Third Quarter Report to Stockholders of the
Registrant.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SPS TRANSACTION SERVICES, INC.
Date: November 12, 1997 By: /s/ Russell J. Bonaguidi
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Russell J. Bonaguidi
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EXHIBIT INDEX
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Exhibit
Number Description of Exhibits
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20.1 1997 Third Quarter Report to Stockholders of the Registrant.
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EXHIBIT 20.1
1997 Third Quarter Report
To Our Stockholders:
We are pleased to report the results of our third quarter. Net income was $9.8
million, or 36 cents per share, a 71 percent increase over 21 cents last year.
Net operating revenues for the quarter increased 3 percent to $82.4 million.
We have earned $26.2 million in the first nine months of 1997, or 96 cents per
share, compared with 85 cents for the same period in 1996. Net operating
revenues for the nine months ended September 30 increased to $260.6 million.
Operating profitably in a tough credit environment...
Our profit performance in the past two quarters confirms our belief that the
efforts we made in our consumer private label business have been effective.
We are now actively marketing to our owned private label accounts, in order to
help our clients increase their sales and thereby increase our receivables
balance. For example, together with RadioShack(R), we just re-launched a newly
named, newly designed RadioShack credit card. It has added features and
benefits and is an integral part of their fourth quarter and future promotional
plans.
Total loans outstanding, which represents both owned and securitized credit
card loans, were $1.8 billion at September 30, 1997, down from $2.0 billion at
the end of the same period last year. This was due, in large part to the
closing of two store divisions at a major client. Active consumer private label
accounts, both owned and managed, were also affected, decreasing to 3.0 million
from 3.3 million at the end of the third quarter last year.
Fee-based businesses continue to offer opportunities and to grow...
With our core office supply superstore clients continuing to drive the growth,
active commercial accounts increased 25 percent to 955,000 from 764,000 at the
end of the third quarter last year. Over the past few months, we completed
development and testing of a new and more efficient operating system for our
commercial revolve accounts and recently converted one of our major clients to
the new system.
We have also completed revisions to our Fleetshare(R) software, allowing us to
offer petroleum marketers a fleet fueling system with more features and more
complete reporting capabilities. During the quarter, we processed 118.5 million
network transactions, compared with 110.1 million in the same period in 1996.
TeleServices reported an increase in technical help-desk calls, which tend to
be longer and produce higher revenue. The change in mix more than offsets the
effect of a 4 percent decline in total customer contacts. We recently signed an
agreement to support IBM's Global Services business. We see technical help-desk
support as an excellent long term growth opportunity.
Expense control...
It has always been our practice to maintain tight control of our expenses, and
this quarter was no exception. Processing and service expenses and other
expenses both declined. The increase in personnel expense relates to our
increased collections efforts and the more labor-intensive TeleServices
business. We are also happy to report that our efforts to combat fraud have
been successful, and fraud expense is down substantially compared to a year ago
and to the second quarter this year.
New Operations Center...
This month we opened a fourth operations center in Asheville, North Carolina,
specifically designed to support our expanding TeleServices business. We're
operating Asheville as a satellite to our nearby Gray, Tennessee center in
order to leverage a number of staff activities such as Information Technology.
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Looking forward...
The credit industry is still in the midst of dealing with significant credit
quality issues. But we believe that we took the proper measures to re-establish
a solid foundation for our credit business and are confident that we are in a
much better position to operate profitably in this new environment.
As we enter the fourth quarter, we are focused on growing fee revenues and
receivables, and remain committed to providing our clients with superior
service.
We would like to thank our associates for their hard work and dedication and
our investors for their continued support.
Sincerely,
/s/ Robert L. Wieseneck /s/ Thomas C. Schneider
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Robert L. Wieseneck Thomas C. Schneider
President and CEO Chairman of the Board
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SPS TRANSACTION SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
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(In thousands, except per share data)
[CAPTION]
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
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1997 1996 1997 1996
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(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Processing and service revenues $66,507 $65,712 $209,080 $204,808
Merchant discount revenue 3,981 10,163 10,797 25,382
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70,488 75,875 219,877 230,190
Interest revenue 58,038 53,972 184,515 166,118
Interest expense 17,695 18,238 57,521 59,824
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Net interest income 40,343 35,734 126,994 106,294
Provision for loan losses 28,480 32,037 86,273 84,605
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Net credit income 11,863 3,697 40,721 21,689
NET OPERATING REVENUES 82,351 79,572 260,598 251,879
Salaries and employee benefits 27,064 23,736 84,861 72,407
Processing and service expenses 22,153 26,589 74,849 80,096
Other expenses 17,110 20,221 58,194 61,915
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Total operating expenses 66,327 70,546 217,904 214,418
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Income before income taxes 16,024 9,026 42,694 37,461
Income tax expense 6,185 3,428 16,480 14,235
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NET INCOME $ 9,839 $ 5,598 $ 26,214 $ 23,226
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NET INCOME PER COMMON SHARE $ 0.36 $ 0.21 $ 0.96 $ 0.85
Weighted Average Common Shares
Outstanding 27,217 27,194 27,208 27,165
</TABLE>
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SPS TRANSACTION SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
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(In thousands, except share data)
[CAPTION]
<TABLE>
September 30, December 31,
1997 1996
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(Unaudited)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 15,169 $ 15,205
Investments held to maturity - at amortized cost 41,576 41,675
Credit card loans 1,245,080 1,637,507
Allowance for loan losses (75,236) (88,397)
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Credit card loans, net 1,169,844 1,549,110
Accrued interest receivable 18,512 21,141
Accounts receivable 29,551 42,202
Due from affiliated companies 8,115 9,900
Amounts due from asset securitizations 56,915 --
Premises and equipment, net 29,431 25,294
Deferred income taxes 33,409 38,266
Prepaid expenses and other assets 14,672 17,992
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TOTAL ASSETS $1,417,194 $1,760,785
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LIABILITIES:
Deposits:
Noninterest-bearing $ 4,500 $ 9,012
Interest-bearing 531,332 454,423
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Total deposits 535,832 463,435
Accounts payable, accrued expenses and other 47,016 50,019
Income taxes payable 3,383 17,756
Due to affiliated companies 557,262 982,547
Accrued recourse obligation 22,636 22,636
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Total liabilities 1,166,129 1,536,393
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STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 100,000
shares authorized; none issued or outstanding
Common stock, $.01 par value, 40,000,000 and
40,000,000 shares authorized; 27,270,663 and
27,242,207 shares issued; 27,220,277 and
27,187,462 shares outstanding at September 30,
1997 and December 31, 1996, respectively 273 272
Capital in excess of par value 81,493 81,096
Retained earnings 170,559 144,345
Common stock held in treasury, at cost, $.01
par value, 50,386 and 54,745 shares at
September 30, 1997 and December 31, 1996,
respectively (1,242) (1,312)
Stock compensation plan 483 453
Employee stock benefit trust (483) (413)
Unearned stock compensation (18) (49)
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Total stockholders' equity 251,065 224,392
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,417,194 $1,760,785
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