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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): April 25, 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 First Quarter Report to Stockholders of the
registrant.
<APGE>
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: April 25, 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 First Quarter Report to Stockholders of the Registrant.
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EXHIBIT 20.1
1997 FIRST QUARTER REPORT
To Our Stockholders:
We were very pleased to see our first quarter results begin to reflect the
benefits of the portfolio improvement programs we put in place over the past
year. First quarter net income was $7.4 million, or 27 cents a share, compared
with 41 cents last year, but it was up from breakeven in the fourth quarter of
1996. Net operating revenues for the quarter increased to a record $90.4
million.
Our strategy continues to be highly focused, emphasizing revenue growth in our
fee-based businesses, while implementing measures to improve the profitability
of our asset-based consumer credit card business.
Meeting the challenges of a difficult credit environment...
During the past year, we implemented performance-based pricing, which is
increasing finance charge revenues and late fees and has bolstered revenues per
account. In addition, our portfolio improvement programs have limited our
exposure to higher risk accounts, resulting in better cardholders and healthier
portfolios. These are just two of the initiatives to improve long term
profitability that are beginning to take effect.
As expected from these actions, active consumer private label accounts, both
owned and managed, decreased 11 percent to 3.2 million compared with first
quarter last year. Total loans outstanding, which represent both owned and
securitized credit card loans, were $2.1 billion, down from $2.2 billion at the
end of last quarter. Net charge-offs on total loans outstanding for the quarter
were high, but we were encouraged by a sequential decline in our delinquency
rates on total loans. The overall credit quality of the receivables balances
has been improved. Bankruptcies, however continued to increase, which
contributes to the difficulty of predicting charge-off rates for the coming
quarters.
We would also like to remind you of our fourth quarter 1996 decision to change
the estimate for recognizing the merchant discount fees generated by
promotional pricing programs of six months or longer. This action was taken to
provide a better match of revenues and expenses. A portion of the merchant
discount revenue is deferred, amortized into interest income and spread over
the period of the offer.
Focusing sales efforts on our fee-based businesses...
First quarter active commercial accounts increased 30 percent to 951,000 from
732,000 last year. Our core office supply superstore clients continued to drive
the growth.
We also processed 102 million network transactions during the quarter, compared
with 97 million in first quarter 1996. Our niche strategy is providing us with
more profitable transportation and parking facility clients.
TeleServices (formerly referred to as Operational Outsourcing) reported a
substantial increase in longer, higher revenue technical help-desk and catalog
order-taking contacts and a decrease in customer service contacts. In total,
contacts declined 8 percent, but average revenue per call increased. We
continue to add clients and believe there is tremendous opportunity for growth,
especially in help-desk support.
All of these businesses are healthy and continue to provide opportunities for
growth.
Looking forward...
With regard to the credit cycle, we are beginning to see some relief in our
delinquency rates, but the industry figures are still rising. We have
additional programs scheduled for implementation later this year that will
further enhance our credit decision process. Our intent is to maximize the
profitability of our consumer credit card services business.
We will continue to pursue growth in our fee-based businesses. We are
particularly excited about the bankcard processing services we began providing
to our affiliate NOVUS Services Inc. last year. They recently announced the
addition of two new programs, which we will begin processing later this year.
We have been very pleased with the way our associates have responded to the
challenges of the last several months. This first quarter upturn is
confirmation of their enthusiastic efforts.
Thank you for your continued support.
Sincerely,
/s/ Robert L. Wieseneck /s/ Philip J. Purcell
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Robert L. Wieseneck Philip J. Purcell
President and Chief Executive Officer 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)
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<CAPTIONS>
Three Months Ended
March 31,
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1997 1996
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(Unaudited)
<S> <C> <C>
Processing and service revenues $ 75,309 $ 74,330
Merchant discount revenue 3,138 7,844
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78,447 82,174
Interest revenue 64,076 55,952
Interest expense 20,382 22,643
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Net interest income 43,694 33,309
Provision for loan losses 31,711 26,472
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Net credit income 11,983 6,837
NET OPERATING REVENUES 90,430 89,011
Salaries and employee benefits 29,523 24,200
Processing and service expenses 28,327 26,671
Other expenses 20,541 20,341
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Total operating expenses 78,391 71,212
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Income before income taxes 12,039 17,799
Income tax expense 4,648 6,764
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NET INCOME $ 7,391 $ 11,035
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NET INCOME PER COMMON SHARE $ 0.27 $ 0.41
Weighted Average Common Shares
Outstanding 27,197 27,117
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SPS TRANSACTION SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
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(In thousands, except share data)
<TABLE>
<CAPTIONS>
March 31, December 31,
1997 1996
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(Unaudited)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 19,552 $ 15,205
Investments held to maturity - at amortized cost 55,759 41,675
Credit card loans 1,498,421 1,637,507
Allowance for loan losses (84,394) (88,397)
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Credit card loans, net 1,414,027 1,549,110
Accrued interest receivable 19,270 21,141
Accounts receivable 35,369 42,202
Due from affiliated companies 3,967 9,900
Premises and equipment, net 26,241 25,294
Deferred income taxes 37,272 38,266
Prepaid expenses and other assets 17,060 17,992
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TOTAL ASSETS $1,628,517 $1,760,785
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LIABILITIES:
Deposits:
Noninterest-bearing $ 4,353 $ 9,012
Interest-bearing 474,188 454,423
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Total deposits 478,541 463,435
Accounts payable, accrued expenses and other 51,486 50,019
Income taxes payable 12,177 17,756
Due to affiliated companies 831,706 982,547
Accrued recourse obligation 22,636 22,636
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Total liabilities 1,396,546 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; 27,252,659 and
27,242,207 shares issued; 27,202,273 and
27,187,462 shares outstanding at March 31, 1997
and December 31, 1996, respectively 273 272
Capital in excess of par value 81,247 81,096
Retained earnings 151,736 144,345
Common stock held in treasury, at cost, $.01
par value, 50,386 and 54,745 shares at March 31,
1997 and December 31, 1996, respectively (1,242) (1,312)
Stock compensation plan 483 453
Employee stock benefit trust (483) (413)
Unearned stock compensation (43) (49)
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Total stockholders' equity 231,971 224,392
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,628,517 $1,760,785
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