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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): July 31, 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 Second 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: July 31, 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 Second Quarter Report to Stockholders of the Registrant.
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EXHIBIT 20.1
1997 Second Quarter Report
To Our Stockholders:
We are very pleased with the results of our second quarter. Net income was
$9.0 million, or 33 cents a share, a 38 percent increase over 24 cents last
year. Net operating revenues for the quarter increased 5 percent to $87.8
million.
Net income for the first half of 1997 was $16.4 million, or 60 cents per share,
compared with 65 cents for the same period in 1996. Net operating revenues for
the six months ended June 30 increased to $178.2 million.
Efforts paying off in our consumer private label business...
Last year at this time we alerted you to some of the credit quality issues that
were affecting our industry and our business. Charge-offs were increasing,
delinquencies were up, and bankruptcies were hitting record levels. We told you
we planned to take strong actions to address our long term growth and
profitability.
Subsequently, we implemented performance-based pricing to increase finance
charge revenues and bolster revenues per account. Increased emphasis was placed
on collections. We conducted portfolio improvement programs designed to
diminish our exposure to higher risk accounts. We also established an
aggressive program to more frequently revise credit approval models. And we are
accomplishing these initiatives within our usual tight expense controls.
In terms of measurements of success, absolute charge-off dollars for the
quarter decreased significantly compared to last quarter. While the charge-off
rate was up from the second quarter a year ago, it was down from last quarter.
Our second quarter delinquency dollars also declined sequentially. We believe
that these results are solid, positive indicators, and the upturn in our
performance over the past two quarters is confirmation that we are on the right
track.
As we expected, our actions have contributed to a decline in the receivables
balance as well as the number of accounts, but we believe the result is a
healthier portfolio. Active consumer private label accounts, both owned and
managed, decreased 8 percent to 3.1 million at June 30, 1997 compared with the
second quarter last year. Total loans outstanding, which represent both owned
and securitized credit card loans, were $1.9 billion at June 30, 1997, down
from $2.0 billion at the end of the same period last year.
Fee-based businesses growing...
Driven by our core office supply superstore clients, active commercial accounts
increased 30 percent to 945,000 from 727,000 at the end of the second quarter
last year. Our network services segment also added a number of mid-tier
petroleum clients and processed 109.1 million network transactions, compared
with 104.8 million in the second quarter 1996.
TeleServices (formerly referred to as Operational Outsourcing) reported a
substantial increase in technical help-desk calls, which tend to be longer and
produce higher revenue. The change in mix more than offsets the effects of a 10
percent decline in total customer contacts. We continue to add new clients and
see this business as a long term growth opportunity.
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Changes in management and organization...
In May, Thomas C. Schneider was elected Chairman of the Board of Directors. He
succeeds Philip J. Purcell, Chairman and CEO of our majority-owner, Morgan
Stanley, Dean Witter, Discover & Co. Mr. Purcell will remain on our board.
We have also made some organizational changes that result in a vertical
business unit structure that better defines accountability and places increased
emphasis on marketing and new business development.
Looking forward...
The credit industry is still in the midst of dealing with significant credit
quality issues. We believe that increases in delinquencies and bankruptcies
industry-wide will moderate. However, they are not likely to return to the
levels the industry experienced in the early 90s. The marketing of credit and
the attitude of consumers toward the use of credit has been altered.
We are confident that we are in a much better position to operate profitably in
this new industry environment. Although our past and continuing actions are
likely to result in a further decline in total loans, we are absolutely
convinced that we took the proper measures to re-establish a solid foundation
for our credit business before resuming profitable receivable growth, and we
are intent on that goal. This will not happen overnight, but it is an integral
part of our 1998 Plan.
All of our fee-based business segments are healthy and continue to provide
opportunities for growth.
We feel very good about this quarter and the first half of the year. The
attitude and energy displayed by all of our associates over the past 12 months
have been in large part responsible for our successes.
Thank you for your 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)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
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1997 1996 1997 1996
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(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Processing and service revenues $67,264 $64,766 $142,573 $139,096
Merchant discount revenue 3,678 7,375 6,816 15,219
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70,942 72,141 149,389 154,315
Interest revenue 62,401 56,194 126,477 112,146
Interest expense 19,444 18,943 39,826 41,586
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Net interest income 42,957 37,251 86,651 70,560
Provision for loan losses 26,082 26,096 57,793 52,568
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Net credit income 16,875 11,155 28,858 17,992
NET OPERATING REVENUES 87,817 83,296 178,247 172,307
Salaries and employee benefits 28,274 24,471 57,797 48,671
Processing and service expenses 24,369 26,836 52,696 53,507
Other expenses 20,543 21,353 41,084 41,694
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Total operating expenses 73,186 72,660 151,577 143,872
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Income before income taxes 14,631 10,636 26,670 28,435
Income tax expense 5,647 4,043 10,295 10,807
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NET INCOME $ 8,984 $ 6,593 $ 16,375 $ 17,628
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NET INCOME PER COMMON SHARE $ 0.33 $ 0.24 $ 0.60 $ 0.65
Weighted Average Common Shares
Outstanding 27,209 27,183 27,203 27,150
</TABLE>
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SPS TRANSACTION SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
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(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
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(Unaudited)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 25,112 $ 15,205
Investments held to maturity - at amortized cost 49 507 41,675
Credit card loans 1,338,600 1,637,507
Allowance for loan losses (79,120) (88,397)
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Credit card loans, net 1,259,480 1,549,110
Accrued interest receivable 20,349 21,141
Accounts receivable 32,786 42,202
Due from affiliated companies 7,495 9,900
Amounts due from asset securitizations 56,915 --
Premises and equipment, net 26,732 25,294
Deferred income taxes 33,463 38,266
Prepaid expenses and other assets 15,007 17,992
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TOTAL ASSETS $1,526,846 $1,760,785
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LIABILITIES:
Deposits:
Noninterest-bearing $ 3,884 $ 9,012
Interest-bearing 490,180 454,423
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Total deposits 494,064 463,435
Accounts payable, accrued expenses and other 48,817 50,019
Income taxes payable 8,034 17,756
Due to affiliated companies 712,194 982,547
Accrued recourse obligation 22,636 22,636
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Total liabilities 1,285,745 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; 27,262,894 and
27,242,207 shares issued; 27,212,508 and
27,187,462 shares outstanding at June 30, 1997
and December 31, 1996, respectively 273 272
Capital in excess of par value 81,381 81,096
Retained earnings 160,720 144,345
Common stock held in treasury, at cost, $.01
par value, 50,386 and 54,745 shares at June 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 (31) (49)
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Total stockholders' equity 241,101 224,392
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,526,846 $1,760,785
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