<PAGE>
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): January 22, 1997
SPS TRANSACTION SERVICES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-10993 36-3798295
- ---------------------------- ---------------------- ----------------------
(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 Fourth Quarter Press Release of the Registrant dated
January 23, 1997.
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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: January 22, 1997 By: /s/ Russell J. Bonaguidi
----------------------------------- -----------------------------
Russell J. Bonaguidi
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EXHIBIT INDEX
------------------------
Exhibit
Number Description of Exhibits
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20.1 Fourth Quarter Press Release of the Registrant dated January 23,
1997
<PAGE>
EXHIBIT 20.1
NEWS RELEASE
For Release: Immediate
Contact: Jean Fargo Dave Rai
Corporate Communications Investor Relations
(847) 405-3953 (847) 405-4103
SPS REPORTS FOURTH QUARTER AND FULL YEAR RESULTS
RIVERWOODS, IL, January 23, 1997 - SPS Transaction Services, Inc. (NYSE:PAY)
today reported net income of just above breakeven for the quarter ended
December 31, 1996, compared to $11.6 million, or $0.43 per share for the same
period last year. Net operating revenues for the fourth quarter were $69.0
million, a 19 per cent decrease from 1995.
SPS, a provider of technology-based outsourcing services, also reported
net income for 1996 of $23.2 million, or $0.86 per share, a 47 percent decrease
from $43.5 million or $1.60 per share in 1995. Net operating revenues for 1996
increased 3 percent to $320.9 million.
'The results of the quarter were a disappointment but were in line with
our expectations. Revenues from our fee-based businesses have shown good
increases, and growth in our asset-based business has slowed, consistent with
corrective measures implemented during the year,' said Robert L. Wieseneck, SPS
president and chief executive officer. 'The changes put in place during 1996
are on track and we expect they will have an increasingly positive impact on
1997, assuming there are no major surprises in the industry's credit quality
condition.'
Continued high charge-offs in the company's private label credit card
portfolios and an increase in the average loan loss allowance rate adversely
impacted fourth quarter net income. The loan loss allowance rate increase was
in response to continued high rates of delinquencies and bankruptcies, and
resulted in an addition to reserves of $11.0 million. Net revenues were reduced
by the company's re-evaluation of its position on recognition of merchant
discount revenues for promotional payment plans. This change in accounting
estimate resulted in the deferral of $9.3 million of fourth quarter merchant
discount revenues into 1997 and will provide the company with a better matching
of revenues and expenses in the future.
SPS ended the quarter with 3.5 million active consumer private label
accounts, both owned and managed, a 6 percent decrease as compared to last
year. Credit card loans outstanding, including securitized loans, at December
31 were $2.2 billion, equal to the loans outstanding at the same period a year
ago.
Fourth quarter electronic point-of-sale transactions processed rose 4
percent to 112.0 million compared with 107.8 million during the same period
last year. Customer contacts in the TeleServices segment, formerly referred to
as Operational Outsourcing, were 3.0 million, as compared to 2.3 million during
fourth quarter 1995, a 32 percent increase. The company's active commercial
accounts increased 33 percent at December 31, 1996 to 898,000 from 676,000 a
year ago.
SPS Transaction Services, Inc., a majority-owned subsidiary of Dean
Witter, Discover & Co., provides a range of technology outsourcing services
including the processing of credit card transactions, private label credit card
programs, commercial accounts receivable processing, and call center
teleservice activities.
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4
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SPS TRANSACTION SERVICES, INC.
Financial Highlights
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
Three Months Ended December 31,
-----------------------------------------
(Unaudited)
1996 1995 % Change
--------- --------- --------
<S> <C> <C> <C>
Net Operating Revenues $ 69,041 $ 85,569 (19%)
Net Income $ 20 $ 11,634 (100%)
Net Income per Common Share $ 0.00 $ 0.43 (100%)
Weighted Average Common Shares
Outstanding 27,190 27,077 -
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 % Change
--------- --------- --------
<S> <C> <C> <C>
Net Operating Revenues $ 320,920 $ 311,992 3%
Net Income $ 23,246 $ 43,473 (47%)
Net Income per Common Share $ 0.86 $ 1.60 (47%)
Weighted Average Common Shares
Outstanding 27,171 27,093 -
</TABLE>
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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 Year Ended
December 31, December 31,
------------------ -------------------
1996 1995 1996 1995
------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Processing and service revenues $71,937 $59,169 $276,745 $232,120
Merchant discount revenue 8,771 22,827 34,153 49,550
------- ------- -------- --------
80,708 81,996 310,898 281,670
Interest revenue 60,148 57,695 226,266 162,205
Interest expense 19,305 22,185 79,129 65,361
------- ------- -------- --------
Net interest income 40,843 35,510 147,137 96,844
Provision for loan losses 52,510 31,937 137,115 66,522
------- ------- -------- --------
Net credit income (11,667) 3,573 10,022 30,322
NET OPERATING REVENUES 69,041 85,569 320,920 311,992
Salaries and employee benefits 24,710 23,020 97,117 87,730
Processing and service expenses 28,448 25,471 108,544 90,535
Other expenses 15,851 18,814 77,766 63,618
------- ------- -------- --------
Total operating expenses 69,009 67,305 283,427 241,883
------- ------- -------- --------
Income before income taxes 32 18,264 37,493 70,109
Income tax expense 12 6,630 14,247 26,636
------- ------- -------- --------
NET INCOME $ 20 $11,634 $ 23,246 $ 43,473
======= ======= ======== ========
NET INCOME PER COMMON SHARE $ 0.00 $ 0.43 $ 0.86 $ 1.60
Weighted Average Common Shares
Outstanding 27,190 27,077 27,171 27,093
</TABLE>
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SPS TRANSACTION SERVICES, INC.
STATISTICAL SUMMARY
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
------------------- ------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income Statement Data (thousands)
Transaction processing services $ 24,971 $ 22,173 $ 87,758 $ 79,192
Managed Programs 22,286 19,539 88,598 75,526
HSB Programs 15,436 8,578 51,744 25,566
Servicing fees on securitized loans 9,244 8,879 48,645 51,836
-------- -------- -------- --------
Processing and service revenues $ 71,937 $ 59,169 $276,745 $232,120
======== ======== ======== ========
Balance Sheet Data (millions)
End-of-period
Managed credit card loans* $2,217.5 $2,230.0 $2,217.5 $2,230.0
Securitized loans $580.0 $609.2 $580.0 $609.2
Average
Managed credit card loans* $2,081.2 $1,999.0 $2,095.0 $1,678.1
Securitized loans $580.0 $492.0 $582.0 $525.8
Operating Data (thousands)
Electronic point-of-sale
transactions processed 111,966 107,804 424,069 378,548
Operational outsourcing customer
contacts processed 2,983 2,259 9,745 8,507
Active consumer credit card
accounts(end-of-period) 3,466 3,675 3,466 3,675
Active commercial credit card
accounts(end-of-period) 898 676 898 676
Asset Quality
Average
Net charge-off % (Managed)* 8.8% 5.8% 7.7% 5.0%
Net charge-off % (Owned) 8.9% 5.7% 7.8% 4.4%
End-of-period
30-89 days delinquency % (Managed)* 4.9% 4.3% 4.9% 4.3%
30-89 days delinquency % (Owned) 5.0% 4.2% 5.0% 4.2%
90-179 days delinquency % (Managed)* 3.9% 2.7% 3.9% 2.7%
90-179 days delinquency % (Owned) 4.2% 2.7% 4.2% 2.7%
Allowance for loan losses
(thousands)(owned) $ 88,397 $ 63,704 $ 88,397 $ 63,704
Allowance for loan losses %
(owned) 5.4% 3.9% 5.4% 3.9%
* Includes securitized loans.
</TABLE>
