<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended October 31, 1996
COMMISSION FILE NUMBER: 0-24420
PMT SERVICES, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1215125
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
TWO MARYLAND FARMS
SUITE 200
BRENTWOOD, TN 37027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 254-1539
NOT APPLICABLE
(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 ___
------
As of December 10, 1996, 33,120,227 shares of the Registrant's Common
Stock, $.01 par value, were outstanding.
<PAGE>
PMT SERVICES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1996 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 95,314,287 $105,461,031
Accounts receivable................................. 8,601,861 6,547,321
Inventory........................................... 550,282 556,251
Deferred income taxes............................... 214,165 265,661
Other current assets................................ 1,889,445 759,909
------------ ------------
Total current assets............................... 106,570,040 113,590,173
Purchased merchant portfolios, net of accumulated
amortization of $11,649,745 and $9,605,624......... 70,705,237 61,404,794
Property and equipment, net......................... 5,850,286 4,355,738
Deferred income taxes............................... 1,699,552 1,347,588
Intangible and other assets......................... 8,322,211 6,093,819
------------ ------------
Total assets....................................... $193,147,326 $186,792,112
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................... $ 175,000 $ 40,000
Accounts payable.................................... 5,095,291 3,622,019
Accrued liabilities................................. 1,746,793 2,969,761
Deferred revenues................................... 388,368 230,496
------------ ------------
Total current liabilities.......................... 7,405,452 6,862,276
Long-term debt...................................... 445,000 575,000
------------ ------------
Total liabilities.................................. 7,850,452 7,437,276
------------ ------------
Shareholders' equity:
Preferred stock, $0.01 par value, authorized:
10,000,000 shares; no shares outstanding
Common stock, $0.01 par value, authorized:
40,000,000 shares; issued and outstanding:
33,108,107 and 32,312,092 shares............... 331,081 323,121
Additional paid-in capital....................... 169,392,598 166,275,748
Treasury stock................................... (12,000) (12,000)
Accumulated earnings............................. 15,585,195 12,767,967
------------ ------------
185,296,874 179,354,836
------------ ------------
Commitments and contingent liabilities (Note 4)
Total liabilities and shareholders' equity..... $193,147,326 $186,792,112
============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
2
<PAGE>
PMT SERVICES, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
OCTOBER 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues...................................... $51,815,637 $30,671,038
Cost of revenues.............................. 39,960,211 23,518,563
----------- -----------
Gross margin................................ 11,855,426 7,152,475
----------- -----------
Selling, general and administrative expenses.. 4,791,856 3,131,524
Depreciation and amortization expense......... 2,773,218 1,473,701
Nonrecurring operating expense................ 466,137 --
Provision for merchant losses................. 251,952 146,908
----------- -----------
8,283,163 4,752,133
----------- -----------
Income from operations...................... 3,572,263 2,400,342
Interest income............................... 1,284,113 127,458
Interest expense.............................. -- (250,385)
Other expense, net............................ (120,918) --
----------- -----------
Income before provision for income taxes.... 4,735,458 2,277,415
Provision for income taxes.................... 1,802,468 927,752
----------- -----------
Net income.................................. $ 2,932,990 $ 1,349,663
=========== ===========
Net income per share.......................... $0.09 $0.06
=========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
PMT SERVICES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
---------- ------------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1995............... $ 72,296 $ 25,313,814 $ 4,379,505 $(68,500) $ 29,697,115
Shares issued........................ 58,520 140,746,488 140,805,008
Stock options exercised.............. 448 475,803 476,251
Stock splits......................... 191,857 (191,857) --
Purchase of treasury stock........... (12,000) (12,000)
Reissuance of treasury stock......... (68,500) 68,500 --
Minority shareholders' contribution.. 120,000 120,000
Martin-Howe fiscal year conversion... (356,914) (356,914)
Net income for the year.............. 8,625,376 8,625,376
---------- ------------ ----------- -------- ------------
Balance at July 31, 1996............... 323,121 166,275,748 12,767,967 (12,000) 179,354,836
Stock options exercised.............. 2,960 3,120,850 3,123,810
DTA Pooling.......................... 5,000 (4,000) (115,762) (114,762)
Net income for the period............ 2,932,990 2,932,990
---------- ------------ ----------- -------- ------------
Balance at October 31, 1996............ $ 331,081 $169,392,598 $15,585,195 $(12,000) $185,296,874
========== ============ =========== ======== ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
PMT SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
OCTOBER 31,
-----------------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net cash received from merchants..................................................... $ 12,453,946 $ 10,614,835
Cash paid to vendors and employees................................................... (7,605,411) (7,853,658)
Interest received.................................................................... 1,314,284 84,086
Interest paid........................................................................ (14,315) (296,976)
Income taxes paid.................................................................... (1,246,917) (696,704)
------------ ------------
Net cash provided by operating activities.......................................... 4,901,587 1,851,583
------------ ------------
Cash flows from investing activities:
Purchase of merchant portfolios...................................................... (13,974,790) (9,149,651)
Investment of excess cash............................................................ -- (5,825,319)
Purchase of property and equipment................................................... (1,678,285) (453,312)
------------ ------------
Net cash used in investing activities.............................................. (15,653,075) (15,428,282)
------------ ------------
Cash flows from financing activities:
Payments on long-term debt........................................................... -- (15,416,500)
Proceeds from issuance of common stock............................................... 559,744 40,849,085
Proceeds from issuance of long-term debt............................................. 45,000 163,916
------------ ------------
Net cash provided by financing activities........................................... 604,744 25,596,501
------------ ------------
Net increase (decrease) in cash and cash equivalents.................................. (10,146,744) 12,019,802
Cash and cash equivalents at beginning of the period.................................. 105,461,031 475,145
------------ ------------
Cash and cash equivalents at end of the period........................................ $ 95,314,287 $ 12,494,947
============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
In connection with the purchase of a merchant portfolio in August 1996, the
Company issued 594,011 shares of common stock.
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
OCTOBER 31,
------------------------------
1996 1995
---- ----
<S> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net income.......................................................................... $ 2,932,990 $ 1,349,663
Adjustments:
Depreciation and amortization expense.............................................. 2,773,218 1,473,701
Provision for merchant losses...................................................... 251,952 146,908
Deferred income taxes.............................................................. (300,467) (183,454)
Changes in assets and liabilities:
Accounts receivable............................................................ (1,997,065) (30,488)
Inventory...................................................................... 120,130 (53,390)
Other assets................................................................... (1,151,850) (57,388)
Accounts payable............................................................... 1,267,175 (636,460)
Accrued liabilities............................................................ 955,616 (100,506)
Deferred revenues.............................................................. 49,888 (57,003)
------------ ------------
Net cash provided by operating activities............................................. $ 4,901,587 $ 1,851,583
============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS:
The accompanying interim consolidated financial statements are
unaudited, except for the balance sheet at July 31, 1996. Certain
information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted, although the Company believes the disclosures
included herein are adequate to make the information presented not
misleading. These interim consolidated financial statements should be read
in conjunction with the Company's consolidated financial statements for the
fiscal year ended July 31, 1996.
The accompanying interim consolidated financial statements
contain all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the Company's financial position at
October 31, 1996 and the results of its operations and its cash flows for
the fiscal three month periods ended October 31, 1996 and 1995. The
results of operations for the interim periods presented are not necessarily
indicative of results for the full fiscal year. The growth in the
Company's income and profitability from fiscal year 1996 has resulted
largely from purchase of merchant portfolios. Future growth is dependent
upon, among other factors, the Company's ability to continue to consummate
such purchases of merchant portfolios.
In the fourth quarter of fiscal 1996, the Company made an
acquisition from Martin-Howe Associates, Inc. ("MHA"), which was accounted
for as a pooling of interests. On July 1, 1996 the Company issued 594,011
shares of its common stock in exchange for all the outstanding common stock
of MHA. The Company's consolidated financial statements have been restated
to include the accounts of MHA for all periods prior to the merger.
Net income per share for the fiscal three month periods ended
October 31, 1996 and 1995 is calculated based on the weighted average
number of shares of common stock outstanding of 34,358,559 and 23,949,365,
respectively.
NOTE 2 - PUBLIC OFFERINGS:
In October 1995, the Company consummated a second public offering
of 2,156,250 (6,468,750 post-splits) shares of common stock, 1,931,250
(5,793,750 post-splits) of which were offered by the Company. The Company
received net proceeds of approximately $40.8 million, after deducting
underwriting discounts and commissions and expenses of the offering, and
repaid all borrowings outstanding under its revolving line of credit.
6
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company offered 3,910,000 (5,865,000 post-split) shares of
its common stock in a third public offering in April 1996. The Company
received net proceeds of approximately $100 million after deducting
underwriting discounts and commissions and estimated expenses of the
offering.
NOTE 3 - PURCHASED MERCHANT PORTFOLIOS:
The Company has purchased certain merchant portfolios which
provide the Company the right to service specific merchants under contract
to processing banks for electronic authorization and payment processing.
In fiscal year 1996, the Company purchased five portfolios and in the
quarter ended October 31, 1996, the Company purchased three merchant
portfolios, one of which was accounted for as an immaterial pooling of
interests. In connection with the purchase of most of the merchant
portfolios, the Company enters into noncompetition agreements with the
sellers of the portfolios. A portion of the purchase price for each of
these merchant portfolios is allocated to the related noncompetition
agreement.
NOTE 4 - COMMITMENTS AND CONTINGENCIES:
In connection with the purchase of a merchant portfolio from
Bankcard America, Inc. ("ABC") in April 1995, the Company signed a guaranty
for a $1,000,000 note payable to the current processing bank by ABC
expiring May 9, 1998. The Company received a security interest in stock
warrants to purchase 120,000 shares of the Company's common stock currently
held by a shareholder of ABC.
The Company entered into an agreement in July 1995 to purchase
the rights to service merchant accounts to be generated by another
independent sales and service provider ("service provider") under a
contract with the Company's primary processing bank. The Company's option
to purchase may be exercised upon the earlier of default by the service
provider under its loan agreement with a third party or December 1, 1997
and expires on January 31, 1998. The purchase price will be derived as a
multiple of average monthly cash flow generated by the merchant accounts
for the three months immediately prior to the purchase.
The Company's agreement with its primary processing bank was
amended to require the Company to purchase the service provider's merchant
accounts by January 31, 1998. Additionally, the Company has indemnified the
processing bank for any losses incurred by the processing bank with respect
to the service provider's merchant accounts.
7
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the option agreement, the Company has guaranteed
the service provider's loan to a third party in the amount of $250,000. The
Company has also entered into a service agreement whereby the Company will
provide customer service, processing equipment deployment and related
services to the service provider's merchant accounts for a monthly fee of
$4.75 per merchant account. At October 31, 1996, the service provider did
not have a significant number of merchant accounts generated.
VISA and MasterCard require merchants accepting VISA and MasterCard
credit cards to contract directly with a processing bank that is a member
bank of the VISA or MasterCard associations. The Company is not a party to
the merchant processing agreements and is therefore dependent upon its
contractual arrangements with its processing banks in order to continue to
service its merchant portfolio. Generally, the Company has a contractual
right to receive revenues derived from the discount rate and fees earned on
its merchant portfolio so long as the merchant continues to process
transactions on the processing bank's system and the Company provides
adequate service to the merchant and remains in compliance under its
agreement with the processing bank. Under the terms of the Company's
agreement with its primary processing bank, the Company is permitted to
transfer merchants to another processing bank subject to time limitations
and termination fees. This agreement provides mobility for a substantial
portion of the Company's merchant base. However, in order to transfer
merchant contracts, the Company must pay the processing bank a fee
determined by a formula related to the annualized aggregate transaction
volume of the merchants transferred.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
PMT Services, Inc. is an independent service organization which
markets and services electronic credit card authorization and payment systems to
retail merchants located throughout the United States. The Company's principal
sources of revenues are discount and merchant service fees. The remaining
revenues consist of rentals, commissions and sales relating to credit card
processing equipment and installation fees. The Company initiates the credit
card processing relationship with a merchant and negotiates a "discount rate,"
within the terms of the Company's agreements with processing banks. The
discount is a percentage of the dollar amount of each credit card transaction.
Revenues derived from the electronic processing of transactions are
recognized at the time the merchants' transactions are processed. Revenues
related to the direct sale of credit card authorization equipment are recognized
when the equipment is shipped. Fees related to both the direct sale and
marketing of this equipment are recognized when installation is completed. Fees
received in advance of shipment or installation are deferred until realized.
Acquisitions and Mergers
In fiscal year 1996, the Company purchased five merchant portfolios
consisting of approximately 34,500 merchants. One of these purchases,
consisting of approximately 5,000 merchants, was consummated in the first
quarter of fiscal year 1996. In the third quarter of fiscal year 1996 the
Company purchased approximately 22,000 merchants through two merchant portfolio
acquisitions. Additionally, the Company acquired two merchant portfolios, in
the fourth quarter of fiscal year 1996, one of which was accounted for as a
pooling of interests.
The Company purchased a merchant portfolio from Imperial Bank
consisting of approximately 5,000 merchant accounts effective October 1, 1995.
The Company paid $8,650,000 for the portfolio from proceeds of the Company's
second public offering. In the third quarter of fiscal year 1996 the Company
purchased two merchant portfolios. The Company purchased approximately 15,000
from UMB Bank, N.A. ("UMB") for a purchase price of $13,500,000 effective March
1, 1996. Effective April 1, 1996 the Company purchased approximately 7,000
merchant accounts from Bankcard America, Inc. ("ABC") for a purchase price of
$6,300,000.
In the fourth quarter of fiscal 1996, the Company acquired two
merchant portfolios consisting of approximately 7,500 merchant accounts. The
Company accounted for the larger of these two acquisitions as a pooling of
interests. On July 1, 1996 the Company issued 594,011 shares of its common
stock in exchange for all the outstanding common stock of MHA. The Company's
consolidated financial statements have been restated to include the accounts of
MHA for all periods prior to the merger.
9
<PAGE>
In the first quarter of fiscal 1997, the Company acquired three
merchant portfolios consisting of approximately 13,500 merchant accounts. On
August 2, 1996, the Company issued 500,000 shares of its common stock in
exchange for all the outstanding stock of Data Transfer Associates, Inc.
("DTA"). The acquisition was accounted for as an immaterial pooling of
interests. The shares were issued to the shareholders of DTA in reliance upon
the exemption provided by Section 4(2) of the Securities Act of 1933 (the
"Act").
The other two merchant portfolio acquisitions accounted for
approximately 9,500 merchant accounts and operating results of the merchant
portfolios have been included in the Company's financial statements beginning
August 1, 1996, the effective date of the purchases.
In addition to these acquisitions, on September 16, 1996, the Company
paid cash and issued warrants to purchase 10,000 shares of the Company's common
stock as consideration in a transaction related to the purchase of certain
rights and obligations with respect to the solicitation and maintenance of a
merchant portfolio. The warrants were issued to the two individual sellers in
reliance upon the exemption provided by Section 4(2) of the Act. The warrants
are currently fully exercisable, at an exercise price of $17.00 per share, and
terminate September 16, 2006.
The growth in the Company's revenues and profitability from fiscal
year 1996 has resulted largely from the purchase of merchant portfolios. Future
growth is dependent upon, among other factors, the Company's ability to continue
to consummate such purchases of merchant portfolios. There can be no assurance
that the Company will be able to make successful portfolio acquisitions or that
the attrition of merchants from acquired portfolios will not exceed anticipated
attrition, thus resulting in lower revenues from the purchased portfolios.
Results of Operations
The following table presents, for the periods indicated, the
percentage of revenues represented by certain line items in the Company's
statement of income:
<TABLE>
<CAPTION>
Three Month Period Percentage/Increase
Ended October 31, (Decrease)
-------------------- ----------
1996 1995
------- ------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 68.9%
Cost of revenues 77.1 76.7 69.9
------ -----
Gross margin 22.9 23.3 65.8
Selling, general and
administrative expenses 9.2 10.2 52.9
Deprec. and amortization 5.4 4.8 88.2
Non-recurring expense 0.9 -- 100.0
Provision for merchant losses 0.5 0.5 73.9
------ -----
Income from operations 6.9 7.8 48.8
Interest (income) expense, net (2.5) 0.4 1,144.6
Other expense, net 0.2 --
------ -----
Income before provision for
taxes 9.2 7.4 107.9
Provision for income taxes 3.5 3.0 94.3
------ -----
Net Income 5.7% 4.4% 117.3%
====== =====
</TABLE>
10
<PAGE>
Revenues
Revenues for the first quarter of fiscal year 1997 increased to $51.8
million, an increase of 68.9% over the same period last year. The growth in
revenues has resulted in an increase in the Company's accounts receivable. The
increase in revenues resulted primarily from the purchase of merchant
portfolios, revenue enhancement programs, growth from a Visa and MasterCard
sales solicitation program launched in fiscal year 1995 with one of the
Company's major association relationships and growth generated from new
merchants added through internal sales. The fiscal year 1996 and 1997 merchant
portfolio purchases accounted for 90.7% of the increase in revenues in the first
quarter of fiscal year 1997.
Cost of Revenues
Cost of revenues increased from $23.5 million in the first quarter of
fiscal year 1996 to $40.0 million in the first quarter of fiscal year 1997.
Cost increased as a percentage of revenues in the quarter ended October 31, 1996
as a result of merchant portfolio purchases with a higher percentage of cost of
revenues. Additionally, as a result of increased revenues and costs, the
Company's accounts payable have increased.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $4.8 million in the
first quarter of fiscal year 1997 and $3.1 million for the first quarter of
fiscal year 1996. This reflects a 52.9% increase over the same period in fiscal
year 1996. As a percentage of revenues, selling, general and administrative
expenses has decreased for the first quarter of fiscal year 1997 when compared
to the same period in fiscal year 1996. The decrease in selling, general and
administrative expenses as a percentage of revenues continues to reflect the
Company's overall improvement in utilization of personnel and the addition of
revenues from purchased merchant portfolios, which do not cause a proportionate
increase in selling, general and administrative expenses.
Depreciation and Amortization
Depreciation and amortization expense increased from $1.5 million for
the quarter ended October 31, 1995 to $2.8 million for the quarter ended October
31, 1996 which represents an 88.2% increase. The increase in depreciation and
amortization was primarily the result of amortization of purchased merchant
portfolios.
Nonrecurring Operating Expense
In the first quarter of fiscal 1997, the Company incurred nonrecurring
duplicative costs of $466,000 relating to a sales force included in a merchant
portfolio acquisition.
11
<PAGE>
Interest Expense
For the first quarter of fiscal year 1997, the Company recognized $1.3
million net interest income. For the same quarter in fiscal year 1996, the
Company recognized $123,000 net interest expense. The Company consummated an
initial public offering in August 1994, a second public offering in October 1995
and a third public offering in April 1996. The Company received net proceeds
from the initial, second and third public offerings of approximately $15.9
million, $40.8 million and $100 million (after deducting underwriting discounts
and commissions and expenses of the offerings), respectively. With the first two
offerings, the Company repaid all borrowings outstanding under its credit
facility. The Company received interest income from the investment of the
remaining net proceeds from the initial and second offerings and on the total
net proceeds from the April 1996 offering.
Income Tax
As a result of the Company's increased profitability for the first
quarter of fiscal year 1997 income tax expense has increased. Income tax
expense increased from $928,000 in the first quarter of fiscal year 1996 to $1.8
million in the first quarter of fiscal year 1997. The Company's effective
income tax rate for the first quarter of fiscal 1997 was 38%. For the first
quarter of fiscal 1996 the Company's effective income tax rate was 41% as a
result of restating the Company's financial statements for the MHA acquisition
which was accounted for as a pooling of interests.
The Company has recorded a tax benefit of approximately $2.6 million
for the excess of the fair market value at the exercise date over that at the
award date for non-qualified stock options exercised during the quarter ended
October 31, 1996. This benefit resulted in a net tax receivable of
approximately $662,000 at October 31, 1996, which is included in other current
assets on the balance sheet.
Liquidity and Capital Resources
The Company recognizes as revenue in its statement of income the full
discount rate collected from the merchant. The various costs incurred by the
Company, including amounts paid to the card-issuing bank, the processing bank,
and the network service provider, are reflected as costs of revenues. In
accordance with the Company's contracts with its processing banks, all of the
funds collection and some of the disbursement function is performed on behalf of
the Company by the processing bank. At month end the processing bank collects
the total discount rate from the merchants and disburses to each of the service
providers their fees, except disbursements for interchange fees which are paid
to the card-issuing bank daily. Shortly after month end, the processing bank
disburses to the Company the remainder of the funds collected from the merchant
(which represents a significant portion of the Company's gross margin).
Although the Company's revenues reflect the full discount rate
collected, the cash flow statement is prepared using the "direct method" as
provided in Statement of Financial Accounting Standards 95, "Statement of Cash
Flows," and reflects cash received from merchants at the net amount
collected as the cash flows received by the Company from processing banks are
net of the amounts disbursed to the other parties described above. This
presentation follows the flow of funds to the Company.
12
<PAGE>
Working Capital
Net cash flow provided by operating activities was $4.9 million for
the first quarter of fiscal year 1997 as compared to net cash flow provided by
operating activities of $1.9 million for the first quarter of fiscal year
1996. Merchant portfolio purchases and increased interest income as a result of
the Company's public offerings account for the significant increase in cash
provided by operating activities. However, this increase was partially offset
by increased income tax payments in fiscal year 1997.
Capital Expenditures and Investing Activities
Capital expenditures were approximately $15.7 million for the three
month period ended October 31, 1996 as compared to $15.4 million for the same
period in fiscal year 1996. Following the consummation of the second public
offering in October 1995, the Company purchased a merchant portfolio from
Imperial Bank. In the first quarter of fiscal 1997, the Company purchased three
merchant portfolios of which one was accounted for as an immaterial pooling of
interests. The increase in capital expenditures was also attributable to
additional expenditures related to the upgrade of the Company's management
information system, the purchase of additional credit card terminal and
peripheral equipment for lease to merchants. In fiscal 1996, a portion of the
net proceeds of the October 1995 offering was invested in a short-term
certificate of deposit.
Financing Activities
The significant decrease in cash from financing activities for fiscal
year 1997 resulted primarily from the consummation of the Company's public
offering in October 1995. Net cash provided by financing activities for the
first quarter of fiscal year 1996 was $25.6 million, which reflects the net
proceeds of the public offering after retirement of the Company's outstanding
indebtedness to First Union National Bank of Tennessee. Cash provided by
financing activities for the first quarter of fiscal year 1997 was $605,000.
Future Capital Needs
Management believes that significant expenditures for the purchase of
additional merchant portfolios may be required for the Company to sustain its
growth in the future. Management expects to fund such purchases through cash on
hand, cash generated from operations and additional bank borrowings. The
Company believes that the combination of these sources will be sufficient to
meet the Company's anticipated liquidity needs and its growth plans through
fiscal year 1997. The Company, however, may pursue additional expansion
opportunities, including merger agreements accounted for as poolings requiring
the issuance of additional shares of stock. Additionally, the Company may make
purchases of additional merchant portfolios, which may require additional
capital, and the Company may incur, from time to time, additional short-term and
long-term indebtedness or issue, in public or private transactions, equity or
debt securities, the availability and terms of which will depend upon then
prevailing market and other conditions. There can be no assurance that any such
financing will be obtained on terms acceptable to the Company.
13
<PAGE>
In October 1995, the Company repaid all indebtedness on its revolving
credit facility to First Union National Bank of Tennessee from the proceeds of
its second public offering. The revolving credit facility was amended and
restated during fiscal year 1995 to increase the line of credit to $17,500,000.
The amended agreement expired November 1, 1996. The Company plans to extend the
current facility or negotiate a new facility. There can be no assurance that
such extension or new facility will be obtained on terms acceptable to the
Company. Borrowings under a new credit facility will be used to finance future
purchases of merchant portfolios and equipment and for general corporate
purposes.
This report contains certain forward-looking statements. Specifically,
the forward-looking statements relate to future growth through portfolio
acquisitions and the availability of capital to support such acquisitions. The
ability of the Company to achieve the expectations expressed in these forward-
looking statements will be subject to several factors that could cause actual
results to differ materially from those expressed in the forward-looking
statements, such as merchant attrition, difficulties in integrating newly
acquired businesses and portfolios, the availability of capital, the cost of
acquired businesses and portfolios, the Company's continued ability to account
for acquisitions as poolings of interests, industry price increases and the
ability of the Company's processing banks to process merchant transactions
effectively. Results actually achieved thus may differ materially from the
expectations expressed in such statements.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PMT SERVICES, INC.
By:/s/Vickie G. Johnson
--------------------
Vickie G. Johnson
Chief Accounting Officer
(principal accounting officer)
Date: December 13, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF PMT SERVICES, INC. FOR THE QUARTER ENDED
OCTOBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 95,314,287
<SECURITIES> 0
<RECEIVABLES> 8,601,861
<ALLOWANCES> 0
<INVENTORY> 550,282
<CURRENT-ASSETS> 106,570,040
<PP&E> 8,581,171
<DEPRECIATION> 2,730,885
<TOTAL-ASSETS> 193,147,326
<CURRENT-LIABILITIES> 7,405,452
<BONDS> 0
0
0
<COMMON> 331,081
<OTHER-SE> 184,965,793
<TOTAL-LIABILITY-AND-EQUITY> 193,147,326
<SALES> 51,815,637
<TOTAL-REVENUES> 51,815,637
<CGS> 39,960,211
<TOTAL-COSTS> 39,960,211
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 251,952
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,735,458
<INCOME-TAX> 1,802,468
<INCOME-CONTINUING> 2,932,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,932,990
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.00
</TABLE>
