-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LooUn1trjyoABXC6VbY5DyOlcyu3V3pz3YLcI/DjJtG2xwEZ5fJOKmaIkAQFAn6o oT7mxP1VnUTHs03ihxfXgA== 0000899243-97-002370.txt : 19971216 0000899243-97-002370.hdr.sgml : 19971216 ACCESSION NUMBER: 0000899243-97-002370 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19971215 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PMT SERVICES INC /TN/ CENTRAL INDEX KEY: 0000923410 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 621215125 STATE OF INCORPORATION: TN FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24420 FILM NUMBER: 97738477 BUSINESS ADDRESS: STREET 1: 3841 GREEN HILLS VILLAGE DR CITY: NASHVILLE STATE: TN ZIP: 37215 BUSINESS PHONE: 6152541539 MAIL ADDRESS: STREET 1: 3841 GREEN HILLS VILLAGE DR CITY: NASHVILLE STATE: TN ZIP: 37215 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended October 31, 1997 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 incorporation (I.R.S. Employer Identification organization) No.) 3841 GREEN HILLS VILLAGE DRIVE NASHVILLE, TN 37215 (Address of principal executive offices) (Zip Code) (615) 254-1539 (Registrant's telephone number, including zip code) 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, 1997, 45,974,855 shares of the Registrant's Common Stock, $.01 par value, were outstanding. PMT SERVICES, INC. CONSOLIDATED BALANCE SHEET
OCTOBER 31, JULY 31, 1997 1997 Unaudited ------------- ----------- ASSETS Current assets: Cash and cash equivalents............................. $ 27,649,364 $ 23,810,173 Investments............................................ 39,123,124 49,167,521 Accounts receivable.................................... 19,657,950 18,303,296 Current portion of net investment in finance leases.... 9,613,614 9,249,753 Inventory.............................................. 2,491,529 1,818,613 Deferred income taxes.................................. 1,575,167 1,543,379 Other current assets................................... 2,222,361 2,061,295 ------------ ------------ Total current assets................................ 102,333,109 105,954,030 Purchased merchant portfolios, net of accumulated amortization of $21,325,268 and $18,689,846......... 84,665,676 84,343,006 Long-term portion of net investment in finance leases.. 26,494,466 24,636,881 Property and equipment, net............................ 11,265,111 9,379,056 Long-term note receivable.............................. 11,996,908 8,773,330 Intangible and other assets............................ 17,298,420 17,989,726 ------------ ------------ Total assets........................................ $254,053,690 $251,076,029 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt........................ $ 13,734,703 $ 14,516,369 Accounts payable......................................... 7,290,485 9,608,347 Accrued liabilities...................................... 8,498,285 5,721,670 Deferred revenues........................................ 332,450 291,493 ------------ ------------ Total current liabilities.......................... 29,855,923 30,137,879 Long-term debt........................................ 17,777,119 18,564,658 Deferred income taxes.................................... 490,183 624,777 ------------ ------------ Total liabilities...................................... 48,123,225 49,327,314 ------------ ------------ Shareholders' equity: Preferred stock, $0.01 par value, authorized: 10,000,000 shares; no shares outstanding Common stock, $0.01 par value, authorized: 100,000,000 shares; outstanding: 45,972,674 and 45,618,488 shares................... 459,727 456,185 Additional paid-in capital............................... 171,292,621 171,129,805 Accumulated earnings..................................... 34,178,117 30,162,725 ------------ ------------ 205,930,465 201,748,715 ------------ ------------ Commitments and contingent liabilities (Notes 3) Total liabilities and shareholders' equity............... $254,053,690 $251,076,029 ============ ============
The accompanying notes are an integral part of this financial statement. 2 PMT SERVICES, INC. CONSOLIDATED STATEMENT OF INCOME THREE MONTH PERIOD ENDED October 31, -------------------------- Unaudited 1997 1996 ---- ---- Revenues...................................... $93,512,540 $78,989,742 Cost of revenues.............................. 67,425,351 57,830,458 ----------- ----------- Gross margin.................................. 26,087,189 21,159,284 ----------- ----------- Selling, general and administrative expenses.. 12,426,282 10,017,606 Depreciation and amortization expense......... 3,822,640 2,890,609 Provision for merchant losses and bad debt expense...................................... 1,186,337 981,567 Nonrecurring operating expense, net........... -- 466,137 ----------- ----------- 17,435,259 14,355,919 ----------- ----------- Income from operations 8,651,930 6,803,365 Interest income, net.......................... 505,142 102,540 Other expense, net............................ (442,884) (125,761) ----------- ----------- Income before provision for income taxes...... 8,714,188 6,780,144 Provision for income taxes.................... 2,948,753 2,214,202 ----------- ----------- Net income.................................... $ 5,765,435 $ 4,565,942 =========== =========== Earnings per share............................ $0.12 $0.10 =========== =========== The accompanying notes are an integral part of this financial statement. 3 PMT SERVICES, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
ADDITIONAL TOTAL COMMON PAID-IN ACCUMULATED SHAREHOLDERS' STOCK CAPITAL EARNINGS EQUITY --------- ------------- ------------ ------------- Balance at July 31, 1997............ $456,185 $171,129,805 $30,162,725 $201,748,715 Stock warrants exercised......... 1,200 148,800 150,000 Stock options exercised.......... 15 6,951 6,966 September 1997 pooling (Note 2).. 2,327 (143,994) (141,667) Tax benefit from non-qualified stock options.................. 7,065 7,065 Distributions to Subchapter S corporations, prior to merger.. (1,606,049) (1,606,049) Net income for the period........ 5,765,435 5,765,435 --------- ------------- ------------ ------------- Balance at October 31, 1997 Unaudited....................... $459,727 $171,292,621 $34,178,117 $205,930,465 ========= ============= ============ =============
The accompanying notes are an integral part of this financial statement. 4 PMT SERVICES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTH PERIOD ENDED October 31, -------------------------- UNAUDITED 1997 1996 ---- ---- Cash flows from operating activities: Net income................................................... $ 5,765,435 $ 4,565,942 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense........................ 3,822,640 2,890,609 Provision for merchant losses and bad debt expense........... 1,186,337 981,567 Deferred income taxes........................................ (166,382) (432,386) Changes in assets and liabilities, excluding the effects of non-restated acquisitions: Accounts receivable....................................... (1,284,325) (2,923,685) Inventory................................................. (613,982) (44,826) Other assets.............................................. 52,218 (721,062) Accounts payable.......................................... (2,330,571) 2,613,241 Accrued liabilities....................................... 1,632,446 767,919 Deferred revenues......................................... 40,957 49,888 ----------- ------------ Net cash provided by operating activities................. 8,104,773 7,747,207 ----------- ------------ Cash flows from investing activities: Purchase of merchant portfolios.............................. (2,954,050) (14,156,358) Proceeds from matured investments............................ 10,044,397 -- Purchase of property and equipment, net...................... (2,484,302) (1,803,481) Purchase of equipment for leasing............................ (5,656,361) (5,403,518) Amounts received on leases, net of amortized unearned income...................................................... 3,311,187 3,056,218 ----------- ------------ Net cash (used) provided by investing activities.......... 2,260,871 (18,307,139) ----------- ------------ Cash flows from financing activities: Proceeds from issuance of long-term debt..................... 5,978,191 9,173,827 Payments on long-term debt................................... (7,831,983) (6,890,031) Issuance of note receivable.................................. (3,223,578) -- Proceeds from sale of common stock........................... 156,966 559,743 Distributions of Subchapter S corporations.................. (1,606,049) (2,323,152) ----------- ------------ Net cash (used) provided by financing activities.......... (6,526,453) 520,387 ----------- ------------ Net increase (decrease) in cash and cash equivalents.......... 3,839,191 (10,039,545) Cash and cash equivalents at beginning of the period.......... 23,810,173 109,351,788 ----------- ------------ Cash and cash equivalents at end of the period................ $27,649,364 $ 99,312,243 =========== ============ Supplemental disclosures of cash flow information: Cash paid for income taxes $ 1,071,706 $ 1,337,185 Cash paid for interest 650,506 906,957
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES: For the three months ended October 1997 and 1996, in connection with two separate operating business acquisitions in September 1997 and August 1996, the Company issued 232,726 and 500,000 shares of common stock, respectively. The acquisitions were accounted for as poolings of interests which did not require retroactive restatement, because they had an insignificant impact on the Company. The accompanying notes are an integral part of this financial statement. 5 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, 1997. 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, 1997. 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, 1997 and the results of its operations and its cash flows for the fiscal three month periods ended October 31, 1997 and 1996. 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 1997 has resulted largely from mergers and acquisitions, including the purchase of merchant portfolios. Future growth is dependent upon, among other factors, the Company's ability to continue to consummate such operating businesses and merchant portfolios. The consolidated financial statements give retroactive effect to an acquisition consummated in the first quarter of fiscal 1998 which was accounted for as pooling of interests. (Note 2). Earnings per share for the three month periods ended October 31, 1997 and 1996 is calculated based on the weighted average number of shares of common stock outstanding of 46,941,817 and 44,395,706, respectively. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 - Earnings per Share (SFAS 128). SFAS 128 requires companies with complex capital structures that have publicly held common stock or common stock equivalents to present both basic and diluted earnings per share (EPS) on the face of the income statement. The presentation of basic EPS replaces the presentation of primary EPS previously required by Accounting Principles Board Opinion No. 15 (ABP 15). Basic EPS is calculated as income available to common shareholders divided by the weighted average number of shares outstanding during the period. Diluted EPS (previously referred to as fully diluted EPS) is calculated using the "if converted" method for convertible securities and the treasury stock method for options and warrants as prescribed by APB 15. This statement is effective for financial statements issued for interim periods and annual periods ending after December 15, 1997. Earlier application is not permitted. The Company will adopt the provisions of this statement in the quarter ended January 31, 1998. Management believes the provisions of this statement will not have a material effect on earnings per share. 6 PMT SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NOTE 2 - ACQUISITIONS: OPERATING BUSINESS ACQUISITIONS In the first quarter of fiscal year 1998, the Company consummated two operating business acquisitions by issuing common stock in exchange for all the outstanding common stock of the companies acquired. These transactions were accounted for as poolings of interest. One of these transactions was considered material for restatement. On October 2, 1997 the Company issued 3,870,965 shares of its common stock in exchange for all the outstanding common stock of Bancard, Inc. ("BCI"). The Company's consolidated financial statements have been restated to include the accounts of BCI for all periods presented by including the historical results of BCI. The historical results of BCI reflect its actual operating cost structures and, as a result, do not necessarily reflect the cost structure of the newly combined entity. BCI was a Subchapter S corporation for income tax purposes; therefore, it did not pay U.S. federal income taxes. BCI will be included in the Company's U.S. federal income tax return effective from the date of merger. Separate revenues, net income and related per share amounts of BCI for the periods prior to the merger are presented in the following table. In addition, the table includes unaudited pro forma net income and earnings per share amounts which reflect pro forma adjustments to present income taxes on the basis on which they will be reported in future periods. Three month period ended October 31, ------------------------ 1997 1996 ----------- ----------- Revenues PMT $85,347,927 $60,997,643 BCI 8,164,613 9,740,487 Other(1) -- 8,251,612 ----------- ----------- Revenues, as reported $93,512,540 $78,989,742 =========== =========== 7 PMT SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Three month period ended October 31, ------------------------ 1997 1996 ---------- ---------- Net Income PMT $4,914,588 $3,410,384 BCI 850,847 774,398 Other(1) -- 381,160 ---------- ---------- Net Income, as reported $5,765,435 $4,565,942 Tax effect of Subchapter S corporations (319,068) (433,334) ---------- ---------- Pro forma net income $5,446,367 $4,132,608 ========== ========== Earnings per share As reported $ 0.12 $ 0.10 Pro forma $ 0.12 $ 0.09 (1) Includes fiscal 1997 operating business acquisitions which were also Subchapter S corporations (Fairway Marketing Group, Inc., Retail Payment Services, Inc. and Erik Krueger, Incorporated). ASSET PURCHASES The Company purchases merchant portfolios which provide the Company the right to service specific merchants under contract to processing banks for electronic authorization and payment processing. In conjunction with the purchase of merchant portfolios, the Company may enter into a noncompetition agreement with the sellers of the portfolios. In such cases, a portion of the purchase price of each merchant portfolio is allocated to the related noncompetition agreement. NOTE 3 - 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 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 May 1, 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. 8 PMT SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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. 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 per merchant. 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. 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 substantially all 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. 9 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, including sale and leasing of related equipment, to retail merchants located throughout the United States. The Company's principal sources of revenues are discount collected and merchant service fees. The remaining revenues consist of point-of- sale processing equipment leases, 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" and related fees, 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. Revenue related to finance leasing of point-of-sale processing equipment are recognized over the term of the lease agreement using the interest method. Acquisitions In the first quarter of fiscal 1997, the Company completed one operating business acquisition and two merchant portfolio acquisitions. On August 2, 1996, the Company consummated an acquisition pursuant to which it issued 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 operating results of the other two merchant portfolio acquisitions were accounted for as purchase transactions and have been included in the Company's financial statements beginning August 1, 1996, the effective date of the purchases. 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 expire September 16, 2006. In the second quarter of fiscal 1997, the Company consummated three operating business acquisitions accounted for as poolings of interests and two merchant portfolio acquisitions. On December 23, 1996 the Company consummated an acquisition pursuant to which it issued 424,999 10 shares of its common stock in exchange for all the outstanding common stock of Fairway Marketing Group, Inc. ("Fairway"). On January 27, 1997, the Company consummated an acquisition pursuant to which it issued 3,131,250 shares of its common stock in exchange for all the outstanding common stock of Bancard Systems, Inc. ("BSI"). On January 30, 1997 the Company consummated an acquisition pursuant to which it issued 567,519 shares of its common stock in exchange for all the outstanding common stock of Retail Payment Services, Inc. ("RPS"). The above referenced shares were issued to the shareholders of Fairway, BSI and RPS in reliance upon the exemption provided by Section 4(2) of the Act. The Company's consolidated financial statements have been restated to include the accounts of Fairway, BSI and RPS for all periods prior to the merger. The other two merchant portfolio acquisitions were accounted for as purchase transactions and their operating results have been included in the Company's financial statements beginning November 1, 1996 and December 1, 1996, the effective dates of the transactions. In the third quarter of fiscal 1997, the Company consummated one operating business acquisition and three merchant portfolio acquisitions. On March 31, 1997 the Company consummated an acquisition pursuant to which it issued shares of its common stock in exchange for all the outstanding common stock of IMA Bancard, Inc. ("IMA"). The shares were issued to the shareholders of IMA in reliance upon the exemption provided by Section 4(2) of the Act. The acquisition was accounted for as an immaterial pooling of interests. The other three merchant portfolio acquisitions were accounted for as purchase transactions and their operating results have been included in the Company's financial statements beginning March 1, 1997 and April 1, 1997, the effective dates of the transactions. In the fourth quarter of fiscal 1997, the Company consummated three operating business acquisitions and one merchant portfolio acquisition. On April 30, 1997 the Company consummated an acquisition pursuant to which it issued shares of its common stock in exchange for all the outstanding common stock of CVE, Inc. ("CVE"). The acquisition was accounted for as an immaterial pooling of interests. On June 3, 1997 the Company consummated an acquisition pursuant to which it issued 579,000 shares of its common stock in exchange for all the outstanding common stock of Erik Krueger, Incorporated ("Krueger"). On July 14, 1997 the Company consummated an acquisition pursuant to which it issued 1,463, 414 shares of its common stock in exchange for all the outstanding common stock of Ladco Financial Group ("LFG"). The Company's consolidated financial statements have been restated to include the accounts of Krueger and LFG for all periods prior to the merger. The above referenced shares were issued to the shareholders of CVE, Krueger and LFG in reliance upon the exemption provided by Section 4(2) of the Act. The other acquisition was accounted for as a purchase transaction and the operating results have been included in the Company's financial statements beginning July 1, 1997, the effective date of the transaction. In the first quarter of fiscal 1998, the Company consummated two operating business acquisitions. On September 17, 1997 the Company consummated an acquisition pursuant to which it issued shares of its common stock in exchange for all the outstanding common stock of Retail Systems Consulting, Inc. ("RSC"). The acquisition was accounted for as an immaterial pooling of interests. On October 2, 1997 the Company consummated an acquisition pursuant to which it issued 3,870,965 shares of its common stock in exchange for all the outstanding common stock of Bancard, Inc. ("BCI"). The Company's consolidated financial statements have been restated to include the accounts of BCI for all periods prior to the merger. The above referenced shares were issued to the shareholders of RSC and BCI in reliance upon the exemption provided by Section 4(2) of the Act. 11 The growth in the Company's revenues and profitability from fiscal 1997 has resulted largely from the acquisition of operating businesses and merchant portfolios. Future growth is dependent upon, among other factors, the Company's ability to continue to consummate additional acquisitions of operating businesses and merchant portfolios. There can be no assurance that the Company will be able to make successful 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:
Three Month Period Percentage/Increase Ended October 31, (Decrease) ------------------------- ---------- 1997 1996 ------ ------ Revenues 100.0% 100.0% 18.4% Cost of revenues 72.1 73.2 16.6 ----- ----- Gross margin 27.9 26.8 23.3 Selling, general and administrative expenses 13.3 12.7 24.0 Depreciation and amortization expense 4.1 3.7 32.2 Provision for merchant losses and bad debt expense 1.2 1.2 20.9 Nonrecurring operating expense -- 0.6 (100.0) ----- ----- Income from operations 9.3 8.6 27.2 Interest income, net 0.5 0.1 392.6 Other expense, net (0.5) (0.1) 252.2 ----- ----- Income before provision for taxes 9.3 8.6 28.5 Provision for income taxes 3.1 2.8 33.2 ----- ----- Net Income 6.2% 5.8% 26.3% ===== =====
Revenues Revenues for the first quarter of fiscal 1998 increased to $93.5 million, an increase of 18.4% 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 acquisitions and new merchant contracts generated through the Company's field sales and telemarketing efforts, as well as revenue enhancements with existing merchants. Merchant portfolio purchases accounted for 59.9% of the increase in revenues in the first quarter of fiscal 1998. Cost of Revenues Cost of revenues increased from $57.8 million in the first quarter of fiscal 1997 to $67.4 million in the first quarter of fiscal 1998. Cost decreased as a percentage of revenues for the three month period ended October 31, 1997 by 1.1 percentage points. In the first quarter of fiscal 1998, cost of revenues as a percentage of revenues decreased from first quarter of fiscal 1997 primarily as a result of negotiated price reductions from major vendors and revenue enhancement programs. These benefits received were partially offset by the higher cost of revenues from purchased bank portfolios and LFG's decline in revenues as a percentage of the Company's total consolidated revenues. 12 Selling, General and Administrative Expenses Selling, general and administrative expenses were $12.4 million in the first quarter of fiscal 1998 and $10.0 million for the first quarter of fiscal 1997. As a percentage of revenues, selling, general and administrative expenses have increased for the first quarter of fiscal 1998 by 0.6 percentage points when compared to the same period in fiscal 1997. The increase in selling, general and administrative expenses as a percentage of revenues includes expenses incurred to relocate and expand the corporate headquarters and customer service center in Nashville, Tennessee and increased expenses from recently acquired operating businesses. Depreciation and Amortization Depreciation and amortization expense increased from $2.9 million for the quarter ended October 31, 1996 to $3.8 million for the quarter ended October 31, 1997 which represents a 32.2% increase. The increase in depreciation and amortization was primarily the result of additional expenditures related to the Company's management information systems and new corporate headquarters and purchased merchant portfolios. Provision for Merchant Losses and Bad Debt Expense The provision for merchant losses and bad debt expense increased from $1.0 million in the first quarter of fiscal 1997 to $1.2 million in the first quarter of fiscal 1998. As a percentage of revenues, provision for merchant loss and bad debt expense has remained relatively consistent. Non-recurring Operating Expense In the first quarter of fiscal 1997, the Company incurred nonrecurring duplicative net costs of approximately $466,000. These net costs relate to a sales force included in a merchant portfolio acquisition. Interest Income, Net For the first quarter of fiscal 1998, the Company recognized approximately $505,000 net interest income. Interest expense of PMT's LFG operating business has declined in the first quarter of fiscal 1998 as compared to the first quarter of fiscal 1997 as a result of refinancing certain debts with more favorable interest rates. Other Expense In the first quarter of fiscal 1998, the Company incurred other expenses of approximately $443,000. For the same quarter in fiscal 1997, the Company incurred other expenses of approximately $126,000. The Company has included in this line item all non-recurring transaction costs such as legal and accounting fees related to acquisitions of operating businesses, which were accounted for as poolings of interests. 13 Income Tax Income tax expense increased in the first quarter of fiscal 1998 in relation to the comparable period in fiscal 1997, principally as a result of the Company's increased profitability in fiscal 1998. For the three months ended October 31, 1997, the income tax expense of $2.9 million represented an effective income tax rate of 33.8% as compared to the income tax expense of $2.2 million (32.7% effective income tax rate) in the first three months of fiscal 1997. These effective tax rates are below the expected effective tax rate for fiscal 1998 due to the impact of certain acquired entities which were Subchapter S corporations prior to the effective dates of the mergers. Liquidity and Capital Resources The Company's cash flow is generated by collecting monthly revenues from the merchants. Payments to suppliers and vendors are typically paid within 30 days, except for interchange which is paid daily to the card-issuing banks. Historically, the Company's primary uses of its capital resources have included debt service, acquisitions of merchant portfolios, capital expenditures and working capital. The Company's management invests excess cash in overnight investments and U.S. Government Treasury notes and bills. The Company expects that cash generated from operations and the excess cash on hand will be adequate to meet the Company's immediate cash needs. In addition, on January 31, 1997 the Company amended and restated its credit facility with First Union National Bank of Tennessee to provide a $20.0 million revolving line of credit of which there was no outstanding balance at October 31, 1997. The Company has an additional revolving line of credit, through its LFG facility, having an aggregate available balance of $3.0 million. The facility bears interest at a variable rate based on the prime rate. There was no outstanding balance at October 31, 1997 under the LFG facility. Working Capital Net cash flow provided by operating activities was $8.1 million for the first three months of fiscal 1998 as compared to net cash flow provided by operating activities of $7.7 million for the first three months of fiscal 1997. The increase in cash flow from operating activities resulted from increases in net income which has been achieved principally through acquisitions of operating businesses and merchant portfolios and internal generation of new merchant accounts. The effect of the net income increase is partially offset by increases in working capital needs. Capital Expenditures and Investing Activities Cash provided by investing activities was approximately $2.2 million for the three month period ended October 31, 1997 as compared to cash used in investing activities of $18.3 million for the same period in fiscal 1997. Capital expenditures were approximately $8.1 million for the first quarter of fiscal 1998 as compared to $7.2 million for the first quarter of fiscal 1997. The overall increase in capital expenditures primarily resulted from additional expenditures related to the Company's management information systems, the relocation of the corporate headquarters, the purchase of additional credit card terminals and the purchase of peripheral equipment for operating and financing leases to merchants. In addition to the increase in capital expenditures, the Company used $3.0 million and $14.2 million for the purchase of merchant portfolios and agents' residual rights in the three month periods ended October 31, 1997 and 1996, respectively. 14 Financing Activities Net cash provided by financing activities for the first three months of fiscal 1997 was approximately $500,000, as compared to cash used by financing activities of $6.5 million for the same period in fiscal 1998. The overall increase of net cash used by financing activities for the first three months of fiscal 1998 reflects the issuance of $3.2 million in additional funds on a note receivable and payments to decrease the Company's indebtedness. 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 bank borrowings. Management believes that the combination of these sources will be sufficient to meet the Company's anticipated liquidity needs and its growth plans through fiscal 1998. The Company, however, may pursue additional expansion opportunities, including acquisitions of operating businesses 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. The Company's revolving credit facility with First Union National Bank of Tennessee was amended and restated during fiscal 1997 to increase the facility to $20.0 million of which there was no outstanding balance at October 31, 1997. The current amendment expires January 31, 1998. Borrowings, if any, under the new credit facility will be used to finance future purchases of merchant portfolios and equipment and for working capital purposes. The Company has developed a plan to ensure its systems are compliant with the requirements to process transactions in the year 2000. The majority of the Company's internal information systems are in the process of being replaced with fully-compliant new systems. The total cost of the software and implementation is estimated to be $900,000 which will be capitalized as incurred. This new system implementation is expected to be completed by July 1, 1999. Each of the Company's merchants utilize equipment to capture and transmit financial transactions. The Company is in the process of completing all necessary updates to this equipment to ensure it will continue to be effective in the year 2000. The total future costs of this transition is estimated to be less than $300,000. The Company is also working with its processing banks and network providers to ensure their systems are year 2000 compliant. All of these costs will be borne by the processors and network companies. In the event some of the processors are unable to convert their systems appropriately, the Company will switch merchant accounts to those that are able to perform the processing. This report contains certain forward-looking statements. Specifically, the forward-looking statements relate to future growth through portfolio acquisitions, the availability of capital to support such acquisitions and the Company's year 2000 compliance program. The ability of the Company to 15 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. In addition, in reference to the year 2000 compliance program, there is no assurance that the Company will be able to move the merchant accounts efficiently or in a cost effective manner. Results actually achieved thus may differ materially from the expectations expressed in such statements. 16 PART II. OTHER INFORMATION Item 2. Changes in Securities On September 17, 1997 the Company consummated an acquisition pursuant to which it issued 232,726 shares of its common stock in exchange for all the outstanding common stock of Retail Systems Consulting, Inc. ("RSC"). On October 2, 1997 the Company consummated an acquisition pursuant to which it issued 3,870,965 shares of its common stock in exchange for all the outstanding common stock of Bancard, Inc. ("BCI"). The above referenced shares were issued to the shareholders of RSC and BCI in reliance upon the exemption provided by Section 4(2) of the Act. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.0 Financial Data Schedule (b) Reports on Form 8-K The Company filed a current Report on Form 8-K/A dated September 16, 1997, amending a Current Report on Form 8-K dated July 18, 1997 which discussed a business combination requiring retroactive effect in the consolidated financial statements. The Company filed a current Report on Form 8-K dated October 10, 1997 discussing a business combination requiring retroactive effect in the consolidated financial statements (as amended by Form 8-K/A filed October 14, 1997). 17 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 15, 1997 18 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF PMT SERVICES, INC. FOR THE QUARTER ENDED OCTOBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS JUL-31-1998 AUG-01-1997 OCT-31-1997 27,649,364 39,123,124 29,271,564 0 2,491,529 102,333,109 11,265,111 5,757,959 254,053,690 29,855,923 0 0 0 459,727 171,292,621 254,053,690 93,512,540 93,512,540 67,425,351 67,425,351 0 1,186,337 710,648 8,714,188 2,948,753 5,765,435 0 0 0 5,765,435 0.12 0
-----END PRIVACY-ENHANCED MESSAGE-----