-----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, PdfRcZfmBqNfkVe/O2yZUP4X+p7zWrDGAbntjlee0F6mngY4+CpxDapq6ChL+Jy3 et6bTnPq8WwTMmVpEjYH2Q== 0000950116-99-001112.txt : 19990624 0000950116-99-001112.hdr.sgml : 19990624 ACCESSION NUMBER: 0000950116-99-001112 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990331 ITEM INFORMATION: FILED AS OF DATE: 19990528 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NCO GROUP INC CENTRAL INDEX KEY: 0001022608 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-CONSUMER CREDIT REPORTING, COLLECTION AGENCIES [7320] IRS NUMBER: 232858652 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-21639 FILM NUMBER: 99636462 BUSINESS ADDRESS: STREET 1: 515 PENNSYLVANIA AVE CITY: FT WASHINGTON STATE: PA ZIP: 19034 BUSINESS PHONE: 2157939300 8-K/A 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 --------------------- Date of Report (Date of earliest event reported): March 31, 1999 NCO GROUP, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Pennsylvania 0-21639 23-2858652 - ----------------------------- ------------------------ ---------------------- (State or other jurisdiction (Commission File Number) (I.R.S. Employee of incorporation or Identification Number) organization) 515 Pennsylvania Avenue Fort Washington, Pennsylvania 19034 ------------------------------------ (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (215) 793-9300 ================================================================================ NCO Group, Inc. ("NCO") is amending Item 7(a) and Item 7(b) of its Current Report on Form 8-K filed with the Securities and Exchange Commission on April 15, 1999 to supply certain financial statements and pro forma financial information. NCO is also adding Item 5 to provide certain information concerning the results of operations of NCO during the month of April 1999 which reports the post-merger combined operations of JDR Holdings, Inc. ("JDR") and NCO. Item 5. Other Events. ------------- As previously reported, on March 31, 1999, NCO acquired JDR by the merger of JDR Acquisition Inc. ("Newco"), a wholly-owned subsidiary of NCO, into JDR, with JDR becoming a wholly-owned subsidiary of NCO. Pursuant to the Amended and Restated Agreement and Plan of Reorganization dated as of November 1, 1998 by and among NCO, JDR and Newco, NCO is required to publish financial results covering at least 30 days of post-merger combined operations of NCO and JDR. The combined operations of NCO and JDR for April 1999 resulted in revenue, income from operations, and net income of $33.2 million, $5.0 million, and $2.4 million, respectively. Item 7. Financial Statements and Exhibits. ---------------------------------- The following exhibits are being filed as part of this report: (a) Financial Statements of Businesses Acquired. Report of Independent Public Accountants Consolidated Balance Sheets as of December 31, 1997 and 1998 Consolidated Statements of Operations for the period from May 29, 1997 to December 31, 1997 and for the year ended December 31, 1998 Consolidated Statements of Redeemable Preferred and Common Stock and Stockholders' Equity (Deficit) for the period from May 29, 1997 to December 31, 1997 and for the year ended December 31, 1998 Consolidated Statements of Cash Flows for the period from May 29, 1997 to December 31, 1997 and for the year ended December 31, 1998 Notes to Consolidated Financial Statements Consolidated Balance Sheet as of March 31, 1999 (unaudited) Consolidated Statements of Operations for the three months ended March 31, 1997 and 1998 (unaudited) Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1998 (unaudited) (b) Pro Forma Financial Information. It is impracticable to provide the required pro forma financial statements for the acquired business at this time. The required pro forma financial information will be filed as an amendment to this Form 8-K as soon as practicable, but not later than June 14, 1999. 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. NCO GROUP, INC. By: /s/ Steven L. Winokur -------------------------------- Steven L. Winokur Executive Vice President and CFO Date: May 27, 1999 -3- JDR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 TOGETHER WITH AUDITORS' REPORT REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To JDR Holdings, Inc.: We have audited the accompanying consolidated balance sheets of JDR Holdings, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1998, and the related consolidated statements of operations, redeemable preferred and common stock and stockholders' equity (deficit), and cash flows for the period from May 29, 1997 to December 31, 1997 and for the year ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of JDR Holdings, Inc. and subsidiaries as of December 31, 1997 and 1998, and the results of their operations and their cash flows for the period from May 29, 1997 to December 31, 1997 and for the year ended December 31, 1998 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Philadelphia, Pa., January 29, 1999 JDR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31 -------------------------------------- 1997 1998 ------------ ------------ ASSETS CURRENT ASSETS: Cash $ 839,753 $ 2,451,996 Cash held for clients 120,056 249,043 Accounts receivable, net of allowance for doubtful accounts of $266,971 and $623,615, respectively 4,651,718 8,491,035 Prepaid expenses and other 437,717 409,546 ------------ ------------ Total current assets 6,049,244 11,601,620 PROPERTY AND EQUIPMENT, net 4,482,262 4,457,861 GOODWILL, net 18,738,037 18,108,773 DEBT ISSUANCE COSTS, net 557,192 394,112 OTHER ASSETS 149,233 582,753 ------------ ------------ $ 29,975,968 $ 35,145,119 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Collections held in trust $ 120,056 $ 249,043 Current portion of long-term debt 802,814 402,217 Accounts payable 2,059,426 1,754,734 Accrued expenses and other 1,256,541 3,390,868 ------------ ------------ Total current liabilities 4,238,837 5,796,862 ------------ ------------ LONG-TERM DEBT 13,526,284 13,066,480 ------------ ------------ DEFERRED INCOME TAXES 686,677 453,418 ------------ ------------ REDEEMABLE PREFERRED STOCK (Note 10) 6,521,275 11,880,936 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 12) STOCKHOLDERS' EQUITY: Preferred stock (Note 10) 1,745,894 1,853,028 Common stock (Note 10) 6 6 Additional paid-in capital 7,590,278 8,276,688 Accumulated deficit (4,099,417) (2,074,025) Treasury stock, at cost (Note 10) (233,866) (4,108,274) ------------ ------------ Total stockholders' equity 5,002,895 3,947,423 ------------ ------------ $ 29,975,968 $ 35,145,119 ============ ============
The accompanying notes are an integral part of these statements. JDR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Period from May 29, For the Year 1997 to Ended December 31, December 31, 1997 1998 ------------ ------------ REVENUES $ 22,788,523 $ 50,976,251 ------------ ------------ OPERATING EXPENSES: Compensation and benefits 14,447,344 27,113,256 Telephone 2,066,431 3,951,479 Occupancy 1,146,251 2,462,965 Postage and supplies 690,545 1,117,920 Depreciation and amortization 1,194,565 1,994,883 Other operating expenses 4,521,349 6,850,154 ------------ ------------ Total operating expenses 24,066,485 43,490,657 ------------ ------------ Operating income (loss) (1,277,962) 7,485,594 INTEREST EXPENSE 1,184,672 1,381,817 ------------ ------------ Income (loss) before income taxes (2,462,634) 6,103,777 INCOME TAXES 20,267 2,474,694 ------------ ------------ NET INCOME (LOSS) (2,482,901) 3,629,083 ACCRETION OF PREFERRED STOCK TO REDEMPTION VALUE (1,616,516) (1,603,691) ------------ ------------ NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ (4,099,417) $ 2,025,392 ============ ============
The accompanying notes are an integral part of these statements. JDR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED AND COMMON STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Stockholders' Equity (Deficit) ------------------------------------------------------- Redeemable Redeemable Additional Preferred Common Preferred Common Paid-In Accumulated Stock Stock Stock Stock Capital Deficit ------------ ------------ ----------- ------------ -------------- -------------- BALANCE, MAY 29, 1997 $ 948,521 $ 3,297,000 $ -- $ 2 $ 14,165 $ (2,093,817) Redemption of Series A and Series B Redeemable Preferred, including payment of accumulated dividends, for cash and preferred stock (802,391) -- -- -- -- -- Exercise of Voting Common options -- -- -- -- 260 -- Conversion of Voting Common to Series B Preferred 10,588 -- -- -- (10,588) -- Redemption of Voting Common -- (3,297,000) -- -- (1,326,979) -- Adjustment to record new basis of -- -- -- -- 6,707,901 -- accounting Reset of equity accounts -- -- -- -- (8,520,977) 2,093,817 ------------ ------------ ----------- ------------ -------------- ------------ ADJUSTED BALANCE, MAY 29, 1997 156,718 -- -- 2 (3,136,218) -- Issuance of Series C Preferred, Voting Common and Nonvoting Common in connection with acquisitions -- -- 1,686,200 4 16,799,055 -- Reclass of carryover basis adjustment -- -- -- -- (11,065,247) -- Conversion of loan into and sale of Preferred stock 8,933,853 -- -- -- -- -- Issuance of warrants in conjunction with the issuances of Preferred stock and (4,126,118) -- -- -- 4,574,440 -- debt Exercise of Nonvoting Common options -- -- -- -- 418,248 -- Redemption of Nonvoting Common -- -- -- -- -- -- Redemption of Nonvoting Common and issuance of Nonvoting Common in private placement -- -- -- -- -- -- Accretion of Preferred to redemption value 1,556,822 -- 59,694 -- -- (1,616,516) Net loss -- -- -- -- -- (2,482,901) ------------ ------------ ----------- ------------ -------------- ------------ -- BALANCE, DECEMBER 31, 1997 6,521,275 1,745,894 6 7,590,278 (4,099,417) Exercise of Voting and Nonvoting Common conversion option 3,863,104 -- -- -- -- -- Accretion of Preferred to redemption value 1,496,557 -- 107,134 -- -- (1,603,691) Common stock options granted to -- -- -- -- 686,410 -- consultant Redemption of Nonvoting Common -- -- -- -- -- -- Net income -- -- -- -- -- 3,629,083 ------------ ------------ ----------- ------------ -------------- ------------ BALANCE, DECEMBER 31, 1998 $ 11,880,941 $ -- $ 1,853,028 $ 6 $ 8,276,688 $ (2,074,025) ============ ============ =========== ============ ============== ============
Stockholders' Equity (Deficit) --------------------------------------- Carryover Basis Treasury Adjustment Stock Total ------------- ------------ ---------- BALANCE, MAY 29, 1997 $ (6,427,160) $ -- $(8,506,810) Redemption of Series A and Series B Redeemable Preferred, including payment of accumulated dividends, for cash and preferred stock -- -- -- Exercise of Voting Common options -- -- 260 Conversion of Voting Common to Series B Preferred -- -- (10,588) Redemption of Voting Common -- -- (1,326,979) Adjustment to record new basis of -- -- 6,707,901 accounting Reset of equity accounts 6,427,160 -- -- ------------- ------------ ----------- ADJUSTED BALANCE, MAY 29, 1997 -- -- (3,136,216) Issuance of Series C Preferred, Voting Common and Nonvoting Common in connection with acquisitions (11,065,247) -- 7,420,012 Reclass of carryover basis adjustment 11,065,247 -- -- Conversion of loan into and sale of Preferred stock -- -- -- Issuance of warrants in conjunction with the issuances of Preferred stock and -- -- 4,574,440 debt Exercise of Nonvoting Common options -- -- 418,248 Redemption of Nonvoting Common -- (418,248) (418,248) Redemption of Nonvoting Common and issuance of Nonvoting Common in private placement -- 184,382 184,382 Accretion of Preferred to redemption value -- -- (1,556,822) Net loss -- -- (2,482,901) ------------- ------------ ------------ BALANCE, DECEMBER 31, 1997 -- (233,866) 5,002,895 Exercise of Voting and Nonvoting Common conversion option -- (3,863,104) (3,863,104) Accretion of Preferred to redemption value -- -- (1,496,557) Common stock options granted to -- -- 686,410 consultant Redemption of Nonvoting Common -- (11,304) (11,304) Net income -- -- 3,629,083 ------------- ------------ ------------ BALANCE, DECEMBER 31, 1998 $ -- $ (4,108,274) $ 3,947,423 ============= ============ ===========
The accompanying notes are an integral part of these statements. JDR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Period from May 29, 1997 to For the Year Ended December 31, December 31, 1997 1998 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (2,482,901) $ 3,629,083 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities- Depreciation and amortization 1,194,565 1,994,883 Deferred income taxes 18,773 (233,259) Compensation expense on stock options granted 417,500 686,410 Changes in operating assets and liabilities-- Accounts receivable, net (516,557) (3,839,317) Prepaid expenses and other (183,623) (242,269) Accounts payable 229,395 (304,692) Accrued expenses and other (39,530) 2,134,327 ------------ ------------ Net cash provided by (used in) operating activities (1,362,378) 3,825,166 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,480,870) (1,341,218) Net cash acquired in acquisitions 451,126 -- ------------ ------------ Net cash used in investing activities (1,029,744) (1,341,218) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt 24,335,858 -- Payments of long-term debt (9,814,759) (413,479) Payments of notes payable to sellers (6,173,501) -- Payments under capitalized lease obligations (372,350) (446,922) Debt issuance costs (389,001) -- Proceeds from issuance of Preferred and Common stock and exercise of Common stock options 1,067,844 -- Redemption of Common stock (5,931,267) (11,304) Payment of dividends (187,792) -- ------------ ------------ Net cash provided by (used in) financing activities 2,535,032 (871,705) ------------ ------------ NET INCREASE IN CASH 142,910 1,612,243 CASH, BEGINNING OF PERIOD 696,843 839,753 ------------ ------------ CASH, END OF PERIOD $ 839,753 $ 2,451,996 ============ ============
The accompanying notes are an integral part of these statements. JDR HOLDINGS, INC. AND SUBSIDIARIES ----------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 1. BACKGROUND: JDR Holdings, Inc. (the "Company"), through its wholly owned subsidiaries, JDR Recovery Corporation ("JDR"), JDR Marketing, Inc. ("Marketing") and Nationwide Communications, Inc. ("NCI"), provides collection services of past due accounts receivable and other debts on behalf of clients in various industries, provides telemarketing and other telecommunication-based business services and sells telecommunications products and long-distance services. On May 29 and 30, 1997, the Company completed a series of transactions that substantially changed its size and capital structure. These transactions, which are described further below, and in Notes 3, 4, and 9, included the repayment of outstanding debt, the repurchase of all capital stock held by two former institutional investors, certain executive officers of the Company and an individual investor, the issuance of new preferred shares, the purchase of several companies that were previously partially owned by the Company's majority stockholder and President, and a recapitalization of the Company. After the repurchase of capital stock, the Company's President became the only holder of Voting Common ("Sole Stockholder"). At that point, the Sole Stockholder's basis in his investment was "pushed down" to the Company's books, as required by Staff Accounting Bulletin No. 54. This established a new basis of accounting for the Company on May 29, 1997 and the financial statements, therefore, include the period from that date to the Company's fiscal year end, December 31, 1997. This accounting resulted in the Company recording goodwill of $6,707,901, which represented the difference between the Company's net book value at May 29, 1997 and the Sole Stockholder's accounting basis. This goodwill is being amortized over 40 years on a straight-line basis. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation The accompanying financial statements include the accounts of JDR Holdings, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. -1- Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition Commission income attributable to contingency fee-based collection services is recognized upon receipt of debtor payments. In some instances, the Company's commission percentage retroactively increases once certain collection thresholds are met. The Company does not recognize the retroactive commission income until the collection threshold is met. All other revenues, which include telemarketing and other telecommunications based business services and telecommunications products and long-distance services, and have no contingent aspect, are recognized as the services are performed. Property and Equipment Property and equipment are recorded at cost. Property and equipment capitalized under capital leases are recorded at the present value of the minimum lease payments due over the term of the lease. Depreciation and amortization are provided using the straight-line method over the estimated useful lives or the lease term, whichever is shorter. Expenditures for maintenance, repairs and betterments that do not substantially prolong the useful life of an asset are charged to operations as incurred. Additions and betterments that substantially extend the useful life of the asset are capitalized. Upon sale or other disposition of assets, the cost and related accumulated depreciation and amortization are removed from the respective accounts, and the resulting gain or loss, if any, is included in income. Debt Issuance Costs In connection with the $20,000,000 Revolving Credit Facility (see Note 9), the Company incurred debt issuance costs of $652,322, which are being amortized on a straight-line basis over the term of the Revolving Credit Facility. Accumulated amortization was $95,130 and $258,210 at December 31, 1997 and 1998, respectively. -2- Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income tax assets and liabilities are determined based on differences between the financial reporting and income tax basis of assets and liabilities measured using enacted income tax rates and laws that are expected to be in effect when the differences reverse. Goodwill Goodwill, representing the excess of cost over the fair value of the net tangible and identifiable intangible assets of acquired businesses (see Notes 1 and 3), is amortized on a straight-line basis over estimated lives of 25 and 40 years. At December 31, 1997 and 1998, accumulated amortization related to goodwill was $367,078 and $996,342, respectively. The Company evaluates whether events and circumstances indicate that the remaining estimated useful life warrants revision or that the remaining balance of goodwill may not be fully recoverable. If the Company concludes it is necessary to evaluate goodwill for impairment, the Company will use, in part, an estimate of related undiscounted cash flows, as well as other qualitative and quantitative factors, as the basis to determine whether impairment has occurred. If such a determination indicates an impairment has occurred, the Company will utilize the valuation method, which measures fair value based on the best information available in the circumstances. The Company believes that there has been no impairment of goodwill as of December 31, 1998. Impairment of Long-Lived Assets The Company accounts for possible impairments of long-lived assets in accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets to be held and used by the Company be reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If changes in circumstances indicate that the carrying amount of an asset that an entity expects to hold and use may not be recoverable, future cash flows expected to result from the use of the asset and its disposition must be estimated. If the undiscounted value of the future cash flows is less than the carrying amount of the asset, an impairment will be recognized. Based on these evaluations, there were no adjustments to the carrying value of long-lived assets in 1997 or 1998. -3- Fair Value of Financial Instruments Cash, accounts receivable, accounts payable and accrued expenses are reflected in the financial statements at fair value due to the short-term nature of those instruments. The carrying amount of the long-term debt and capitalized lease obligations approximates fair value at the balance sheet dates. Carryover Basis Adjustment In November 1993, the Company acquired 100% of the Common stock of JDR from JDR's Sole Stockholder (the "Seller"). The acquisition was accounted for utilizing the purchase method of accounting. The Seller and JDR's management purchased 50.83% of the common stock of the Company at the date of the acquisition. As a result, in accordance with EITF Issue No. 88-16, "Basis in Leveraged Buyout Transactions", the entire excess of the consideration paid over the historical value of JDR's net assets at the date of the acquisition was treated as a carryover basis adjustment to the Company's stockholders' equity. In connection with redemption discussed in Note 1, the carryover basis has been eliminated as part of the recording of a new basis of accounting. 3. RECAPITALIZATION: On May 29, 1997, the Company amended and restated its certificate of incorporation to authorize the issuance of 55,000 shares of stock, consisting of (i) 30,000 shares of Common stock ("Common") consisting of 15,000 shares of Voting Common stock, $.001 par value ("Voting Common") and 15,000 shares of Nonvoting Common stock, $.001 par value ("Nonvoting Common"), (ii) 25,000 shares of Preferred stock ("Preferred"), $.001 par value, of which 2,875 shares were designated as Redeemable Series A Preferred stock, no par value ("Redeemable Series A"), 1,700 shares were designated as Convertible Series A Preferred stock, no par value ("Series A Preferred"), 625 were designated as Convertible Series B Preferred stock, no par value ("Series B Preferred") and 725 were designated as Convertible Series C Preferred stock, no par value ("Series C Preferred") (see Note 10). Also on May 29, 1997, the Company received a bridge loan of $11,008,900 (see Note 9), the proceeds of which were used to repay $5,397,530 of outstanding long-term debt, to pay debt issuance costs of $185,000 (see Note 9) and to repurchase for $5,426,370 all of the Voting Common held by shareholders other than the Sole Stockholder (see Note 1) and certain shares of Redeemable Series A and Series B Preferred stock. This transaction resulted in the push down of the Sole Stockholder's basis in his investment in the Company's stock onto the Company's books. The establishment of this new basis of accounting resulted in the Company recording an increase in equity of $6,707,901, which represented the difference between the Company's net book value at May 29, 1997 and the Sole Stockholder's accounting basis. The entire amount of the increase in equity was allocated to goodwill, which is being amortized over 40 years on a straight-line basis. -4- The repurchase and exchange of stock included the following:
Repurchase of 1,227.17 shares of Voting Common at $3,768 per share $ 4,623,979 Repurchase of 637.25 shares of Redeemable Series A and Series B Preferred stock at $1,000 per share (stated value), plus accrued dividends of $165,142 802,391 Exchange of 123.48 shares of Redeemable Series A and Series B Preferred stock, plus accrued dividends of $22,650 for 38.78 shares of Series A Preferred at $3,768 per share 146,130 Exchange of 396.16 shares of Voting Common stock for 396.16 shares of Nonvoting Common at $3,768 per share 1,492,731 Exchange of 2.81 shares of Voting Common for 2.81 shares of Series B Preferred at $3,768 per share 10,588 ------------ Total value of shares repurchased and exchanged $ 7,075,819 ============ On May 30, 1997, the Company issued Preferred stock to two new institutional investors (see Notes 9 and 10) as follows: Issued 1,871.02 shares of Redeemable Series A $ 7,050,004 Issued 116.36 shares of Series A Preferred 438,444 Issued 383.60 shares of Series B Preferred 1,445,405 ------------ $ 8,933,853 ============
All shares were valued at $3,768 per share. 4. ACQUISITIONS: On May 29, 1997, the Company acquired all of the outstanding common stock of Marketing, NCI, and BDW and Associates ("BDW") for aggregate consideration of $24,658,766, including $6,173,501 in notes payable to the Sellers, 2,826.34 shares of Nonvoting Common stock valued at $10,649,689 ($3,768 per share), 1,632 shares of Voting Common stock valued at $6,149,376 ($3,768 per share), and 447.51 shares of Convertible Series C Preferred stock valued at $1,686,200 ($3,768 per share). The Sole Stockholder of the Company was also a significant stockholder of Marketing, NCI, and BDW. Accordingly, the acquisitions were accounted for as transactions between companies under common control, and the Sole Stockholder's basis in Marketing, NCI, and BDW was retained, to the extent of his ownership in those companies. The acquisition of the remaining portions of those companies from independent parties was accounted for on the purchase method of accounting.
Marketing NCI BDW Total ----------------- ------------------ ----------------- ----------------- Purchase price $ 14,093,313 $ 5,644,542 $ 4,920,911 $ 24,658,766 Historical basis of net assets acquired 773,659 76,269 346,376 1,196,304 ----------------- ------------------ ----------------- ----------------- Excess purchase price 13,319,654 5,568,273 4,574,535 23,462,462 Sole Stockholder percentage ownership 45.00% 50.00% 50.00% ----------------- ------------------ ---------------- Carryover basis adjustment $ 5,993,844 $ 2,784,136 $ 2,287,267 $ 11,065,247 ================= ================== ================= ================= Purchase price $ 14,093,313 $ 5,644,542 $ 4,920,911 $ 24,658,766 Less- Carryover basis adjustment 5,993,844 2,784,136 2,287,267 11,065,247 ----------------- ------------------ ----------------- ----------------- Net purchase price to be allocated $ 8,099,469 $ 2,860,406 $ 2,633,644 $ 13,593,519 ================= ================== ================= ================= Cash $ 375,673 $ 10,697 $ 64,756 $ 451,126 Accounts receivable 1,535,489 263,757 600,363 2,399,609 Prepaid expenses and other 32,868 5,654 12,259 50,781 Property and equipment 1,078,333 29,395 55,646 1,163,374 Goodwill 7,325,809 2,784,137 2,287,268 12,397,214 Accounts payable (534,174) (64,703) (220,220) (819,097) Accrued expenses and other (871,536) (168,531) (166,428) (1,206,495) Debt (842,993) -- -- (842,993) ----------------- ------------------ ----------------- ----------------- $ 8,099,469 $ 2,860,406 $ 2,633,644 $ 13,593,519 ================= ================== ================= =================
The goodwill from the acquisitions of Marketing and NCI is being amortized on a straight-line basis over 25 years. The goodwill from the acquisition of BDW is being amortized on a straight-line basis over 40 years. 5. SUPPLEMENTAL CASH FLOW INFORMATION: For the period from May 29, 1997 to December 31, 1997 and the year ended December 31, 1998, the Company paid interest of $1,000,696 and $1,258,549, respectively, income taxes of $27,231 and $2,249,516, respectively, and financed equipment purchased under capitalized lease obligations of $967,185, and $0, respectively. -6- The following table shows the net assets that were acquired in 1997, as a result of the acquisitions discussed in Note 4: Assets (liabilities): Cash $ 451,126 Accounts receivable 2,399,609 Prepaid expenses and other 50,781 Property and equipment 1,163,374 Goodwill 12,397,214 Accounts payable (819,097) Accrued expenses and other (1,206,495) Debt (842,993) -------------- Net assets acquired 13,593,519 Plus- Carryover basis adjustment 11,065,247 Less- Preferred stock issued 1,686,200 Voting Common stock issued 6,149,376 Nonvoting Common stock issued 10,649,689 Notes payable to sellers 6,173,501 -------------- Net assets acquired in business acquisitions $ -- ============== 6. PROPERTY AND EQUIPMENT:
December 31 ------------------------------- Useful Life 1997 1998 ----------------- ------------- -------------- Computer equipment 5 years $ 2,554,821 $ 3,440,171 Furniture and other equipment 7 years 759,071 905,933 Telecommunications equipment 5 years 1,890,618 2,199,624 Leasehold improvements Lease Term 127,445 127,445 ------------- -------------- 5,331,955 6,673,173 Less-Accumulated depreciation and amortization (849,693) (2,215,312) ------------- -------------- $ 4,482,262 $ 4,457,861 ============= ==============
Depreciation and amortization expense was $849,693 and $1,365,619 for the period from May 29, 1997 to December 31, 1997 and the year ended December 31, 1998, respectively. At December 31, 1997 and 1998, the Company has property and equipment under capitalized leases of $1,498,505 and $947,079, respectively, net of accumulated depreciation of $244,657 and $471,308, respectively. Assets under capitalized leases are generally collateralized by the equipment under lease. -7- 7. ACCRUED EXPENSES AND OTHER: December 31 -------------------------------- 1997 1998 ------------- ---------------- Accrued compensation $ 729,148 $ 2,200,256 Accrued interest 247,219 207,497 Accrued taxes 33,553 458,552 Accrued other 246,621 524,563 ------------ ---------------- $ 1,256,541 $ 3,390,868 ============ ================ 8. INCOME TAXES: The provision for income taxes consists of the following: For the Period from May 29, For the Year 1997 to Ended December 31, December 31, 1997 1998 ---------------- --------------- Current: Federal $ (301,633) $ 1,988,967 State 767 718,986 --------------- --------------- (300,866) 2,707,953 --------------- --------------- Deferred: Federal -- (177,743) State 19,500 (55,516) --------------- --------------- 19,500 (233,259) --------------- --------------- Valuation allowance 301,633 -- --------------- --------------- $ 20,267 $ 2,474,694 =============== =============== Deferred taxes are determined based upon the estimated future tax effects of differences between the financial statement and income tax basis of assets and liabilities given the provisions of the enacted tax laws. -8- The reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows:
For the Period from May 29, For the Year 1997 to Ended December 31, December 31, 1997 1998 ----------- ------------ Statutory federal income tax rate (benefit) (34.0%) 34.0% State taxes, net of federal tax benefit 0.8 7.1 Nondeductible expenses -- 4.0 Utilization of net operating loss carryforward -- (4.6) Operating losses not tax benefited 34.0 -- ----------- ------------ 0.8% 40.5% =========== ============
The tax effect of temporary differences as established in accordance with SFAS No. 109 that give rise to deferred taxes at December 31, 1997 and 1998 are as follows:
December 31 ------------------------------------ 1997 1998 ----------------- ----------------- Deferred tax asset: Accruals not currently deductible $ 9,981 $ 277,008 Net operating loss carryforward 301,633 -- ---------------- ---------------- 311,614 277,008 ---------------- ----------------- Deferred tax liability: Depreciation and amortization (239,711) (355,194) Cash basis of accounting (456,947) (375,232) ---------------- ----------------- (696,658) (730,426) ---------------- ----------------- Net deferred tax asset (liability) (385,044) (453,418) Less valuation allowance (301,633) -- ---------------- ---------------- Net deferred tax liability $ (686,677) $ (453,418) ================ =================
-9- Due to the uncertain realization of the net operating loss carryforward, the Company had provided a full valuation allowance at December 31, 1997. In 1998, the Company has reversed this valuation allowance since the uncertainty has been eliminated due to operating profits. 9. LONG-TERM DEBT:
December 31 ------------------------------- 1997 1998 --------------- --------------- Revolving Credit Facility $ 12,913,479 $ 12,500,000 Capitalized lease obligations (see Note 12) 1,415,619 968,697 --------------- --------------- 14,329,098 13,468,697 Less- Current portion (802,814) (402,217) --------------- --------------- $ 13,526,284 $ 13,066,480 =============== ===============
Under the terms of the Revolving Credit Facility (the "Credit Facility") dated May 30, 1997, the Company can borrow up to the lessor of $20 million, less any outstanding letters of credit, or an amount equal to (i) Adjusted EBITDA times the Leverage Multiple, as defined, which ranges from 3.0 to 4.0, (ii) less outstanding Senior Debt and (iii) less any outstanding letters of credit. Advances under the Credit Facility bear interest at optional borrowing rates of either the then current prime rate plus a margin that ranges from 0.50% to 1.50 % or the LIBOR rate, plus a margin that ranges from 2.00% to 3.00%, depending on certain conditions specified in the Credit Facility agreement. The Company also pays a commitment fee of .375% on the unused borrowing capacity. The Credit Facility also makes available to the Company letters of credit, which can be issued, on the outstanding undrawn amount of the Credit Facility. The letters of credit cannot exceed $1 million and have a fee equal to 2.00% per year on the face amount of each letter of credit. Borrowings under the Credit Facility are secured by substantially all of the assets of the Company. The Credit Facility agreement also contains various financial and nonfinancial covenants and terminates on May 31, 2001. In connection with the Credit Facility, the lender purchased 126.42 shares of Redeemable Series A and 33.78 shares of Series B Preferred for $603,630 (see Note 3). On May 29, 1997, the Company entered into a Credit Agreement (hereinafter referred to as the "Bridge Loan") whereby the Company borrowed $11,008,900 to redeem Common stock owned by two stockholders (see Notes 1 and 3) and repay all outstanding indebtedness of the Company. Borrowings under the Bridge Loan bore interest at 10%. In connection with the Bridge Loan, the Company recorded debt issuance costs of $185,000, which were fully amortized upon conversion and repayment of the Bridge Loan. On May 30, 1997, $8,330,223 of borrowings under the Bridge Loan was converted into Preferred stock (see Notes 3 and 10) and $2,678,677 was repaid with borrowings under the Credit Facility. -10- 10. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY: Redeemable Preferred Stock
December 31 ------------------------------- 1997 1998 ------------- --------------- Redeemable Series A Preferred stock, no par value, 2,875 shares authorized, 1,871.02 shares issued and outstanding (liquidation value of $7,341,734 and $7,869,304, respectively $ 4,408,469 $ 5,393,171 Convertible Series A Preferred stock, no par value, 1,700 shares authorized, 155.14 and 1,111.11 shares issued and outstanding, respectively (liquidation value of $605,269 and $4,600,887, respectively) 605,269 4,600,887 Convertible Series B Preferred stock, no par value, 625 shares authorized, 386.41 and 455.68 shares issued and outstanding, respectively (liquidation value of $1,507,537 and $1,886,878, respectively) 1,507,537 1,886,878 ------------- --------------- $ 6,521,275 $ 11,880,936 ============= ===============
The Company issued 1,871.02 shares of Redeemable Series A, valued at $3,768 per share, to repay $6,573,657 of borrowings under the bridge loan (see Note 9) and for cash proceeds of $476,347. The Redeemable Series A requires a dividend (payable in kind) of 7% per year, payable quarterly in arrears. The holders of the Redeemable Series A may redeem these shares for their liquidation preference, plus accrued and unpaid dividends, beginning on May 30, 2003. The Company is obligated to redeem these shares on the earlier of an initial public offering or May 30, 2004. The Redeemable Series A has limited voting rights, is senior to the Series C Preferred and Common and has a liquidation value of $7,341,734 and $7,869,304, including dividends of $291,730 and $819,300, at December 31, 1997 and 1998, respectively. The Company issued 116.36 shares of Series A Preferred, valued at $3,768 per share, to repay $438,444 of borrowings under the bridge loan (see Note 9). In addition, the Company issued 38.78 shares of Series A Preferred in exchange for certain Redeemable Series A and Series B Preferred stock. The Series A Preferred requires a dividend (payable in kind) of 6% per year, payable quarterly in arrears. The holders of the Series A Preferred may convert their shares at any time into Voting Common at a conversion ratio of one-for-one. In addition, the holders of the Series A Preferred may redeem their shares for their liquidation preference, plus accrued but unpaid dividends, beginning on May 30, 2002. The -11- Series A Preferred has limited voting rights, is senior to the Series C Preferred and Common and has a liquidation value of $605,269 and $4,600,887, including dividends of $20,695 and $414,218, at December 31, 1997 and 1998, respectively. The Company issued 383.60 shares of Series B Preferred, valued at $3,768 per share, to repay $1,318,122 of borrowings under the bridge loan (see Note 9) and for cash proceeds of $127,283. The Series B Preferred requires a dividend (payable in kind) of 6% per year, payable quarterly in arrears. The holders of the Series B Preferred may convert their shares at any time into Nonvoting Common at a conversion ratio of one-for-one. In addition, the holders of the Series B Preferred may redeem these shares for their liquidation preference, plus accrued but unpaid dividends, beginning on May 30, 2002. The Series B Preferred has limited voting rights, is senior to the Series C Preferred and Common and has a liquidation value of $1,507,537 and $1,886,878, including dividends of $51,544 and $169,876, at December 31, 1997 and 1998, respectively. Stockholders' Equity Preferred Stock The Company issued 447.51 shares of Series C Preferred, valued at $3,768 per share, in consideration for the value of the Marketing accounts receivable balance at March 31, 1997 (see Note 4). At December 31, 1997 and 1998, the Company has 725 shares designated as Series C Preferred, of which 447.51 shares are issued and outstanding. The Series C Preferred requires a dividend (payable in kind) of 6% per year, payable quarterly in arrears. The Company may, at its option, redeem the Series C Preferred, at any time, for its liquidation value. The holders of the Series C Preferred may convert their shares at any time, after May 30, 2000 or at the time any shares of Series A Preferred or Series B Preferred are converted into common stock, into Nonvoting Common at a conversion ratio of one-for-one. The Series C Preferred has a liquidation value of $1,745,894 and $1,853,028, including dividends of $59,694 and $166,828, at December 31, 1997 and 1998, respectively. -12- Common Stock
Par Value at December 31 ------------------------- 1997 1998 --------- ----------- Voting Common stock, $.001 par value, 15,000 shares authorized, 3,044.86 and 2,088.89 shares issued and outstanding, respectively $ 3 $ 3 Nonvoting Common stock, $.001 par value, 15,000 shares authorized, 3,333.50 shares issued and 3,271.50 and 3,199.23 outstanding, respectively 3 3 --------- --------- $ 6 $ 6 ========= =========
As of December 31, 1997, a holder of 955.97 shares of Voting Common may convert its shares at any time into Series A Preferred at a conversion ratio of one-for-one. In addition, a holder of 69.27 shares of Nonvoting Common may convert its shares at any time into Series B Preferred at a conversion ratio of one-for-one. On July 7, 1998, under an agreement from May 1997, the holder of the Voting Common and the holder of the Nonvoting Common exercised their conversion right. The exercise of the conversion rights resulted in 955.97 shares of Voting Common and 69.27 shares of Nonvoting Common, with an aggregate value of $3,863,104, being recorded as treasury stock. Common Stock Warrants On May 30, 1997, the Company issued warrants to purchase 1,901.78 shares of Nonvoting Common stock at $0.01 per share in connection with the sale of Capital stock and the Revolving Credit Facility (see Note 9). The fair value of each warrant was estimated on the date of grant using the Black-Scholes pricing model, using the following assumptions: risk free interest rate of 6.5%, volatility of 0%, no expected dividend yield and an expected life of three years for the warrants. Using the Black-Scholes model, the warrants were valued at $7,165,891. The value was recorded proportionally to the relative fair value of the capital raised as follows: Voting and Nonvoting Common $ 2,591,451 ------------- Series A Redeemable Preferred 3,199,926 Series A and B Preferred 926,192 ------------- 4,126,118 ------------- Debt issuance costs 448,322 ------------- Total $ 7,165,891 ============= -13- The $926,192 value of the warrants which was allocated to the Series A and B Preferred stock was accreted to its liquidation value immediately because the Series A and B Preferred stock are convertible into Common stock at any time. The $3,199,926 value of the warrants which was allocated to the Redeemable Series A Preferred stock will be accreted on a straight-line basis to its liquidation value over seven years because the holders of the Redeemable Series A Preferred stock may redeem these shares beginning on May 30, 2003. The value allocated to debt issuance costs is being amortized on a straight-line basis over the four year term of the Revolving Credit Facility. Private Placement Offering In August 1997, the Company sold 123 shares of Nonvoting Common stock for $463,214 in a private placement. Treasury Stock The Company has 62 and 134.27 shares of Nonvoting Common stock and zero and 955.97 shares of Voting Common stock in Treasury at December 31, 1997 and 1998, respectively, valued at $3,768 per share. 11. STOCK OPTIONS: On June 11, 1997, the Company established the JDR Holdings, Inc. 1997 Stock Option Plan (the "Plan") for its employees, directors and certain other individuals. The Company may grant incentive or non-qualified stock options under the Plan. An aggregate of 211.23 shares of Nonvoting Common stock is reserved for the Plan. The Board of Directors administers the Plan and determines the terms of the option grants. Options vest as determined by the Board (generally ratably over five years) and expire no later than 10 years. Each option entitles the holder to purchase one share of Nonvoting Common stock at the indicated exercise price. The Company applies APB No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for the JDR Holdings, Inc. 1997 Stock Option Plan. All options granted under the Plan have been with exercise prices equal to, or in excess of, the fair market value of the stock on the date of grant. Accordingly, no compensation expense has been recognized for the grants under the Plan. Had compensation cost for the Plan been determined consistent with the methodology prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's loss would have been increased by approximately $36,000 and $36,000 for 1997 and 1998, respectively. The fair value of each option granted during 1997 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0%, expected volatility of 0%, risk-free interest rate of 6.6%, and an expected life of 10 years. The weighted average fair value on the date of grant for an option granted in 1997 was -14- $852. The weighted average remaining contractual life of the outstanding stock options at December 31, 1997 and 1998 is ten and nine years, respectively. The following table summarizes the stock option activity under the Plan:
Weighted Average Exercise Exercise Price Activity Price Per Share ------------- ------------------ --------------- Balance outstanding, May 29, 1997 -- -- -- Granted 211.23 $3,768 - $18,840 $ 8,793 Exercised -- -- -- Canceled -- -- -- ------------- ------------------ --------------- Balance outstanding, December 31, 1997 and December 31, 1998 211.23 $3,768 - $18,840 $ 8,793 ============= ================ ===============
No options were exercisable at December 31, 1997 and 14.08 options were exercisable at December 31, 1998. At December 31, 1997 and 1998, no shares were available for future grants under the Plan. No stock options were exercised under the Plan. For the period from May 29, 1997 to December 31, 1997, one senior executive exercised options to purchase 111 Voting Common shares at $6.67 per share and one stockholder and Director exercised options to purchase 39 Voting Common shares at $6.67 per share. These options were granted in November 1993. At December 31, 1997 and 1998, the Company had 111 options outstanding to purchase Nonvoting Common stock at $6.67 per share. These options were granted in November 1993 to a senior executive. On July 18, 1997, the Company entered into a consulting agreement for business development services to be provided to the Company from January 1, 1998 through December 31, 2001. The consultant will be paid $100,000 per year. In addition, the consultant received options to purchase shares of Nonvoting Common stock, equivalent to 7% of the outstanding equity of the Company on May 30, 1997, at $3,768 per share. The options vest 4% on January 1, 1998 and 1% on January 1, 1999, 2000 and 2001. The Company will record the $960,975 value as expense as the options vest. For the year ended December 31, 1998, the Company recorded $686,410 as consulting expense for these options. This consultant is also a Director of the Company. -15- 12. COMMITMENTS AND CONTINGENCIES: Employment Agreements The Company has entered into employment contracts with ten of its senior executives which expire in June 2001. The contracts provide for aggregate annual minimum compensation of approximately $1,640,000 plus bonuses based on performance incentives. Consulting Agreement The Company has entered into a consulting agreement for services to be provided to the Company from January 1, 1998 through December 31, 2001. The contract provides for annual minimum compensation of $100,000. Leases The Company leases office facilities, equipment, and automobiles under cancelable and noncancelable operating leases through August 31, 2005. Rent expense under operating leases for the period from May 29, 1997 to December 31, 1997 and the year ended December 31, 1998 was $959,416 and $2,444,900, respectively. Future aggregate minimum lease payments as of December 31, 1998 are as follows:
Operating Capital Leases Leases 1999 $ 3,135,554 $ 518,237 2000 2,336,531 343,869 2001 1,028,014 145,530 2002 1,673,801 90,874 2003 598,596 9,289 Thereafter 790,502 -- --------------- --------------- Total minimum lease payments $ 9,562,998 1,107,799 =============== Amount representing interest (139,102) --------------- Present value of minimum lease payments 968,697 Less- Current portion of principal payments 402,217 --------------- $ 566,480 ===============
-16- Litigation The Company is party to various claims and other matters arising in the ordinary course of business. In the opinion of management, the outcome of these matters will not have a material adverse effect on the Company's financial position or results of operations. 13. TRANSACTIONS WITH RELATED PARTIES: For the period from May 29, 1997 to December 31, 1997 and for the year ended December 31, 1998, revenues include $496,050 and $328,005 respectively, related to collection services provided to an affiliate of a stockholder and $91,061 and $68,608, respectively, related to telemarketing services provided to a company that is owned by two of the Company's senior executives. At December 31, 1997 and 1998, accounts receivable include $171,844 and $0, respectively, due from these two companies. The Company has an agreement with a stockholder to provide technical and management assistance to the Company. This agreement provides for an annual fee of $75,000. For the period May 29, 1997 to December 31, 1997 and for the year ended December 31, 1998, the Company has charged to expense $43,750 and $75,000, respectively, pursuant to this contract. 14. SIGNIFICANT CUSTOMERS: For the period from May 29, 1997 to December 31, 1997 and for the year ended December 31, 1998, the Company had one client which represented 24% and 26% of the Company's revenues, respectively. This client, operating in the travel and entertainment industry, also accounted for 9% and 13% of the Company's accounts receivable at December 31, 1997 and 1998, respectively. For the period from May 29, 1997 to December 31, 1997, the Company had two clients, operating in the retail industry, which in aggregate, accounted for 26% of the Company's revenues. At December 31, 1997, these two clients, in aggregate, accounted for 22% of the Company's accounts receivable. For the year ended December 31, 1998, only one of these clients accounted for more than 10% of the Company's revenues. At December 31, 1998, this client accounted for 12% of the Company's accounts receivable. At December 31, 1997, the Company had one client, operating in the banking industry, which accounted for 17% of the Company's accounts receivable and at December 31, 1998, the Company had another client, operating in the retail industry, which accounted for 16% of the Company's accounts receivable. In addition, the Company had one client, operating in the telecommunications industry, which accounted for 27% and 13% of the Company's accounts receivable at December 31, 1997 and 1998, respectively. The revenues from these three clients individually did not account for more than 10% of the Company's revenues for the period from May 29, 1997 to December 31, 1997 or for the year ended December 31, 1998. -17- 15. DEFINED CONTRIBUTION PLAN: The Company has a 401(k) plan (the "Plan") which allows eligible employees to contribute up to 15% of their compensation to the Plan, not to exceed Internal Revenue Code limitations. For the period from May 29, 1997 to December 31, 1997 and the year ended December 31, 1998, the Company contributed $41,069 and $100,250, respectively, to the Plan. 16. MERGER TRANSACTION: On November 1, 1998, the Company and NCO Group, Inc. ("NCO") entered into an Agreement and Plan of Reorganization, subject to shareholder approval, whereby NCO will acquire all of the outstanding capital stock of the Company in exchange for voting common stock of NCO in a combination which is expected to be accounted for as a pooling-of-interests. The Company has incurred approximately $438,030 in costs related to the Plan of Reorganization. These costs have been included in other assets in the accompanying consolidated balance sheet as of December 31, 1998. -18- JDR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, 1999 ------------ ASSETS CURRENT ASSETS: Cash $ 2,002,579 Cash held for clients 208,012 Accounts receivable, net of allowance for doubtful accounts of $639,625 8,773,036 Prepaid expenses and other 564,796 ------------ Total current assets 11,548,423 PROPERTY AND EQUIPMENT, net 4,985,442 GOODWILL, net 17,951,459 DEBT ISSUANCE COSTS, net 353,342 OTHER ASSETS 832,108 ------------ $ 35,670,774 ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Collections held in trust $ 208,012 Current portion of long-term debt 412,422 Accounts payable 1,038,041 Accrued expenses and other 3,817,388 ------------ Total current liabilities 5,475,863 ------------ LONG-TERM DEBT 12,949,672 ------------ DEFERRED INCOME TAXES 421,754 ------------ REDEEMABLE PREFERRED STOCK 12,230,253 ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock 1,880,823 Common stock 6 Additional paid-in capital 8,311,008 Accumulated deficit (1,490,331) Treasury stock, at cost (4,108,274) ------------ Total stockholders' equity 4,593,232 ------------ $ 35,670,774 ============
-19- JDR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended March 31, 1998 1999 ------------ ------------ REVENUES $ 12,997,232 $ 14,455,222 ------------ ------------ OPERATING EXPENSES: Compensation and benefits 6,644,131 8,014,968 Telephone 866,504 1,307,003 Occupancy 599,222 619,213 Postage and supplies 257,611 261,418 Depreciation and amortization 486,499 550,382 Other operating expenses 1,898,055 1,676,565 ------------ ------------ Total operating expenses 10,752,022 12,429,549 ------------ ------------ Operating income 2,245,210 2,025,673 INTEREST EXPENSE 361,386 259,216 ------------ ------------ Income before income taxes 1,883,824 1,766,457 INCOME TAXES 479,350 805,651 ------------ ------------ NET INCOME 1,404,474 960,806 ACCRETION OF PREFERRED STOCK TO REDEMPTION VALUE (300,644) (377,112) ------------ ------------ NET INCOME APPLICABLE TO COMMON STOCKHOLDERS $ 1,103,830 $ 583,694 ============ ============
-20- JDR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended March 31, 1998 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,404,474 $ 960,806 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 486,499 550,382 Deferred income taxes (364,854) (31,664) Compensation expense on stock options granted 583,449 34,320 Changes in operating assets and liabilities-- Accounts receivable, net (2,397,650) (282,001) Prepaid expenses and other 241,572 (404,605) Accounts payable (1,020,530) (716,693) Accrued expenses and other 1,579,045 426,520 ----------- ----------- Net cash provided by operating activities 512,005 537,065 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (196,495) (879,879) ----------- ----------- Net cash used in investing activities (196,495) (879,879) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt 279,102 -- Payments under capitalized lease obligations (114,122) (106,603) ----------- ----------- Net cash provided by (used in) financing activities 164,980 (106,603) ----------- ----------- NET INCREASE (DECREASE) IN CASH 480,490 (449,417) CASH, BEGINNING OF PERIOD 839,753 2,451,996 ----------- ----------- CASH, END OF PERIOD $ 1,320,243 $ 2,002,579 =========== ===========
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