0000076741-95-000022.txt : 19950821 0000076741-95-000022.hdr.sgml : 19950821 ACCESSION NUMBER: 0000076741-95-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950810 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAYCO AMERICAN CORP CENTRAL INDEX KEY: 0000076741 STANDARD INDUSTRIAL CLASSIFICATION: 7320 IRS NUMBER: 391133219 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05589 FILM NUMBER: 95560603 BUSINESS ADDRESS: STREET 1: 180 N EXECUTIVE DR CITY: BROOKFIELD STATE: WI ZIP: 53005 BUSINESS PHONE: 4147849035 10-Q 1 06/30/95Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1995, or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to --------------- COMMISSION FILE NUMBER 0-5589 --------------- PAYCO AMERICAN CORPORATION ---------------------------------------------------- (Exact name of registrant as specified in its charter) WISCONSIN ------------------------------------------------ (State or other jurisdiction of incorporation or organization) 180 North Executive Drive, Brookfield, Wisconsin ------------------------------------------------ (Address of principal executive offices) 39-1133219 ------------------------------------------ (IRS Employer Identification Number) 53005 --------- (Zip Code) (414) 784-9035 --------------------------------------------------- (Registrant's telephone number, including area 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- ---- The number of shares outstanding of each of the issuer's classes of common stock was 10,133,478 shares of common stock, par value $0.10, outstanding as at June 30, 1995. =============================================================================
PAYCO AMERICAN CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands of dollars except share & per share data) -------------------------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1995 1994 1995 1994 -------------------------------------------------------------------------------------------------------------- ASSETS LIABILITIES & SHAREHOLDERS' INVESTMENT CURRENT ASSETS: CURRENT LIABILITIES: Cash and Cash Equivalents $9,463 $10,867 Collections Due to Clients $21,753 $17,794 Cash and Cash Equivalents Accounts Payable 5,553 5,459 Held for Clients 21,753 17,794 Short-Term Borrowings 9,712 6,200 Obligations under Capital Accounts Receivable-Trade Leases 57 77 Net of Allowances 17,003 15,541 Accrued Liabilities- Salaries and Benefits 5,211 5,597 Accounts Receivable- Taxes, Other Than Income 1,209 1,101 Purchased 13,403 13,826 Other 1,111 1,698 Prepaid Expenses 1,470 1,054 Deferred Revenue 351 192 Accrued Income Taxes - 23 Deferred Income Taxes 707 743 Accrued Income Taxes 352 - ------------ --------- ------------ --------- Total Current Assets 63,799 59,848 Total Current Liabilities 45,309 38,118 PROPERTY AND EQUIPMENT: OTHER LONG-TERM LIABILITIES 857 942 Data Processing Equipment 38,530 33,105 Furniture and Equipment 12,113 11,334 Leasehold Improvements 3,380 2,998 LONG-TERM DEBT 334 334 Property Held under Capital Leases 634 634 OBLIGATIONS UNDER CAPITAL ------------ --------- LEASES 31 61 54,657 48,071 Less-Accumulated COMMITMENTS AND Amortization 36,951 34,463 CONTINGENCIES ------------ --------- SHAREHOLDERS' INVESTMENT: Net Property and Equipment 17,706 13,608 Preferred Stock, No Par Value- ACCOUNTS RECEIVABLE- Authorized 500,000 Shares, PURCHASED 944 4,164 None Issued - - Common Stock, OTHER LONG-TERM $.10 Par Value-Authorized RECEIVABLES 789 839 50,000,000 Shares, Issued & Outstanding, 10,133,478 & NON-COMPETE COVENANTS, NET 1,917 2,691 10,128,503 Shares, Respectively 1,013 1,013 GOODWILL, NET 11,725 5,939 Additional Paid-In Capital 1,622 1,586 DEFERRED INCOME TAXES 496 287 Stock Options Issuable 704 704 OTHER ASSETS 493 122 Retained Earnings 47,999 44,740 ------------ --------- Total Shareholders' Investment 51,338 48,043 ------------ --------- ------------ --------- $97,869 $87,498 $97,869 $87,498 ============ ========= ============ ========= ============================================================================================================== The accompanying notes are an integral part of these consolidated balance sheets.
2
PAYCO AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands of dollars except share & per share data) --------------------------------------------------------------------- For the three month period ended June 30, 1995 1994 --------------------------------------------------------------------- OPERATING REVENUE $ 42,873 $ 37,159 OPERATING EXPENSES: Salaries and Benefits 24,364 20,614 Telephone 2,662 2,738 Postage and Supplies 2,687 2,282 Occupancy Costs 2,265 2,171 Data Processing Equipment 1,953 1,788 Amortization of Acquisition Costs 3,109 2,280 Other Operating Costs 2,820 2,767 ----------- ----------- Total Operating Expenses 39,860 34,640 ----------- ----------- Income from Operations 3,013 2,519 OTHER INCOME, Primarily from Short-Term Investments 82 13 INTEREST EXPENSE 184 10 ----------- ----------- Income before Income Taxes 2,911 2,522 PROVISION FOR INCOME TAXES 1,290 1,122 ----------- ----------- NET INCOME $ 1,621 $ 1,400 =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,133,478 10,077,945 NET INCOME PER SHARE $0.16 $0.14 ====================================================================== The accompanying notes are an integral part of these consolidated statements.
3
PAYCO AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands of dollars except share & per share data) --------------------------------------------------------------------- For the six month period ended June 30, 1995 1994 --------------------------------------------------------------------- OPERATING REVENUE $ 85,741 $ 74,436 OPERATING EXPENSES: Salaries and Benefits 48,159 40,992 Telephone 5,217 5,275 Postage and Supplies 5,269 4,531 Occupancy Costs 4,591 4,299 Data Processing Equipment 3,752 3,534 Amortization of Acquisition Costs 7,246 5,467 Other Operating Costs 5,458 5,267 ----------- ----------- Total Operating Expenses 79,692 69,365 ----------- ----------- Income from Operations 6,049 5,071 ----------- ----------- OTHER INCOME, Primarily from Short-Term Investments 117 25 INTEREST EXPENSE 315 34 ----------- ----------- Income before Income Taxes 5,851 5,062 PROVISION FOR INCOME TAXES 2,592 2,252 ----------- ----------- NET INCOME $ 3,259 $ 2,810 =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,133,478 10,077,945 NET INCOME PER SHARE $0.32 $0.28 ====================================================================== The accompanying notes are an integral part of these consolidated statements.
4
PAYCO AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) ---------------------------------------------------------------------- For the six month period ended June 30, 1995 1994 ---------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 3,259 $ 2,810 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Amortization of Acquisition Costs 7,247 5,467 Depreciation and Amortization 2,499 2,187 Benefit of Deferred Income Taxes (173) (226) Changes in Assets and Liabilities: Accounts Receivable (1,462) (405) Prepaid Expenses (304) (513) Accounts Payable 94 632 Accrued Liabilities (950) (624) Deferred Revenue 159 141 Accrued Income Taxes 375 (412) ----------- ----------- Net Cash Provided by Operations 10,744 9,057 ----------- ----------- CASH FLOWS USED IN INVESTING ACTIVITIES: Capital Expenditures, Net of Retirements (5,422) (2,232) Purchase of Accounts Receivable (2,299) (4,904) Purchase of Other Businesses (7,975) (4,267) Long-Term Notes Receivable 50 (179) ----------- ----------- Net Cash Used In Investing Activities (15,646) (11,582) ----------- ----------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: Net Proceeds Under Line of Credit 3,512 (1,000) Payments Under Capital Lease Obligations (50) (61) Other Long-Term Debt - 25 Proceeds from Exercise of Stock Options 36 15 ----------- ----------- Net Cash Provided by Financing Activities 3,498 (1,021) ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents (1,404) (3,546) Cash and Cash Equivalents at Beginning of Period 10,867 14,014 ----------- ----------- Cash and Cash Equivalents at End of Period $ 9,463 $ 10,468 =========== =========== SUPPLEMENTAL CASH FLOWS INFORMATION: Cash Paid For: Income Taxes, Net of Refunds $ 2,391 $ 2,891 Interest 276 53 ====================================================================== The accompanying notes are an integral part of these consolidated statements.
5 PAYCO AMERICAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED June 30, 1995 I. ACCOUNTING POLICIES The information furnished in this report reflects all normal and recurring adjustments which are, in the opinion of management, necessary to form a fair statement of the results of the interim periods. This report should be read in conjunction with the 1994 Annual Report and Form 10-K. A. STATEMENT OF CASH FLOWS The following paragraph provides additional disclosure regarding cash flow as required under the indirect method of reporting. For purposes of the Statement of Cash Flows, the Company considers all highly liquid investments with a maturity of less than 90 days to be cash equivalents. B. TRADE ACCOUNTS RECEIVABLE Accounts Receivable-Trade is presented net of an allowance for doubtful accounts. The allowance was $367,000 and $555,000 for the period ended June 30, 1995 and December 31, 1994, respectively. C. SHORT-TERM BORROWING The Company maintains a short-term borrowing agreement with the Bank which provides the Company with an option to borrow under a line of credit or issue commercial paper up to $25.0 million. During the first half of 1995, interest rates on borrowed funds ranged from 6.05% to 7.40%. 6 PAYCO AMERICAN CORPORATION MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATIONS Effective May 1, 1995, The Company purchased certain assets of Grable, Greiner and Wolff (GGW). GGW is a leading provider of collection services to commercial credit grantors and is located in Beachwood, Ohio. Effective January 1, 1995, the Company purchased certain assets of Furst and Furst (F&F). F&F provides accounts receivable management services primarily to commercial clients through offices in Illinois, New Jersey and California. Effective February 1, 1995 the Company purchased the collection business of Continental Credit Adjustors (CCA). CCA is located in Houston, Texas and provides primarily medical and retail collection services to Texas clients. Accounts received for collection were $1.94 billion and $1.55 billion for the six months ended June 30, 1995 and 1994, respectively, or a 25.0 % increase. Excluding placements from the 1995 acquisition of CCA, F&F and GGW accounts received for collection increased $286 million or 18.4 %. Operating revenue for the period ended June 30, 1995 and 1994 is summarized below.
--------------------------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, 1995 1994 1995 1994 (in thousands) --------------------------------------------------------------------- Revenue: Collection $34,270 $29,260 $67,105 $57,691 Accounts Receivable-Purchased 3,178 2,266 7,253 5,506 Student Loan Billing 1,804 1,728 3,578 3,415 Medicaid Billing 1,652 1,258 3,195 2,730 Telemarketing 1,294 1,670 3,014 3,213 Other 675 977 1,596 1,881 -------------------------- -------- ------ ------ ------- Total Operating Revenue $42,873 $37,159 $85,741 $74,436 ========================== ======== ======= ======= ========
Total operating revenue for the three and six month period ended June 30, 1995 increased 15.4% and 15.2% respectively. Collection revenue for the three and six month period ended June 30, 1995 increased 17.1% and 16.3% Excluding the 1995 acquisitions, collection revenue increased 7.2% and 8.0% for the three and six month period ended June 30, 1995 compared to the same periods in 1994. These increases were accomplished as a result of new client business and growth in business volume from existing clients, despite an operating environment with continued competitive pressure on prices. Revenue from purchased accounts receivable portfolios increased 31.7% to $7.3 million in the first half of 1995. This increase was primarily the result of purchases of receivables during the second half of 1994. During the first half of 1995 portfolios were purchased at a cost of $2.3 million compared to $4.9 million in the first half of 1994. 7 Billing revenue, including Student Loan billing, Medicaid billing and Other billing increased 4.3% to $8.4 million during the first half of 1995 compared to $8.0 million during the first half of 1994. However Billing revenue during the quarter ended June 30, 1995 compared to the quarter ended June 30, 1994 decreased primarily as a result of a decline in Other billing revenue from a single client in this category. Telemarketing revenue declined 22.5 % and 6.2% for the three and six month periods ended June 30, 1995 compared to the same periods in 1994. A decline in business volume negatively impacted revenue. Operating expenses increased 14.9% to $79.7 million for the first half of 1995 compared to the first half of 1994. Operating expenses exclusive of the acquisition of CCA, F&F & GGW increased 8.3%. Salaries and benefits, the Company's most significant expense was $48.2 million for the six month period ended June 30, 1995 compared to $41.0 million in 1994 or a 17.5% increase. Salary and benefits exclusive of 1995 acquisitions increased 10.3% primarily as a result of an increase in number of collectors required to handle larger business volume. The Company does not provide post-retirement health or life insurance benefits or significant post-employment benefits to employees. Telephone expense decreased 1.0% to $5.2 million for the six months ended June 30, 1995 compared to the same period in 1994. Included in telephone expense are costs associated with dedicated communication datalines, local and long distance service, and depreciation and maintenance on telephone equipment. Telephone expense, exclusive of acquisitions, decreased by 4.8%. Although telephone usage increased during the first half of 1995 compared to the same period in 1994, the cost of increased usage was partially offset by lower long-distance rates negotiated at the end of 1994. Depreciation expense increased between quarters primarily as a result of the Company's upgrade to its telephone systems in certain locations during the second quarter of 1994. Postage and supplies increased 16.3% to $5.3 million for the six month period ended June 30, 1995 as compared to the same period in 1994. Postage expense alone increased 20.3% compared to the first half of 1994. The new U.S. postal rate, which became effective January 1, 1995 along with increased business volume accounted for the increase in postage costs. Exclusive of acquisitions, postage and supplies increased 11.4%. Postage and supplies expense historically fluctuates with the number of accounts received for collection. Occupancy costs which includes leased office space, depreciation of furniture and fixtures, amortization of leasehold improvements and rental and repair of office equipment increased 6.8% to $4.6 million. Occupancy costs exclusive of acquisitions decreased 2.6% for the first half of 1995 compared to the first half of 1994 as a result of a decline in depreciation and space rent. Data processing equipment costs increased by 6.2% to $3.8 million for the period ended June 30, 1995 when compared to the same period in 1994. Work continues to proceed according to plan on the World-class Integrated Network (WIN). WIN is the Company's new receivable management system which will replace PACS [registered trade mark] (Payco Automated Collection System). The Company will invest approximately $15 million for the purchase and customization of WIN hardware and software in all offices. WIN installation is expected to be completed by year-end 1996. Depreciation charges associated with the WIN hardware and software will increase during the third quarter of 1995. The Company also plans to invest 8 approximately $4.0 million over 1995 and 1996 in order to upgrade its student loan billing system. Work proceeds on schedule on the development of the new student loan billing system which is expected to be completed in mid-1996. Amortization of acquisition costs was $7.2 million for the first half of 1995 compared to $5.5 million for the same period in 1994. This expense category includes the amortization of non-compete agreements, debtor account inventory, goodwill and purchase accounts receivable portfolios. Amortization expense associated with purchased accounts receivable portfolios increased by $1.6 million between years to $5.9 million. This increase is due to the increase in the volume of collections on purchased receivables. Other operating costs increased by $192,000 or 3.6% to $5.5 million in the first half of 1995 compared to the first half of 1994 primarily as a result of 1995 acquisitions. Other operating costs includes, among other costs, business insurance, legal expense, skip tracing costs and travel and entertainment costs. Other income increased $92,000 while interest expense increased $281,000 in the first half of 1995 compared to the first half of 1994. Other income consists primarily of interest income. The increase in interest expense is due primarily to the increase in short-term borrowings. The effective tax rate decreased to 44.3% for the first six months of 1995 from 44.5% for the same period in 1994. The Company's provision for income taxes changes with the levels of pre-tax income, levels of nondeductible expenses, changes in tax law and the mix of state income tax rates. Net income per share for the first six months of 1995 was $0.32 compared to $0.28 for the same period in 1994. The increase is a result of a 15.2% increase in revenue coupled with a 14.9% increase in operating expenses. LIQUIDITY AND CAPITAL RESOURCES The Company has a $25.0 million short-term borrowing agreement with the Bank. The agreement allows the Company to borrow funds under a line of credit agreement or through the issuance of commercial paper. All loans made to the Company by the bank under the line of credit are payable upon demand and are evidenced by a single promissory note. The Company is not required to maintain compensating balances, and there are no restrictive covenants under the agreement. As of June 30, 1995, the Company had $15.3 million available to borrow. Funds borrowed were used primarily to fund the Company's acquisition program. The interest rate on outstanding borrowings at June 30, 1995 ranged from 6.05% to 7.40%. The total capital expenditure associated with the WIN project is estimated to be approximately $15.0 million. Plans are to complete the installation by the end of 1996. The Company also expects to invest approximately $4.0 million over 1995 and 1996 in order to upgrade its automated student loan billing system. The Company considers the short-term borrowing agreement to be its primary liquidity resource. 9 As of June 30, 1995 the Company had $18.5 million in working capital which compares to $21.7 million as of December 31, 1994. This represents a decrease of $3.2 million in working capital during the first six months of 1995. In addition to the investment in the WIN project and the upgrade to the automated student loan billing system, the Company will continue to actively pursue the accounts receivable purchase program and the acquisition of certain collection and related businesses. The Company has reviewed its liquidity in relation to planned capital expenditures, growth in working capital to support increased business, and its acquisition program. To the extent internal funding may not be sufficient to meet it future cash requirements, the Company plans to continue to utilize its line of credit, which it considers to be adequate to meet its needs. 10 ITEM 1. LEGAL PROCEEDINGS As previously reported on the Registrant's Form 10-Q for the period ended March 31, 1995, on March 8, 1995 the Registrant reached a settlement in its litigation with the Federal Trade Commission which was based on a complaint filed in August of 1993 alleging that the Company had violated the Federal Fair Debt Collection Practices Act. The case was resolved with a consent decree in which the Company did not admit any liability. The consent decree further provided that the Registrant pay a civil penalty of $500,000 and take additional steps to ensure compliance with the Act. The Company had previously established a reserve adequate to cover the cost of the consent decree. The Company further believes that compliance with the provisions of the consent decree will not materially affect its financial condition or ongoing operations. The Company is defendant in various legal proceedings involving claims for damages which constitute ordinary routine litigation incidental to its business. The Registrant has provided for the estimated defense costs and liability associated with pending litigation through charges to operations. ITEM 2. CHANGES IN SECURITIES NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of shareholders of the Registrant was held on May 2, 1995. On March 10, 1995, the record date for the meeting, the Registrant had 10,133,478 shares of common stock outstanding. A majority of the outstanding shares present in person or by proxy and entitled to vote constitutes a quorum. Once a share is present and entitled to vote at the meeting, for quorum purposes, it is deemed present for quorum purposes throughout the meeting. 9,771,980 shares of common stock were present and entitled to vote at the meeting, and a quorum was present. Each outstanding share entitled to vote was entitled to one vote upon each of the two matters, as discussed below, submitted to a vote at the meeting. Brokers who hold outstanding shares in street name for beneficial owners are not entitled to vote on non-routine matters, unless beneficial owners specifically instruct them how to vote the shares on such matters. Unvoted shares under such circumstances are termed "broker non-votes." Brokers who hold outstanding shares in street name for beneficial owners are entitled to vote on routine matters, unless beneficial owners specifically instruct them how to vote shares on such matters. There were no no non-routine matters voted upon at the annual meeting. 11 MATTERS VOTED UPON ------------------ (1) With regard to the election of one or more of the nominees for director, votes could be cast in favor or withheld. Votes withheld in connection with the election of one or more of the nominees for director were not counted as votes cast for such individuals. The following directors were elected upon the following votes:
WITHHELD AUTHORITY BROKER James R. Bohmann 9,612,050 N/A 159,930 N/A William A. Inglehart 9,599,667 N/A 172,313 N/A Dennis G. Punches 9,611,398 N/A 160,582 N/A Dennis Shea 9,591,218 N/A 180,762 N/A
(2)The proposal to appoint Arthur Andersen LLP as auditors for the Registrant's books and records for the year ending December 31, 1995 required for its passage the affirmative vote of a majority of the outstanding shares present. Abstentions had the same legal effect as a vote against the proposal. The proposal as approved by the following vote:
FOR AGAINST ABSTAIN BROKER NON-VOTE 9,666,154 17,940 87,886 N/A
ITEM 5. OTHER INFORMATION NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K NONE 12 SIGNATURES Pursuant to the requirements ofthe Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PAYCO AMERICAN CORPORATION (Registrant) Date: August 10, 1995 By: DAVID S. PATTERSON --------------- ------------------ David S. Patterson Principal Operating Officer Date: August 10, 1995 By: JOHN P. STETZENBACH --------------- ------------------- John P. Stetzenbach Principal Financial & Accounting Officer 13 EX-27 2
5 Pursuant to Item 601(c)(2)(i) of Regulations S-K, the Registrant hereby disclaims Exhibit 27. 1,000 6-MOS DEC-31-1995 JUN-30-1995 31216 0 17370 367 0 63799 54657 36951 97869 45309 0 1013 0 0 50325 97869 0 85858 0 79692 0 0 315 5851 2592 3259 0 0 0 3259 .32 0