-----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, NU3pKQ4mfKB+fwcQHUpXbJkJaop7IchRR3mpcUeJuYMjOholhxE/uweINOxSv6Kw fQcTAAWN32xUgrxE+6QYiA== 0000076741-95-000026.txt : 19951119 0000076741-95-000026.hdr.sgml : 19951119 ACCESSION NUMBER: 0000076741-95-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAYCO AMERICAN CORP CENTRAL INDEX KEY: 0000076741 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-CONSUMER CREDIT REPORTING, COLLECTION AGENCIES [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: 95591737 BUSINESS ADDRESS: STREET 1: 180 N EXECUTIVE DR CITY: BROOKFIELD STATE: WI ZIP: 53005 BUSINESS PHONE: 4147849035 10-Q 1 09/30/95Q 1 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 September 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 September 30, 1995. =========================================================================== 2
PAYCO AMERICAN CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands of dollars except share & per share data) - ----------------------------------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, 1995 1994 1995 1994 - ----------------------------------------------------------------------------------------------------------------- ASSETS LIABILITIES & SHAREHOLDERS' INVESTMENT CURRENT ASSETS: CURRENT LIABILITIES: Cash and Cash Equivalents $10,400 $10,867 Collections Due to Clients $21,453 $17,794 Cash and Cash Equivalents Accounts Payable 6,868 5,459 Held for Clients 21,453 17,794 Short-Term Borrowings 13,877 6,200 Obligations under Capital Accounts Receivable-Trade Leases 57 77 Net of Allowances 20,314 15,541 Accrued Liabilities- Salaries and Benefits 5,908 5,597 Accounts Receivable- Taxes, Other Than Income 1,209 1,101 Purchased 13,702 13,826 Other 1,258 1,698 Prepaid Expenses 1,600 1,054 Deferred Revenue 232 192 Accrued Income Taxes - 23 Deferred Income Taxes 689 743 Accrued Income Taxes 178 - ------------- ------------ ------------- ------------ Total Current Assets 68,158 59,848 Total Current Liabilities 51,040 38,118 PROPERTY AND EQUIPMENT: OTHER LONG-TERM LIABILITIES 837 942 Data Processing Equipment 43,433 33,105 Furniture and Equipment 12,113 11,334 Leasehold Improvements 3,380 2,998 LONG-TERM DEBT 352 334 Property Held under Capital Leases 634 634 OBLIGATIONS UNDER CAPITAL ------------- ------------ LEASES 16 61 59,560 48,071 Less-Accumulated COMMITMENTS AND Depreciation and CONTINGENCIES - - Amortization 38,109 34,463 ------------- ------------ SHAREHOLDERS' INVESTMENT: Net Property and Equipment 21,451 13,608 Preferred Stock, No Par Value- ACCOUNTS RECEIVABLE- Authorized 500,000 Shares, PURCHASED 590 4,164 None Issued - - Common Stock, OTHER LONG-TERM $.10 Par Value-Authorized RECEIVABLES 599 839 50,000,000 Shares, Issued & Outstanding, 10,133,478 & NON-COMPETE COVENANTS, NET 1,534 2,691 10,128,503 Shares, Respectively 1,013 1,013 GOODWILL, NET 11,565 5,939 Additional Paid-In Capital 1,622 1,586 DEFERRED INCOME TAXES 492 287 Stock Options Issuable 704 704 OTHER ASSETS 397 122 Retained Earnings 49,202 44,740 ------------- ------------ Total Shareholders' Investment 52,541 48,043 ------------- ------------ ------------- ------------ $104,786 $87,498 $104,786 $87,498 ============= ============ ============= ============ ================================================================================================================= The accompanying notes are an integral part of these consolidated balance sheets.
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PAYCO AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands of dollars except share & per share data) - ---------------------------------------------------------------------- For the three month period ended September 30, 1995 1994 - ---------------------------------------------------------------------- OPERATING REVENUE $ 44,818 $ 38,368 OPERATING EXPENSES: Salaries and Benefits 25,537 20,695 Telephone 2,645 2,907 Postage and Supplies 2,700 2,268 Occupancy Costs 2,216 2,143 Data Processing Equipment 2,256 1,883 Amortization of Acquisition Costs 4,287 3,973 Other Operating Costs 2,881 2,989 ----------- ----------- Total Operating Expenses 42,522 36,858 ----------- ----------- Income from Operations 2,296 1,510 OTHER INCOME, Primarily from Short-Term Investments 51 21 INTEREST EXPENSE 216 38 ----------- ----------- Income before Income Taxes 2,131 1,493 PROVISION FOR INCOME TAXES 928 679 ----------- ----------- NET INCOME $ 1,203 $ 814 =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,133,478 10,077,945 NET INCOME PER SHARE $0.12 $0.08 ====================================================================== The accompanying notes are an integral part of these consolidated statements.
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PAYCO AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands of dollars except share & per share data) - ---------------------------------------------------------------------- For the nine month period ended September 30, 1995 1994 - ---------------------------------------------------------------------- OPERATING REVENUE $ 130,559 $ 112,804 OPERATING EXPENSES: Salaries and Benefits 73,696 61,687 Telephone 7,862 8,182 Postage and Supplies 7,969 6,799 Occupancy Costs 6,807 6,442 Data Processing Equipment 6,008 5,417 Amortization of Acquisition Costs 11,533 9,440 Other Operating Costs 8,339 8,256 ----------- ----------- Total Operating Expenses 122,214 106,223 ----------- ----------- Income from Operations 8,345 6,581 ----------- ----------- OTHER INCOME, Primarily from Short-Term Investments 168 46 INTEREST EXPENSE 531 72 ----------- ----------- Income before Income Taxes 7,982 6,555 PROVISION FOR INCOME TAXES 3,520 2,931 ----------- ----------- NET INCOME $ 4,462 $ 3,624 =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,133,478 10,077,945 NET INCOME PER SHARE $0.44 $0.36 ====================================================================== The accompanying notes are an integral part of these consolidated statements.
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PAYCO AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) - ---------------------------------------------------------------------- For the nine month period ended September 30, 1995 1994 - ---------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 4,462 $ 3,624 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Amortization of Acquisition Costs 11,533 9,440 Depreciation and Amortization 4,008 3,386 Benefit of Deferred Income Taxes (151) (453) Changes in Assets and Liabilities: Accounts Receivable (4,773) (1,405) Prepaid Expenses (434) (130) Accounts Payable 1,409 312 Accrued Liabilities (126) 190 Deferred Revenue 40 73 Accrued Income Taxes 201 (831) ----------- ----------- Net Cash Provided by Operations 16,169 14,206 ----------- ----------- CASH FLOWS USED IN INVESTING ACTIVITIES: Capital Expenditures, Net of Retirements (10,676) (3,531) Purchase of Accounts Receivable (5,891) (11,304) Purchase of Other Businesses (7,975) (4,267) Long-Term Notes Receivable 240 (354) ----------- ----------- Net Cash Used In Investing Activities (24,302) (19,456) ----------- ----------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: Net Proceeds Under Line of Credit 7,677 3,000 Payments Under Capital Lease Obligations (65) (94) Other Long-Term Debt 18 25 Proceeds from Exercise of Stock Options 36 15 ----------- ----------- Net Cash Provided by Financing Activities 7,666 2,946 ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents (467) (2,304) Cash and Cash Equivalents at Beginning of Period 10,867 14,014 ----------- ----------- Cash and Cash Equivalents at End of Period $ 10,400 $ 11,710 =========== =========== SUPPLEMENTAL CASH FLOWS INFORMATION: Cash Paid For: Income Taxes, Net of Refunds $ 3,471 $ 4,216 Interest 472 54 ====================================================================== The accompanying notes are an integral part of these consolidated statements.
5 6 PAYCO AMERICAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED September 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 $403,000 and $555,000 for the period ended September 30, 1995 and December 31, 1994, respectively. C.SHORT TERM BORROWINGS 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. At September 30, 1995, the interest rate on borrowed funds was 6.0%. 6 7 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 $2.99 billion and $2.50 billion for the nine months ended September 30, 1995 and 1994, respectively, or a 19.6 % increase. Excluding placements from the 1995 acquisition of CCA, F&F and GGW accounts received for collection increased $333 million or 13.3 %. Operating revenue for the period ended September 30, 1995 and 1994 is summarized below.
- ---------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (in thousands) - ---------------------------------------------------------------------- Revenue: Collection $34,628 $28,204 $101,768 $ 85,895 Accounts Receivable-Purchased 4,802 4,145 12,055 9,651 Student Loan Billing 1,821 1,730 5,399 5,145 Medicaid Billing 1,809 1,683 5,004 4,413 Telemarketing 1,104 1,674 4,118 4,887 Other 654 932 2,215 2,813 - --------------------------------------------------------------------- Total Operating Revenue $44,818 $38,368 $130,559 $112,804 =====================================================================
Total operating revenue for the three and nine month period ended September 30, 1995 increased 16.8% and 15.7% respectively. Collection revenue for the three and nine month period ended September 30, 1995 increased 22.8% and 18.5% Excluding the 1995 acquisitions, collection revenue increased 12.7% and 9.6% for the three and nine month period ended September 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. The Company has been selected by HBO & Company (HBOC) to be the lead subcontractor in performing the business management for Maricopa County Health Care Systems (MCHCS). MCHCS, located in Phoenix, Arizona has signed a five year contract with HBOC to outsource its entire business service function. This contract has the potential to provide the Company with approximately $20 million in revenue during its five year term. The contract began September 1, 1995. 7 8 Revenue from purchased accounts receivable portfolios increased 24.9% to $12.1 million in the first nine months of 1995. During the first nine months of 1995 portfolios were purchased at a cost of $5.9 million compared to $11.3 million in the first nine months of 1994. Billing revenue, including Student Loan billing, Medicaid billing and Other billing increased 2.0% to $12.6 million during the first nine months of 1995 compared to $12.4 million during the first nine months of 1994. However, Billing revenue during the quarter ended September 30, 1995 compared to the quarter ended September 30, 1994 decreased primarily as a result of a decline in Other billing revenue from a single client in this category. Telemarketing revenue declined 34.0 % and 15.7% for the three and nine month periods ended September 30, 1995 compared to the same periods in 1994. A decline in business volume negatively impacted revenue. Operating expenses increased 15.0% to $122.2 million for the first nine months of 1995 compared to the first nine months of 1994. Operating expenses exclusive of the acquisition of CCA, F&F & GGW increased 8.1%. Salaries and benefits, the Company's most significant expense was $73.7 million for the nine month period ended September 30, 1995 compared to $61.7 million in 1994 or a 19.5% increase. Salary and benefits exclusive of 1995 acquisitions increased 11.7% 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 3.9% to $7.9 million for the nine months ended September 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 7.9% primarily as a result of the decline in telemarketing telephone usage and lower long-distance rates negotiated at the end of 1994. Depreciation expense increased between years 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 17.2% to $8.0 million for the nine month period ended September 30, 1995 as compared to the same period in 1994. Postage expense alone increased 17.6% compared to the first nine months 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 9.4%. 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 5.7% to $6.8 million. Occupancy costs exclusive of acquisitions decreased 4.3% for the first nine months of 1995 compared to the first nine months of 1994 as a result of a decline in space rent. 8 9 Data processing equipment costs increased by 10.9% to $6.0 million for the period ended September 30, 1995 when compared to the same period in 1994. Work continues to proceed 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). During the third quarter, WIN was successfully installed in the Westlake and Pleasanton, California offices and the Aurora, Colorado office. This brought to seven the number of locations using WIN. Depreciation expense as a result of the purchases of WIN related equipment and software will increase in the fourth quarter of 1995 and through 1996 as the system installation process continues. Total capital expenditures to install the Company's entire collection operation on the WIN system are now estimated to be between $19 and $21 million as compared to the initial estimate of approximately $15 million. The cost of the WIN system is dependent on a variety of items including the configuration of power dialing stations, the final configuration of the communications network, cabling requirements in each office location, the number of acquired non- PACS offices that are installed on WIN and the amount of staff training required to efficiently use WIN. The cost of the system will vary directly with the number of users installed. Original estimates have been increased in part due to the growth in collection personnel and increased costs in the areas of communication network, cabling and training. Through October 31, 1995 the Company has invested approximately $7.3 million in the WIN system. Work proceeds on the development of the new student loan billing system which is expected to be completed in the second half of 1996. Amortization of acquisition costs was $11.5 million for the first nine months of 1995 compared to $9.4 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 $1.9 million between years to $9.6 million. This increase is due to the increase in the volume of collections on purchased receivables. Other operating costs increased by $83,000 or 1.0% to $8.3 million in the first nine months of 1995 compared to the first nine months 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, consisting primarily of interest income, increased $ 122,000 while interest expense increased $459,000 in the first nine months of 1995 compared to the first nine months of 1994. The increase in interest expense is due primarily to the increase in short-term borrowings. The effective tax rate decreased to 44.1% for the first nine months of 1995 from 44.7% 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 nine months of 1995 was $0.44 compared to $0.36 for the same period in 1994. The increase is primarily the result of the improvement of the pre-tax profit margin from 5.8% to 6.1% for the nine month period ended September 30, 1995 compared to the same period in 1994. 9 10 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 September 30, 1995, the Company had $11.1 million available to borrow. Funds borrowed were used primarily to fund the Company's acquisition program and the development of new computer systems. The interest rate on outstanding borrowings at September 30, 1995 was 6.0%. The capital expenditure associated with the WIN project is estimated to be between $19.0 and $21.0 million. Plans are to complete the installation during the second half 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. As of September 30, 1995 the Company had $17.1 million in working capital which compares to $21.7 million as of December 31, 1994. This represents a decrease of $4.6 million in working capital during the first nine 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 its 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 11 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 NONE ITEM 5. OTHER INFORMATION NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K NONE 11 12 SIGNATURES Pursuant to the requirements of the 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: November 14, 1995 By: DAVID S. PATTERSON ----------------- ------------------ David S. Patterson Principal Operating Officer Date: November 14, 1995 By: JOHN P. STETZENBACH ----------------- ------------------- John P. Stetzenbach Principal Financial and Accounting Officer 12 EX-27 2
5 Pursuant to Item 601(c)(2)(i) of Regulations S-K, the Registrant hereby disclaims Exhibit 27. 1000 9-MOS DEC-31-1995 SEP-30-1995 31853 0 20717 403 0 68158 59560 38109 104786 51040 0 1013 0 0 51528 104786 0 130727 0 122214 0 0 531 7982 3520 4462 0 0 0 4462 .44 0
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