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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998 or
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_____ 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 0001059083
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NATIONWIDE CREDIT, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1900192
-------------------------------- --------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
6190 Powers Ferry Road, 4th Floor, Atlanta, Georgia 30339
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 644-7452
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ------
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TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
as of September 30, 1998 and December 31, 1997.........................1
Condensed Consolidated Statements of Operations
for the Three Months Ended September 30, 1998 and September 30, 1997
and Nine Months Ended September 30, 1998 and September 30, 1997........3
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1998 and September 30, 1997....4
Notes to Condensed Consolidated
Financial Statements...................................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................................................7
PART II. OTHER INFORMATION
SIGNATURE................................................................12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONWIDE CREDIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------- ---------------
September 30, December 31,
1998 1997
Unaudited Audited
---------------- -----------------
Assets
Current assets:
Cash and cash equivalents
<S> <C> <C>
$10,264 $1,388
Cash held for clients 1,188 594
Accounts receivable, net 11,588 12,871
Deferred tax assets - 3,080
Intercompany trade receivables - 68
Prepaid expenses and other current assets 1,242 1,000
------------------ ------------------
Total current assets 24,282 19,001
Property and equipment 14,331 27,607
Accumulated depreciation (3,385) (16,017)
------------------ ------------------
10,946 11,590
Other assets:
Goodwill 110,077 139,262
Other intangible assets 8,897 20,737
Deferred financing costs 4,282 -
Other assets 172 275
------------------ ------------------
Total other assets 123,428 160,274
------------------ ------------------
Total assets $158,656 $190,865
================== ==================
</TABLE>
See accompanying notes.
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NATIONWIDE CREDIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
-------------- ---------------
September 30, December 31,
1998 1997
Unaudited Audited
---------------- -----------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Collections due to clients $1,188 $594
Accrued compensation 4,708 3,495
Accounts payable 1,779 1,652
Accrued severance and office closure costs 613 202
Other accrued liabilities 6,582 3,410
Intercompany trade payables - 2,344
Current maturities of long-term debt 250 1,451
---------------- -----------------
Total current liabilities 15,120 13,148
Payable to First Data Corporation - 112,450
Deferred tax liability - 1,388
Accrued severance and office closure costs 2,400 -
Long-term debt
Term loan facility 18,563 -
10.25% Senior notes due 2008 100,000 -
Stockholders' equity:
Common stock, no par value
Authorized shares - 10,000
Issued and outstanding shares - 10 - -
Additional paid in capital 39,115 41,506
Notes receivable stockholders (140) -
Retained earnings (deficit) (16,402) 22,775
Pension liability adjustment - (402)
Total stockholder's equity 22,573 63,879
---------------- ------------------
Total liabilities and stockholder's equity $158,656 $190,865
================= ==================
See accompanying notes.
</TABLE>
2
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NATIONWIDE CREDIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------------------------------------------------------
Successor Predecessor Successor Predecessor
1998 1997 Unaudited 1997
Unaudited Unaudited Unaudited
-------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenue $24,054 $30,086 $78,631 $91,354
Expenses:
Salaries and benefits 14,837 16,371 47,588 50,911
Telecommunication 1,128 1,405 3,897 4,691
Occupancy 960 1,327 3,083 3,723
Other operating and administrative 3,701 4,257 11,033 15,047
Depreciation and amortization 5,962 3,682 18,218 10,547
Provision for employee severance
and office closure - 305 - 679
Overhead charges from First
Data Corporation - - - 918
-------------- --------------- ------------- ---------------
Total expenses 26,588 27,347 83,819 86,516
-------------- --------------- ------------- ---------------
Operating income (loss) (2,534) 2,739 (5,188) 4,838
Interest Expense 3,170 29 10,345 92
-------------- --------------- ------------- ---------------
Income (loss) before income taxes (5,704) 2,710 (15,533) 4,746
Provision for income taxes - 1,286 - 2,560
-------------- --------------- ------------- ---------------
Income (loss) before extraordinary item (5,704) 1,424 (15,533) 2,186
Extraordinary loss on debt
extinguishment - - 869 -
-------------- --------------- ------------- ---------------
Net income (loss) $(5,704) $1,424 $(16,402) $2,186
============== =============== ============= ===============
See accompanying notes.
</TABLE>
3
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NATIONWIDE CREDIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30
------------------------------------
Successor Predecessor
1998 1997
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(16,402) $2,186
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 3,385 3,345
Amortization 14,833 7,202
Amortization of deferred financing costs 1,431 -
Extraordinary loss on debt extinguishment 869 -
Deferred tax provision - 743
Changes in operating assets and liabilities:
Accounts receivable 1,283 (3,280)
Prepaid expenses and other assets (283) 334
Accrued compensation 1,744 (80)
Intercompany trade payables - 631
Accounts payable, other accrued liabilities and
other liabilities 3,741 29
----------------- -----------------
Net cash provided by operating activities 10,601 11,110
INVESTING ACTIVITIES
Acquisitions - (24,069)
Purchases of property and equipment (3,371) (4,807)
----------------- -----------------
Net cash used in investing activities (3,371) (28,876)
FINANCING ACTIVITIES
Proceeds from acquisition facilities 125,000 -
Capital contribution from Parent 38,975 -
Funding of acquisition purchase price (157,270) -
Purchase price adjustment 7,979 -
Proceeds from long-term debt 25,000 -
Proceeds from 10.25% Notes due 2008 100,000 -
Repayment of acquisition facilities (125,000) -
Repayment of long-term debt (6,188) (1,500)
Debt issuance costs (6,582) -
(To) from First Data Corporation - 18,584
Other (268) -
Net cash provided by financing activities 1,646 17,084
Increase (decrease) in cash and cash equivalents 8,876 (682)
Cash and cash equivalents at beginning of period 1,388 4,109
----------------- -----------------
Cash and cash equivalents at end of period $10,264 $3,427
Supplemental disclosures of cash flow information:
Interest paid $7,069
----------------- -----------------
See accompanying notes.
</TABLE>
4
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NATIONWIDE CREDIT, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
On December 31, 1997, NCI Acquisition Corporation (the "Buyer"), NCI Merger
Corporation ("Merger Sub"), Nationwide Credit, Inc. (the "Company"), First Data
Corporation (the "Seller") and its wholly owned subsidiary, First Financial
Management Corporation ("FFMC"), entered into an agreement and Plan of merger
(the "Merger Agreement") pursuant to which Merger Sub merged with and into the
Company, with the Company as the surviving corporation and a wholly owned
subsidiary of the Buyer. The transaction was accounted for under the purchase
method of accounting with the consideration and related fees of the acquisition
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the date of the acquisition. The merger consideration
consisted of $155.2 million in cash (before transaction costs of $2.1 million)
and up to an additional $3.7 million, to be paid pursuant to the terms of an
earn-out agreement in the event the Company achieves certain performance targets
for the year ended December 31, 1998. The excess of the cost over the fair value
of net assets acquired of $112.9 million is being amortized on a straight-line
basis over 30 years. Other identifiable intangible assets are primarily
comprised of the fair value of existing account placements acquired of $14.5
million and non-competition agreements of $5.7 million, which are being
amortized over 1 and 4 years, respectively. The Company periodically reviews
goodwill and other intangibles to assess recoverability. Impairment charges will
be recognized in operations if the expected future operating cash flow
(undiscounted and without interest charges) derived from such intangible assets
is less than their carrying value. As a result of the acquisition of the Company
and in connection with the implementation of the modified operating improvement
plan, the Company has accrued estimated costs of approximately $4.0 million
associated with closing certain offices and branches ($1.8 million), severance
payments to employees ($0.9 million), relocation costs ($0.7 million) and other
costs primarily associated with the write-down of leasehold improvements
associated with the closed facilities ($0.6 million). Specifically, the company
is closing and/or reducing branches which are not operating at full capacity, or
whose operations can be consolidated with other branches. Any costs to be paid
in 1999 and 2000 are primarily associated with lease commitments on facilities
to be closed during 1998 and 1999.
The Company has reached an agreement with First Data with respect to various
matters relating to the acquisition of the company by its current shareholders
in December 1997. A cash settlement of $10.9 million was received by the company
in September 1998. The company used the cash payment to reduce indebtedness
under its term loan facility by $6.0 million, to pay approximately $2.9 million
in various expenses relating to the Company's operations under First Data
management prior to January 1998, including obligations to the FTC and the DOE,
and to increase cash available for working capital and other corporate
operations by approximately $2.1 million.
The acquisition and related fees were initially financed through borrowings
of $125.0 million against a $133.0 million senior credit facility (the
"Acquisition Facilities") provided by Lehman Commercial Paper, Inc. and a
contribution of $40.4 million of equity capital (before related fees of $1.3
million).
2. SIGNIFICANT ACCOUNTING POLICIES
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The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, certain information and footnote
disclosures required by generally accepted accounting principles for complete
financial statements have been excluded. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. All significant intercompany accounts and
transactions have been eliminated in the consolidation. Operating results for
the nine month period ended September 30, 1998 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1998. The
accompanying unaudited consolidated financial statements should be read in the
conjunction with the audited consolidated financial statements of the Company
for the year ended December 31, 1997.
Certain reclassifications have been made in the September 30, 1997 unaudited
consolidated financial statements to conform to the September 30, 1998
presentation.
3. LONG TERM DEBT
In January 1998, the Company implemented a financing plan which included the
issuance of $100 million 10 1/4% Senior Notes due 2008 ("Old Notes") in a
private placement (the "Offering"). The Company is in the process of exchanging
the Old Notes for $100 million 10.25% Series A senior notes due 2008 ("New
Notes") which are being registered under the Securities Act of 1933, as amended.
As part of the financing plan, the Company also entered into a credit
agreement (the "Credit Agreement") which provides for (1) a seven-year term loan
facility in the amount of $25 million (the "Loan Term"), and (ii) a six-year
revolving credit facility (the "Revolving Credit Facility") of $35 million. In
connection with the Offering, all amounts outstanding under the Acquisition
Facilities were repaid utilizing proceeds of the Offering and the Term Loan. The
interest rate of the Term Loan and the Revolving Credit Facility is determined,
at the Company's option, based upon the Eurodollar Base Rate (as defined the
Credit Agreement) ("Eurodollar") plus 2.125% or the Base Rate, as defined, plus
1.125%. Interest payments are made quarterly for Base Rate loans. Interest
payments on Eurodollar loans are made on the earlier of their maturity date or
90 days depending on their term. In addition, the Company is required to pay a
commitment fee of .375% on the unused portion of the Revolving Credit Facility.
The Term Loan is repaid in quarterly installments, which began March 31, 1998,
in an aggregate annual principal amount of $0.25 million for each of the first
six years and the remaining $23.5 million in the last year of the facility.
Additionally, the Company is required to make annual prepayments, beginning with
the year ending December 31, 1998, from Excess Cash Flow, as defined in the
Credit Agreement. Prepayments are also required in the event of an equity or
debt issuance, or upon certain dispositions of assets. Substantially all of the
assets of the Company are pledged as collateral for borrowings under the Credit
Agreement. The Credit Agreement requires the Company to, among other things,
maintain certain financial ratios and limits the Company's indebtedness,
acquisitions and capital expenditures. In August 1997, the Company negotiated
revised covenants under the Credit Agreement. The Company was in compliance with
these revised covenants as of September 30, 1998.
The Credit Agreement provides for a first priority lien on substantially all
properties and assets (including, among other things, all of the capital stock
of the Company and each of its direct and indirect domestic subsidiaries, and
65% of the capital stock of first-tier foreign subsidiaries) of the Company and
its direct and indirect domestic subsidiaries (excluding the Company's currently
existing subsidiaries).
4. Subsequent Events
The Company has settled the matter with the Federal Trade Commission by
paying a civil penalty of $1.0 million and by implementing certain procedures in
connection with the operation of the business, consisting primarily of
disclosure to debtors of their rights and enhanced training and compliance
reporting requirements. First Data has reimbursed the Company for the penalty
and expenses incurred by the Company in connection with the FTC investigation.
The settlement was filed with the court on October 6, 1998 in the form
originally proposed, United States v. Nationwide Credit, Inc., Civ Act.
No. 1:98-CV-2929. The Company believes that compliance by the Company with the
provisions of the consent Decree, as well as with the additional provisions
related to the proposed settlement of the FTC investigation, will not materially
affect the company's financial condition or ongoing operations.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
On December 31, 1997, NCI Acquisition Corporation (the "Buyer"),
NCI Merger Corporation ("Merger Sub"), Nationwide Credit, Inc. (the "Company"),
First Data Corporation (the "Seller") and its wholly owned subsidiary, First
Financial Management Corporation ("FFMC"), entered into an agreement and Plan of
merger (the "Merger Agreement") pursuant to which Merger Sub merged with and
into the Company, with the Company as the surviving corporation and a wholly
owned subsidiary of the Buyer. The transaction was accounted for under the
purchase method of accounting with the consideration and related fees of the
acquisition allocated to the assets acquired and liabilities assumed based on
their estimated fair values at the date of the acquisition. The merger
consideration consisted of $155.2 million in cash (before transaction costs of
$2.1 million) and up to an additional $3.7 million, to be paid pursuant to the
terms of an earn-out agreement in the event the Company achieves certain
performance targets for the year ended December 31, 1998. The excess of the cost
over the fair value of net assets acquired of $112.9 million is being amortized
on a straight-line basis over 30 years. Other identifiable intangible assets are
primarily comprised of the fair value of existing account placements acquired of
$14.5 million and non-competition agreements of $5.7 million, which are being
amortized over 1 and 4 years, respectively. The Company periodically reviews
goodwill and other intangibles to assess recoverability. Impairment charges will
be recognized in operations if the expected future operating cash flow
(undiscounted and without interest charges) derived from such intangible assets
is less than their carrying value. As a result of the acquisition of the Company
and in connection with the implementation of the modified operating improvement
plan, the Company has accrued estimated costs of approximately $4.0 million
associated with closing certain offices and branches ($1.8 million), severance
payments to employees ($0.9 million), relocation costs ($0.7 million) and other
costs primarily associated with the write-down of leasehold improvements
associated with the closed facilities ($0.6 million). Specifically, the company
is closing and/or reducing branches which are not operating at full capacity, or
whose operations can be consolidated with other branches. Any costs to be paid
in 1999 and 2000 are primarily associated with lease commitments on facilities
to be closed during 1998 and 1999.
RESULTS OF OPERATIONS
Nine Months ended September 30, 1998, compared to Nine Months ended September
30, 1997.
Revenue. Total revenue was $78.6 million for the nine months ended September
30, 1998, as compared to $91.4 million for the nine months ended September 30,
1997, a decrease of $12.8 million or 14.0%. The decline in revenue was
primarily the result of (i) a decrease in revenue earned of $10.6 million
from the cancellation of the old DOE contract and delayed placements under the
new GSA and DOE contracts, (ii) a decrease in revenue from banking and retail
businesses of $3.1 million primarily from lower placements on gas credit cards,
(iii) a decrease in revenue from healthcare account placements of approximately
$ 0.7 million primarily caused by a strategic shift away from less profitable
lines of business and (iv) a decrease in revenue from telecommunication account
placements of approximately $1.8 million. These decreases were partially offset
by the impact of the February 28, 1997 acquisition of Consolidated, increased
revenue of $ 0.8 million from American Express and from on-site services of
$1.7 million.
Expenses. Salaries and benefits expense was $ 47.6 million for the nine
months ended September 30, 1998, as compared to $50.9 million for the nine
months ended September 30, 1997, a decrease of $3.3 million or 6.5%. Salaries
and benefits did not decrease in proportion to revenue primarily due to the
delayed placements from the DOE and GSA. The Company maintained its trained
staff in anticipation of the receipt of these placements.
Telecommunications expense was $3.9 million for the nine months ended
September 30, 1998, as compared to $4.7 million for the nine months ended
September 30, 1997, a decrease of $0.8 million or 17.0%. The decrease is
primarily the result of lower rates as well as lower levels of activity.
Occupancy expense was $3.1 million for the nine months ended September 30,
1998, as compared to $ 3.7 million for the nine months ended September 30, 1997,
a decrease of $ 0.6 million or 16.2%, primarily resulting from the closing of
one facility in the second quarter of 1998, and the reduction of space at a
second facility in the third quarter of 1998.
Other operating and administrative expense was $ 11.0 million for the nine
months ended September 30, 1998, as compared to $15.1 million for the nine
months ended September 30, 1997, a decrease of $4.1 million or 27.2%. The
decrease is primarily due to savings generated by general expense controls
offset by a one-time contract settlement expense of $1.6 million. In 1997,
First Data had charged the Company $0.9 million for services now being performed
and paid directly by the Company.
There were no provisions for severance or office closures in the nine months
ended September 30, 1998, nor were there any overhead charges from First Data.
These two items amounted to $1.6 million for the nine months ended September 30,
1997.
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Depreciation and amortization expense was $18.2 million for the nine months
ended September 30, 1998, as compared to $10.5 million for the nine months ended
September 30, 1997, an increase of $7.7 million or 73.3%. This increase
reflects the amortization of intangibles arising from the Transactions.
Operating Income (Loss). The Company incurred an Operating loss of $5.2
million for the nine months ended September 30, 1998, as compared to
operating income of $ 4.8 million for the nine months ended September 30, 1997,
a decrease of $10.0 million. This reduction is primarily due to the increase in
amortization expense of $7.7 million , a decrease in revenue of $ 12.8 million,
offset by the savings on operating expenses of $10.5 million.
Interest Expense. Interest expense relating to the Term Loan Facility and
Senior Notes was $10.3 million for the nine months ended September 30, 1998.
Extraordinary Loss. The extraordinary loss on debt extinguishment of $ 0.9
million represents the write off of deferred debt issuance costs related to the
interim financing of the Transactions.
Net Income (Loss). The Company incurred a net loss for the nine months ended
September 30, 1998, of $ 16.4 million, as compared to net income of $ 2.2
million in the same period of 1997.
Three Months ended September 30, 1998, compared to Three Months ended September
30, 1997.
Revenue. Total revenue was $ 24.1 million for the three months ended
September 30, 1998, as compared to $ 30.1 million for the three months ended
September 30, 1997, a decrease of $6.0 million or 19.9%. The decline in revenue
was primarily the result of (i) a decrease in revenue earned of $4.8 million
from the cancellation of the old DOE contract and delayed placements under the
new GSA and DOE contracts, (ii) a decrease in revenue from banking and retail
businesses of $ 1.0 million primarily from lower placements on gas credit cards,
and (iii) a decrease in revenue from telecommunication account placements of
approximately $ 2.1 million. These decreases were partially offset by improved
revenue of $ 1.2 million from onsite services.
Expenses. Salaries and benefits expense was $14.8 million for the three
months ended September 30, 1998, as compared to $16.4 million for the three
months ended September 30, 1997, a decrease of $1.6 million or 9.8%. Salaries
and benefits did not decrease in proportion to revenue primarily due to the
delayed placements from the DOE and GSA. The Company maintained its trained
staff in anticipation of the receipt of these placements.
Telecommunications expense was $ 1.1 million for the three months ended
September 30, 1998, as compared to $ 1.4 million for the three months ended
September 30, 1997, a decrease of $ 0.3 million or 21.4%. The decrease was
primarily the result of lower rates as well as lower levels of activity.
Occupancy expense was $ 1.0 million for the three months ended September 30,
1998, as
8
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compared to $1.3 million for the three months ended September 30, 1997, a
decrease of $0.3 million or 23.1%, primarily resulting from the reduction of
space at a second facility in the third quarter of 1998.
Other operating and administrative expense was $3.7 million for the three
months ended September 30, 1998, as compared to $4.7 million for the three
months ended September 30, 1997, a decrease of $1.0 million or 21.5% resulting
from savings generated by general expense controls.
There were no provisions for severance or office closures in the three months
ended September 30, 1998, nor were there any overhead charges from First Data.
These two items amounted to $0.3 million for the three months ended September
30, 1997.
Depreciation and amortization expense was $ 6.0 million for the three months
ended September 30, 1998, as compared to $3.7 million for the three months ended
September 30, 1997, an increase of $2.3 million or 62.2%. This increase
reflects the amortization of intangibles arising from the Transactions.
Operating Income (Loss). The Company incurred an operating loss of $ 2.5
million for the three months ended September 30, 1998, as compared to operating
income of $ 2.7 million for the three months ended September 30, 1997, a
decrease of $ 5.2 million. This reduction is primarily due to the increase in
amortization expense of $2.3 million, a decrease in revenue of $6.0 million,
offset by the savings on operating expenses of $3.1 million.
Interest Expense. Interest expense relating to the Term Loan Facility and
Senior Notes was $3.2 million for the three months ended September 30, 1998.
Net Income (Loss). The Company incurred a net loss for the three months ended
September 30, 1998, of $ 5.7 million, as compared to net income of
$ 1.4 million in the same period of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $ 10.6 million for the nine months
ended September 30, 1998 as compared to $11.1 million for the nine months ended
September 30, 1997. Net income before extraordinary items and after adding back
depreciation, amortization, taxes and interest (EBITDA) was $13.0 million
as compared to $ 15.4 million in the 1997 period. Net working capital items,
excluding accrued interest of $2.1 million, decreased by $ 4.4 million in the
nine months ended September 30, 1998 as compared to an increase of $ 2.4 million
in the nine months ended September 30, 1997.
Cash used in investing activities for the nine months ended September 30, 1998
was $3.4 million, consisting of purchases of equipment and software. Cash used
in investing activities for the nine months ended September 30, 1998 was $28.9
million, representing $4.8 million for equipment purchases and $24.1 million
related to the February 1997 acquisition of Consolidated Collection Company.
The Company received a settlement payment of $10.9 million from First Data.
Consequently, the Company has reduced its indebtedness under the Term Loan
Facility by $6.0 million. The Company
9
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had outstanding indebtedness under the Term Loan facility of $18.8 million as of
September 30, 1998.
In addition, the company used the settlement proceeds to pay approximately
$2.9 million in various expenses relating to the Company's operations under
First Data management prior to January 1998, including obligations to the FTC
and the DOE, and to increase cash available for working capital and other
corporate operations by approximately $2.1 million.
Substantially all the agreements relating to the Company's outstanding
indebtedness contain covenants that impact the Company's liquidity and capital
resources, including financial covenants and restrictions on the incurrence of
indebtedness and liens and asset sales. The Company negotiated an amendment of
the Senior Credit Facility to revise the cumulative EBITDA and related ratio
covenants to reflect the Company's revised EBITDA expectations. There can be no
assurance that the Company will achieve such EBITDA expectations in the future.
The Company was in compliance with all such covenants as of September 30, 1998.
The Company has settled the matter with the Federal Trade Commission by
paying a civil penalty of $1.0 million and by implementing certain procedures in
connection with the operation of the business, consisting primarily of
disclosure to debtors of their rights and enhanced training and compliance
reporting requirements. First Data has reimbursed the Company for the penalty
and expenses incurred by the Company in connection with the FTC investigation.
The settlement was filed with the court on October 6, 1998 in the form
originally proposed, United States v. Nationwide Credit, Inc., Civ Act.
No. 1:98-CV-2929. The Company believes that compliance by the Company with the
provisions of the consent Decree, as well as with the additional provisions
related to the proposed settlement of the FTC investigation, will not materially
affect the company's financial condition or ongoing operations.
Management believes that, based on current levels of operations and
anticipated improvements in operating results, cash flows from operations and
borrowings available under the Senior Credit Facilities will be adequate to
allow for anticipated capital expenditures for the next several years, to fund
working capital requirements and to make required payments of principal and
interest on its debt for the next several years. However, if the Company is
unable to generate sufficient cash flows from operations in the future, it may
be necessary for the Company to refinance all or a portion of its debt or to
obtain additional financing, but there can be no assurance that the Company will
be able to effect such refinancing or obtain additional financing on
commercially reasonable terms or at all.
INCOME TAXES
The Company has not recorded any tax benefit on it's loss before income taxes
for the nine months ended September 30, 1998 as it is not "more likely than not"
that the Company will be able to realize such benefits.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has settled the matter with the Federal Trade Commission by paying
a civil penalty of $1.0 million and by implementing certain procedures in
connection with the operation of the business, consisting primarily of
disclosure to debtors of their rights and enhanced training and compliance
reporting requirements. First Data has reimbursed the Company for the penalty
and expenses incurred by the Company in connection with the FTC investigation.
The settlement was filed with the court on October 6, 1998 in the form
originally proposed, United States v. Nationwide Credit, Inc., Civ Act. No.
1:98-CV-2929. The Company believes that compliance by the Company with the
provisions of the consent Decree, as well as with the additional provisions
related to the proposed settlement of the FTC investigation, will not materially
affect the company's financial condition or ongoing operations.
11
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Nationwide Credit, Inc., has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NATIONWIDE CREDIT, INC.
/s/ Michael Lord
- --------------------------------------------------
Michael Lord
Chief Financial Officer
Dated: November 4, 1998
12
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM______
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 SEP-30-1998
<CASH> 1982 11452
<SECURITIES> 0 0
<RECEIVABLES> 12871 11588
<ALLOWANCES> 4449 1505
<INVENTORY> 0 0
<CURRENT-ASSETS> 19001 24282
<PP&E> 27607 14331
<DEPRECIATION> 16017 3385
<TOTAL-ASSETS> 190865 158656
<CURRENT-LIABILITIES> 13148 15120
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 63879 22573
<TOTAL-LIABILITY-AND-EQUITY> 190865 158656
<SALES> 119013 78631
<TOTAL-REVENUES> 119013 78631
<CGS> 0 0
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<OTHER-EXPENSES> 116375 83819
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 122 10345
<INCOME-PRETAX> 2516 (15533)
<INCOME-TAX> 2423 0
<INCOME-CONTINUING> 93 (15533)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 869
<CHANGES> 0 0
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<EPS-PRIMARY> 0 0
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