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 June 30, 1999 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 0001059083
NATIONWIDE CREDIT, INC.
- --------------------------------------------------------------------------------
(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
<PAGE>
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
as of June 30, 1999 and December 31, 1998 ...............................1
Condensed Consolidated Statements of Operations
for the Quarters ended June 30, 1999 and June 30, 1998,
and the Six Months Ended June 30, 1999 and June 30, 1998.................3
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1999 and June 30, 1998.................4
Notes to Condensed Consolidated
Financial Statements as of June 30, 1999.................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ........................................................8
PART II. OTHER INFORMATION
None
SIGNATURE. ..................................................................14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONWIDE CREDIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
Unaudited Audited
----------------- ------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,801 $ 3,201
Cash held for clients 2,285 2,279
Accounts receivable, net of allowance of
$822 and $951, respectively 13,736 12,885
Prepaid expenses and other current assets 1,991 1,208
------------------ ------------------
Total current assets 20,813 19,573
Property and equipment, less accumulated
Depreciation of $6,840 and $4,575, respectively 8,599 9,859
Other assets, net:
Goodwill, less accumulated amortization of $5,460
and $3,763, respectively 100,410 102,107
Other intangible assets, less accumulated amortization
of $16,695 and $15,978, respectively 3,584 4,301
Deferred financing costs, less accumulated amortization
of $2,538 and $2,288, respectively 3,987 4,238
Other assets 236 237
------------------ ------------------
Total assets $ 137,629 $ 140,315
================== ==================
The accompanying notes are an integral part of these condensed consolidated balance sheets.
</TABLE>
<PAGE>
NATIONWIDE CREDIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
Unaudited Audited
----------------- ------------------
<S> <C> <C>
Liabilities and stockholder's equity
Current liabilities:
Collections due to clients $ 2,285 $ 2,279
Accrued compensation 3,184 4,201
Accounts payable 1,503 1,870
Accrued severance and office closure costs 1,251 1,845
Other accrued liabilities 5,302 5,273
Current maturities of long-term debt 3,700 250
----------------- ------------------
Total current liabilities 17,225 15,718
Accrued severance and office closure costs 2,179 2,400
Long-term debt, less current maturities 118,375 118,500
Stockholder's equity:
Common stock - $.01 par value
Authorized shares - 10,000 shares
Issued and outstanding shares - 1,000 shares -- --
Additional paid in capital 39,465 39,465
Accumulated deficit (39,475) (35,628)
Notes receivable - officers (140) (140)
----------------- ------------------
Total stockholder's equity (150) 3,697
----------------- ------------------
Total liabilities and stockholder's equity $ 137,629 $ 140,315
================= ==================
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
</TABLE>
<PAGE>
NATIONWIDE CREDIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------- ------------------------------
1999 1998 1999 1998
Unaudited Unaudited Unaudited Unaudited
-------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 27,884 $ 24,652 $ 55,150 $ 54,577
Expenses:
Salaries and benefits 18,492 15,712 36,924 32,751
Telecommunication 1,179 1,410 2,098 2,769
Occupancy 1,108 965 2,133 2,123
Other operating and administrative 3,426 3,620 6,703 7,332
Depreciation and amortization 2,262 6,126 4,678 12,256
Provision for employee severance and office closure -- -- 243 --
-------------- ---------------- -------------- ---------------
Total expenses 26,467 27,833 52,779 57,231
-------------- ---------------- -------------- ---------------
Operating income (loss) 1,417 (3,181) 2,371 (2,654)
Interest expense 3,104 3,087 6,218 7,261
-------------- ---------------- -------------- ---------------
Loss before income taxes (1,687) (6,268) (3,847) (9,915)
Provision for income taxes -- -- -- --
-------------- ---------------- -------------- ---------------
Loss before extraordinary item (1,687) (6,268) (3,847) (9,915)
Extraordinary loss on debt extinguishment -- -- -- 783
-------------- ---------------- -------------- ---------------
Net loss $ (1,687) $ (6,268) $ (3,847) $ (10,698)
============== ================ ============== ===============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
<PAGE>
NATIONWIDE CREDIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
----------------------------------------
1999 1998
Unaudited Unaudited
---------------- ----------------
<S> <C> <C>
Operating activities
Net loss $ (3,847) $ (10,698)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 4,929 13,651
Extraordinary loss on debt extinguishment -- 783
Other non-cash charges 243 --
Changes in operating assets and liabilities:
Accounts receivable (851) 484
Prepaid expenses and other assets (782) (31)
Accrued compensation (1,016) (6)
Accounts payable and other accrued liabilities (1,396) 4,993
---------------- ----------------
Net cash (used in) provided by operating activities (2,720) 9,176
Investing activities
Acquisitions, net of cash acquired -- (157,270)
Purchases of property and equipment (1,005) (2,049)
---------------- ----------------
Net cash used in investing activities (1,005) (159,319)
Financing activities
Proceeds from acquisition facilities -- 125,000
Capital contribution from Parent -- 38,975
Proceeds from revolving line of credit 3,450 ---
Proceeds from long-term debt -- 125,000
Repayment of acquisition facilities -- (125,000)
Repayment of long-term debt (125) (125)
Debt issuance and acquisition costs -- (6,562)
Other -- (268)
---------------- ----------------
Net cash provided by financing activities 3,325 157,020
---------------- ----------------
(Decrease) increase in cash and cash equivalents (400) 6,877
Cash and cash equivalents at beginning of period 3,201 1,388
---------------- ----------------
Cash and cash equivalents at end of period $ 2,801 $ 8,265
================ ================
Cash paid for interest $ 6,100 $ 1,711
================ ================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
<PAGE>
NATIONWIDE CREDIT, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. 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. The accompanying unaudited consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements of the Company for the year ended December 31, 1998
included in Form 10K, as amended.
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 surviving corporation and a
wholly owned subsidiary of the Buyer (the "Transaction"). 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 acquisition and related fees were initially financed through borrowings
of $125.0 million against a $133.0 million senior credit facility (the
"Acquisition Facilities") and a contribution of $40.4 million of equity
capital (before related fees of $1.4 million).
Operating results for the six-month period ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
In June 1998, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 133 "Accounting for Derivative and
Hedging Activities" (SFAS 133). SFAS 133 requires companies to record
derivatives on the balance sheet as assets or liabilities at fair value.
Due to a recent amendment, SFAS 133 is effective for financial statements
for fiscal years beginning after June 15, 2000. The Company is evaluating
the impact of SFAS 133 on the Company's future earnings and financial
position, but does not expect it to be material.
2. Nature of Operations
The Company is among the largest independent providers of accounts
receivable management services in the United States. The Company's client
base is comprised of companies located throughout the United States
primarily in the financial services, telecommunications, retail,
institutional and healthcare industries.
<PAGE>
3. Commitments and Contingencies
The Company is involved in certain litigation arising in the ordinary
course of business. In the opinion of management, the ultimate resolution
of these matters will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
4. Provision for Merger Costs, Employee Severance and Office Closure
In 1998, as a result of the acquisition of the Company and in connection
with the implementation of an operating improvement plan, the Company
accrued estimated costs of approximately $4.0 million associated with
closing certain offices and branches ($2.3 million), severance payments to
employees ($0.8 million), and relocation costs ($0.9 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.
In December 1998, the Company decided to relocate its corporate offices.
The Company has entered into a lease agreement for a new facility for these
offices. The Company recorded a charge of $1.6 million in 1998 which
represents the future rent obligations under the existing lease offset by
estimated sublease income less broker commissions. The Company expects to
vacate its current headquarters facility during the third quarter of 1999.
In March 1999, the Company terminated certain employees as part of a
reorganization and staff reduction. The Company recorded a charge of $0.2
million for employee severance.
The amounts remaining at June 30, 1999 from these accruals are as follows:
Office closure $ 2,752
Employee severance 420
Relocation 258
===============
$ 3,430
===============
<PAGE>
5. Subsequent Events
On July 19, 1999, the Company announced appointments of Loren F. Kranz and
Michael Lord as Co-Chief Executive Officers, succeeding Jerry Kaufman who
has been named Vice Chairman of the Board of Directors. These appointments
will ensure the continuity of executive leadership and solidify the
strategic business unit concept that has been piloted over the last six
months.
On August 13, 1999, in order to fund the growth of the business, the
Company raised an additional $4.0 million of equity from certain existing
investors and amended its Revolving Credit Facility and Term Loan (the
"Bank Facilities") to create an additional $5.0 million of availability.
Specifically, $3.4 million of existing debt under the Revolving Credit
Facility was converted to a Term Loan Facility, bearing interest at LIBOR
plus 4%, payable in 13 consecutive quarterly installments of $250,000
beginning September 30, 2000, with the final payment of $200,000 on
December 31, 2003. The existing line of credit under the Revolving Credit
Facility was increased by $1.5 million from $5.0 million to $6.5 million,
matures January 2004 and bears interest at the Company's option of either
(A) the Base Rate plus the Applicable Margin or (B) the Eurodollar Rate
plus the Applicable Margin. The maturity date of the existing Term Loan
Facility balance of $18.6 million was also changed from December 31, 2004
to January 28, 2004.
In connection with the above recapitalization, the Company negotiated an
amendment to the Credit Agreement that revised cumulative EBITDA and
related ratio covenants to reflect the Company's revised EBITDA
expectations. As of June 30, 1999, the Company was in compliance with these
revised covenants.
The effect of the additional equity and amendments to the Bank Facilities
on a pro forma basis is as follows:
<TABLE>
<CAPTION>
June 1999 June 1999
Pro forma Historical
---------------------- ---------------------
(In $000's)
<S> <C> <C>
Cash $ 6,801 $ 2,801
Current maturities of long-term debt 250 3,700
Long-term debt, less current maturities 121,825 118,375
Total stockholder's equity 3,850 (150)
</TABLE>
The pro forma data is based on historical information and does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
(Six months ended June 30, 1999 compared to six months ended June 30, 1998)
Revenue. Total revenue was $55.2 million for the six months ended June 30, 1999,
as compared to $54.6 million for the six months ended June 30, 1998, an increase
of $0.6 or 1.1%. The increase was primarily the result of a $5.1 million
increase in revenue from on-site call center management services for a major
telecommunications company offset by (i) a $2.0 million decrease in revenue from
the Department of Education ("DOE") which is the result of a delay in new
placements in 1999 under the new GSA contract, (ii) a $0.9 million decrease in
revenue from outsourced pre-chargeoff management services, and (iii) a decrease
in revenue from telecommunications account placements of $1.6 million.
Expenses. Salaries and benefits expense increased $4.1 million or 12.5% to $36.9
million for the six months ended June 30, 1999 from $32.8 million for the six
months ended June 30, 1998. This increase is primarily the result of the
Company's service expansion that includes on-site call center staffing and
management services for a major telecommunications company.
Telecommunications expense decreased $0.7 million or 25.0% to $2.1 million for
the six months ended June 30, 1999 from $2.8 million for the same period in
1998. The decrease is primarily the result of lower negotiated long distance
rates and lower call volume.
Occupancy expense remained flat at $2.1 million for the six months ended June
30, 1999 and 1998. The Company closed its Atlanta data center and consolidated
these operations into the Phoenix data center in May 1998 and closed the Denver
facility in February 1999. Rent increases in 1999 offset the decreases resulting
from these office closings.
Other operating and administrative expense decreased $0.6 million or 8.2% to
$6.7 million for the six months ended June 30, 1999 from $7.3 million for the
same period in 1998. The decrease is the result of the continuation of the
Company's operating improvement plan.
Depreciation and amortization expense decreased $7.6 million or 61.8% to $4.7
million for the six months ended June 30, 1999 from $12.3 million for the same
period ended June 30, 1998. The decrease was primarily the result of the
amortization of the value of existing placements of $7.3 million for the six
months ended June 30, 1998, as compared to no amortization for the same period
in 1999. The value of existing placements of $14.5 million was amortized over 12
months in 1998.
Provision for Employee Severance and Office Closure: Provision for employee
severance and office closure for the six months ended June 30, 1999, was $0.2
million, all of which related to employee severance.
Operating Income. Operating income was $2.4 million for the six months ended
June 30, 1999, an increase of $5.1 million or 188.9% from a loss of $2.7 million
for the same period in 1998. This increase has been explained in the preceding
paragraphs. To summarize, this increase is the result of an increase in revenue
of $.6 million, a decrease in depreciation and amortization expense of $7.6
million, a decrease in telecommunications expense of $0.7 million, a decrease in
other operating and administrative expense of $0.7 million, offset by an
increase in salaries and benefits expense of $4.2 million.
Interest Expense. Interest expense relating to the Term Loan Facility and Senior
Notes was $6.2 million for the six months ended June 30, 1999 compared to $7.3
million for the same period in 1998, a decrease of $1.1 million. The decrease is
due to the write-off of $1.1 million related to the cost of interim financing of
the Transaction in January 1998.
Extraordinary Loss. The extraordinary loss for the six months ended June 30,
1998 of $0.8 million represents the write-off of deferred debt issuance costs
related to interim financing of the Transaction.
Net Loss. The Company incurred a net loss for the six months ended June 30, 1999
of $3.8 million as compared to a net loss of $10.7
million in the same period of 1998.
(Three months ended June 30, 1999 compared to three months ended June 30, 1998)
Revenue. Total revenue was $27.9 million for the three months ended June 30,
1999, as compared to $24.7 million for the three months ended June 30, 1998, an
increase of $3.2 million or 13.0%. The increase was primarily the result of an
increase in revenue of $2.6 million from on-site call center management services
for a major telecommunications company and an increase in revenue from the
Department of Education ("DOE") of $1.3 million. These increases were offset by
(i) a decrease in revenue from telecommunications account placements of $0.3
million, and (ii) a decrease in revenue of $0.4 million from outsourced
pre-chargeoff management services.
Expenses. Salaries and benefits expense increased $2.8 million or 17.8% to $18.5
million for the three months ended June 30, 1999 from $15.7 million for the
three months ended June 30, 1998. This increase is primarily the result of the
Company's service expansion that includes on-site call center staffing and
management services for a major telecommunications company.
Telecommunications expense decreased $0.2 million or 14.3% to $1.2 million for
the three months ended June 30, 1999 from $1.4 million for the same period in
1998. The decrease is primarily the result of lower negotiated long distance
rates and lower call volume.
Occupancy expense increased $0.1 million or 10.0% to $1.1 million for the three
months ended June 30, 1999 from $1.0 million for the same period in 1998. The
Company closed its Atlanta data center and consolidated these operations into
the Phoenix data center in May 1998 and closed the Denver facility in February
1999. The decreases resulting from these office closings were offset by April
1999 rent increases.
Other operating and administrative expense decreased $0.2 million or 5.6% to
$3.4 million for the three months ended June 30, 1999 from $3.6 million for the
same period in 1998. The decrease is the result of the continuation of the
Company's operating improvement plan.
Depreciation and amortization expense decreased $3.8 million or 62.3% to $2.3
million for the three months ended June 30, 1999 from $6.1 million for the same
period ended June 30, 1998. The decrease was primarily the result of the
amortization of the value of existing placements of $3.6 million for the three
months ended June 30, 1998, as compared to no amortization for the same period
in 1999. The value of existing placements of $14.5 million was amortized over 12
months in 1998.
Operating Income. Operating income was $1.4 million for the three months ended
June 30, 1999, an increase of $4.6 million or 144.5% from a loss of $3.2 million
for the same period in 1998. This increase is primarily due to an increase in
revenue of $3.2 million, a decrease in depreciation and amortization expense of
$3.9 million, a decrease in telecommunications expense of $0.2 million, a
decrease in other operating and administrative expense of $0.2 million, offset
by an increase in salaries and benefits expense of $2.8 million.
Interest Expense. Interest expense relating to the Term Loan Facility and Senior
Notes remained flat at $3.1 million for the three month periods ended June 30,
1999 and 1998.
Net Loss. The Company incurred a net loss for the three months ended June 30,
1999 of $1.7 million as compared to a net loss of $6.3 million in the same
period of 1998.
Liquidity and Capital Resources
Cash used in operating activities was $2.7 million for the six months ended June
30, 1999 as compared to cash provided by operating activities of $9.2 million
for the six months ended June 30, 1998, resulting in an increase in cash used of
$11.9 million. This increase is primarily due to cash interest paid on the
Senior Notes and the Term Loan Facility of $6.1 million in the first six months
of 1999 compared to $1.7 million in the same period of 1998. Net income before
extraordinary items and after adding back depreciation, amortization, taxes and
interest (EBITDA) was $7.3 million compared to $9.6 million in the 1998 period.
Net working capital items increased by $4.0 million in the six months ended June
30, 1999 as compared to a decrease of $5.4 million in the same period of 1998.
Cash used in investing activities for the six months ended June 30, 1999 was
$1.0 million and $159.3 million for the six months ended June 30, 1998. The
Company's principal use of cash in investing activities during 1999 was for
capital expenditures, primarily for new computer and telecommunications
equipment. The Acquisition of $157.3 million in 1998 represents the purchase of
the Company (see Note 1).
Cash provided by financing activities was $3.3 million for the six months ended
June 30, 1999 representing $3.5 million of proceeds from a revolving line of
credit and the required first and second quarterly repayments of the seven-year
term loan facility. Cash provided by financing activities was $157.0 million for
the six months ended June 30, 1998, representing the funding of the Transaction.
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. On August 13, 1999, the Company
negotiated an amendment to the Credit Agreement that increases the existing line
of credit under the Revolving Credit Facility from $5.0 million to $6.5 million
and converts $3.4 million of existing debt under the Revolving Credit Facility
into a Term Loan Facility. In addition to this refinancing, on August 13, 1999,
certain existing investors of the Company contributed an additional $4.0 million
of equity to fund the growth of the business.
The ability of the Company to meet its debt service obligations and to comply
with the restrictive and financial covenants contained in the Senior Credit
Facility, the Revolving Credit Facility and the Notes will be dependent on the
future operating and financial performance of the Company, which will be subject
in part to a number of factors beyond the control of the Company, such as
prevailing economic conditions, interest rates and demand for credit collection
services.
Management believes that, based on current levels of operations and anticipated
improvements in operating results, cash flows from operations and borrowings
available under the 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 its loss before income taxes for
the six months ended June 30, 1999 and 1998 as it is not "more likely than not"
that the Company will be able to realize such benefits.
Year 2000
Until recently, computer programs were written to store only two digits of
date-related information in order to more efficiently handle and store data.
Thus, the programs were unable to properly distinguish between the year 1900 and
the year 2000. This is frequently referred to as the "Year 2000 Problem."
In 1997, the Company initiated a company-wide Year 2000 project based on a
methodology recommended by an outside consultant, with a dedicated Year 2000
Project Office and Coordinator. The Company has completed the process of
defining, assessing and converting, or replacing, various programs and hardware
to make them Year 2000 compatible. The Company is currently conducting formal
compliance testing of the renovated applications, which cover all sensitive time
periods (e.g., the weeks straddling December 1999 to January 2000, February 29,
2000, etc). Two of four collection applications have completed extensive
testing, with the other two on target for a third quarter completion.
The total cost for the Year 2000 remediation is estimated at approximately $1.5
million, which includes $0.4 million for the purchase of new software that will
be capitalized and $1.1 million that will be expensed as incurred. The Company
incurred and expensed approximately $0.4 million and $0.3 million during the six
months and quarter ended June 30, 1999, respectively, primarily for assessment
of the Year 2000 issue, the development of a modification plan and programming
costs.
The Year 2000 Problem goes beyond the Company's internal computer systems and
requires coordination with clients, vendors, government entities and other third
parties to assure that their systems and related interfaces are compliant.
Accordingly, the Company has implemented an aggressive client outreach program
to analyze the data interfaces shared with customers, partners and suppliers and
to coordinate specific plans for their needs. Clients sharing electronic
interfaces with the Company are currently being contacted and the goal is to
have such interfaces aligned by the end of the third quarter of 1999. A vendor
outreach program has also been implemented to identify critical systems for
supplied products and services, and to analyze the risk to the Company and its
customers should the products or services fail. At this point, all pertinent
vendor compliance issues have been identified and most replacements or upgrades
have occurred. There will continue to be replacements and upgrades through the
third quarter of 1999, however, there are currently no critical vendor issues
unresolved. The procurement process continues to be reviewed to prevent
acquisition of non-compliant products.
The Company is also addressing the impact of Year 2000 on its non-information
technology systems, which include examination of each location to ensure
lighting, elevators, copiers and fax machines function properly. This portion of
the Year 2000 project is expected to be completed by the end of the third
quarter of 1999. Additionally, on-going internal and external communications
through monthly executive reviews and weekly project reviews ensure that
progress is monitored by senior management.
The Company recognizes the need for contingency plans in all aspects of the
project, and such plans are now being outlined. The target for completion of
enterprise contingency plans has been moved from June 30, 1999 to September 30,
1999. This change allows the Company to better focus on detailed plans tailored
to each functional business area. The Company is also in the process of
developing contingency plans customized for some clients based on their needs
and schedules.
The Company believes that with testing and communication with its clients,
vendors and employees, the Year 2000 problem will not pose significant
operational problems for its computer systems. However, if such testing and
analysis is not completed in a timely fashion or if the Company's clients or
significant suppliers do not successfully achieve Year 2000 compliance, the Year
2000 Problem could have a material impact on the operations of the Company
including a reduction in revenue and profit.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated.
Forward-Looking Statements
This Form 10-Q and other communications, as well as oral statements made by
representatives of the Company, may contain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements relate to, among other things, the Company's outlook for future
periods, market forces within the industry, cost reduction strategies and their
results, planned capital expenditures, long-term objectives of management and
other statements of expectations concerning matters that are not historical
facts.
Predictions of future results contain a measure of uncertainty and, accordingly,
actual results could differ materially due to various factors. Factors that
could change forward-looking statements are, among others, changes in the
general economy, changes in demand for the Company's services and/or cyclicality
in the industries to which the Company's services are rendered, governmental
regulations and other unforeseen circumstances. A number of these factors are
discussed in this Form 10-Q and in the Company's annual report on Form 10-K for
the year ended December 31, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
<TABLE>
<CAPTION>
Long Term Debt
Non-Traded Instruments
As of June 30, 1999
(In $000's)
1999 2000 2001 2002 2003 Thereafter Total Fair Value
-------- -------- --------- --------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable Rate:
Term Loan Facility : $ 250 $ 250 $ 250 $ 250 $ 250 $17,500 $18,750 $18,625
$18 million 8.75% 9.00% 9.00% 9.00% 9.00% 9.00%
$.625 million 10.50% 10.50% 10.50% 10.50% 10.50% 10.50%
Revolving Credit Facility:
$3.45 million 10.25%
Fixed Rate:
Senior Notes due 2008: $ -- $ -- $ -- $ -- $ -- $100,000 $100,000 $83,000
$100 million @ 10.25% 10.25%
</TABLE>
The Company's primary risk exposure in the normal course of business is that of
interest rate risk. There have been no material changes in this type of exposure
during the periods presented.
PART II. OTHER INFORMATION - None
<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: August 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001059083
<NAME> NATIONWIDE CREDIT, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 5086
<SECURITIES> 0
<RECEIVABLES> 14558
<ALLOWANCES> 822
<INVENTORY> 0
<CURRENT-ASSETS> 20813
<PP&E> 15439
<DEPRECIATION> 6840
<TOTAL-ASSETS> 137629
<CURRENT-LIABILITIES> 17225
<BONDS> 100000
0
0
<COMMON> 0
<OTHER-SE> (150)
<TOTAL-LIABILITY-AND-EQUITY> 137629
<SALES> 55150
<TOTAL-REVENUES> 55150
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 52779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6218
<INCOME-PRETAX> (3847)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3847)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3847)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
