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, 2000 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 333-57249
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NATIONWIDE CREDIT, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1900192
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(State or other jurisdiction (IRS Employer
of incorporation or organiza Identification Number)
2015 Vaughn Road, Building 300, Kennesaw, GA 30144
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 933-6659
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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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16
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TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
as of June 30, 2000 and December 31, 1999 ................................................2
Consolidated Statements of Operations
for the Quarters ended June 30, 2000 and June 30, 1999,
and the Six Months Ended June 30, 2000 and June 30, 1999 ................................4
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2000 and June 30, 1999..................................5
Notes to Consolidated Financial Statements as of June 30, 2000..............................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ...........................................................9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.............................................14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
27 Financial Data Schedule
B. REPORTS ON FORM 8-K
No exhibits or reports on Form 8-K were filed
during the three months ended June 30, 2000
SIGNATURE...........................................................................................15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONWIDE CREDIT, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31, 1999
2000 Audited
Unaudited
----------------- ------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,909 $ --
Cash held for clients 848 1,090
Accounts receivable, net of allowance of
$418 and $351, respectively 17,705 18,209
Prepaid expenses and other current assets 5,934 3,709
------------------ ------------------
Total current assets 31,396 23,008
Property and equipment, less accumulated
depreciation of $12,197 and $8,946, respectively 18,057 14,852
Other assets, net:
Goodwill, less accumulated amortization of $8,823
and $7,058, respectively 97,048 98,812
Other intangible assets, less accumulated amortization
of $18,128 and $17,412, respectively 2,150 2,867
Deferred financing costs, less accumulated amortization
of $3,157 and $2,811, respectively 3,809 4,063
Other assets 39 82
------------------ ------------------
Total assets $ 152,499 $ 143,684
================== ==================
<FN>
The accompanying notes are an integral part of these consolidated balance
sheets.
</FN>
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NATIONWIDE CREDIT, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
Unaudited Audited
----------------- ------------------
<S> <C> <C>
Liabilities and stockholder's deficit
Current liabilities:
Collections due to clients $ 848 $ 1,090
Accrued compensation 4,065 4,557
Accounts payable 4,867 6,468
Accrued severance and office closure costs, current 582 1,139
Restructuring accrual, current 1,274 --
Other accrued liabilities 9,531 6,525
Deferred revenue 333 500
Current portion of capital leases 408 293
Current portion of notes payable 56 60
Current maturities of long-term debt 813 750
----------------- ------------------
Total current liabilities 22,777 21,382
Accrued severance and office closure costs, long-term 585 843
Capital lease obligations, less current portion 778 359
Long-term debt, less current maturities 129,382 121,308
----------------- ------------------
Total liabilities 153,522 143,892
Stockholder's deficit:
Common stock - $.01 par value
Authorized shares - 10,000 shares
Issued and outstanding shares - 1,000 shares -- --
Additional paid in capital 49,465 43,465
Accumulated deficit (50,348) (43,533)
Notes receivable - officers (140) (140)
----------------- ------------------
Total stockholder's deficit (1,023) (208)
----------------- ------------------
Total liabilities and stockholder's deficit $152,499 $143,684
================= ==================
<FN>
The accompanying notes are an integral part of these consolidated balance
sheets.
</FN>
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NATIONWIDE CREDIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------- ------------------------------
2000 1999 2000 1999
Unaudited Unaudited Unaudited Unaudited
-------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 33,821 $ 27,884 $ 67,314 $ 55,150
Expenses:
Salaries and benefits 22,179 18,492 44,194 36,924
Telecommunication 1,173 1,179 2,492 2,098
Occupancy 1,603 1,108 3,127 2,133
Other operating and administrative 5,502 3,426 10,297 6,703
Depreciation and amortization 2,929 2,262 5,733 4,678
Provision for employee severance, office closure
and other unusual costs -- -- -- 243
Restructuring expense 1,274 -- 1,274 --
-------------- ---------------- -------------- ---------------
Total expenses 34,660 26,467 67,117 52,779
-------------- ---------------- -------------- ---------------
Operating (loss) income (839) 1,417 197 2,371
Interest expense 3,524 3,104 7,011 6,218
-------------- ---------------- -------------- ---------------
Loss before income taxes (4,363) (1,687) (6,814) (3,847)
Provision for income taxes -- -- -- --
-------------- ---------------- -------------- ---------------
Net loss $ (4,363) $ (1,687) $ (6,814) $ (3,847)
============== ================ ============== ===============
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
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NATIONWIDE CREDIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
----------------------------------------
2000 1999
Unaudited Unaudited
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<S> <C> <C>
Operating activities
Net loss $ (6,814) $ (3,847)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 6,491 4,929
Other non-cash charges 1,480 243
Changes in operating assets and liabilities:
Accounts receivable 437 (851)
Prepaid expenses and other assets (2,596) (782)
Accrued compensation (492) (1,016)
Accounts payable and other accrued liabilities 285 (1,396)
---------------- ----------------
Net cash used in operating activities (1,209) (2,720)
Investing activities
Purchases of property and equipment (5,728) (1,005)
Financing activities
Capital contribution 6,000 --
Net proceeds from revolving credit facility 8,229 3,450
Repayment of other long-term debt (291) (125)
Debt issuance costs (92) --
---------------- ----------------
Net cash provided by financing activities 13,846 3,325
Increase (decrease) in cash and cash equivalents 6,909 (400)
Cash and cash equivalents at beginning of period -- 3,201
---------------- ----------------
Cash and cash equivalents at end of period $ 6,909 $ 2,801
================ ================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 6,007 $ 6,100
Non-cash activities:
Acquisition of leasehold improvements through
capital leases $ 727 $ --
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
NATIONWIDE CREDIT, INC.
NOTES TO 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, 1999
included in Form 10-K.
Certain amounts for the three months ended March 31, 2000 have been
reclassified to conform with the June 30, 2000 presentation. These
reclassifications had no significant impact on previously reported results
of operations or stockholder's equity.
Operating results for the six-month period ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative and Hedging Activities" (SFAS No. 133). SFAS No. 133 requires
companies to record derivatives on the balance sheet as assets or
liabilities at fair value. It is effective for financial statements for
fiscal years beginning after June 15, 2000, as amended by SFAS No. 137.
In June 2000, the FASB issued Statement of Financial Accounting Standards
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities" ("SFAS No. 138). This statement establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging
activities. SFAS No. 138 also addresses issues when implementing SFAS No.
133. This statement should be adopted concurrently with SFAS No. 133.
Management is evaluating the impact of SFAS No. 133 and SFAS No. 138 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.
3. Long-Term Debt and Stockholder's Equity
On April 18, 2000, the Company negotiated an amendment to its revolving
credit facility and term loan (the "Bank Facilities") to create an
additional $6.0 million of borrowing capacity to fund the Company's working
capital needs. Specifically, the existing line of credit under the
revolving credit facility was increased from $6.5 million to $12.5 million,
maturing January 2004 and bearing 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 amendment also revised certain
financial covenants. The Company was in compliance with the revised
financial covenants as of June 30, 2000. The Company will have to have a
significant increase in EBITDA to achieve third and fourth quarter covenant
levels.
4. 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.
5. Provision for Employee Severance, Office Closure, Restructuring Expense and
other Unusual Costs
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). The
corporate offices were relocated in August 1999 and branches that were not
operating at full capacity were reduced or were consolidated with other
branches. In 1999, the Company incurred $1.1 million of other unusual costs
related to a potential name change and development of a marketing and
strategic plan related to a repositioning of the Company in the
marketplace. In addition, the Company refined its estimates in 1999 and
reduced the provision for office closure by $0.5 million as a result of the
Company experiencing more favorable sub-leasing results.
As of June 30, 2000, substantially all charges related to employee
severance and relocation had been incurred. In the first six months of
2000, the Company recorded a charge of $0.8 million against the existing
accrual, mostly related to office closure costs. The remaining accrued
office closure costs of $1.2 million as of June 30, 2000 represent
estimated future rent obligations under cancelled leases.
In order to reduce costs and improve productivity and asset utilization,
the Company decided to consolidate and reorganize its operations. This
restructuring plan was formalized by the end of the second quarter of 2000.
The plan involves the Company removing itself from the directory assistance
operations for a telecommunications company, as it was not considered part
of the core business of the Company. In addition, the plan involves
consolidation of its collections systems and reorganization of its
information technology operations from a remote location to corporate
headquarters. Due to reorganization and shutdown of the directory
assistance operations, the plan includes the termination of 172 employees.
All employees were notified as of June 30, 2000. The plan also includes the
relocation of certain information technology personnel who were notified
and agreed to the relocation in the second quarter of 2000.
The Company recorded a total estimated charge of $1.3 million to complete
this plan, included in restructuring expenses. These charges include costs
for severance and benefits to terminate and relocate employees, and the
write-off of certain software and hardware.
The following table reflects the components of the significant items
included in restructuring charges for the three months ended June 30, 2000
(amounts in thousands):
Three Months Ended
June 30, 2000
----------------------
Directory assistance severance costs $ 152
Corporate and field severance costs 441
Relocation costs 415
Write-off hardware/software 266
----------------------
Total accrued restructuring costs and expenses $ 1,274
======================
In the last quarter of 1999 and the first six months of 2000, the Company
expanded its pre-chargeoff services to provide more comprehensive
collection solutions for its clients. This expansion required the addition
of two new facilities. Accordingly, in the first six months of 2000, the
Company incurred $1.1 million for the costs of such expansion activities,
which are included in operating expenses, under "Other operating and
administrative", "Salaries and benefits", and "Occupancy".
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
(Six months ended June 30, 2000 compared to six months ended June 30, 1999)
Revenue. Total revenue increased $12.2 million or 22.1% from $55.2 million for
the six months ended June 30, 1999 to $67.3 million for the six months ended
June 30, 2000. The increase was primarily the result of (i) a $6.1 million
increase in revenue from telecommunications account placements, (ii) a $5.8
million increase in revenue from outsourced pre-charge-off management services,
(iii) a $4.0 million increase in revenue from consumer and financial services
account placements, (iv) a $1.0 million increase in revenue from legal
collections, partially offset by a $2.7 million decrease in revenue from on-site
call center management services for a major telecommunications company and a
$2.0 million decrease in revenue from healthcare and institutional services. In
the first quarter of 2000, the Company gave notice of its intent to terminate
its service offering of directory assistance operations for a telecommunications
company, as it was not considered part of the core business of the Company. The
Company ceased this operation by July 30, 2000. Revenues generated from
directory assistance services in 1999 were less than 10% of the Company's total
revenues for the year; the impact on net income is expected to be minimal in the
year 2000.
Expenses. Salaries and benefits expense increased $7.3 million or 19.7% to $44.2
million for the six months ended June 30, 2000 from $36.9 million for the six
months ended June 30, 1999. This increase is primarily the result of the
Company's service expansion in outsourced pre-charge-off management services and
telecommunications, including the impact of a parallel ramp-up of two new
facilities in March and April 2000 (approximately $0.2 million).
Telecommunications expense increased $0.4 million or 18.8% to $2.5 million for
the six months ended June 30, 2000 from $2.1 million for the same period in
1999. The increase is primarily the result of increases in activity due to
service expansion and the addition of new facilities in the first and second
quarter of 2000.
Occupancy expense increased $1.0 million or 46.7% to $3.1 million for the six
months ended June 30, 2000 from $2.1 million for the same period in 1999. The
increase is the result of annual rent escalations and the addition of new
facilities in the fourth quarter of 1999 and the first quarter of 2000. These
new facilities provide the needed capacity for future growth.
Other operating and administrative expense increased $3.6 million or 53.6% to
$10.3 million for the six months ended June 30, 2000 from $6.7 million for the
same period in 1999. The increase is the result of the Company's service
expansion and staffing costs.
Depreciation and amortization expense increased $1.0 million or 22.6% to $5.7
million for the six months ended June 30, 2000 from $4.7 million for the same
period ended June 30, 1999. The increase was primarily the result of
depreciation on capital assets acquired subsequent to the second quarter of
1999.
Restructuring charge. In order to reduce costs and improve productivity and
asset utilization, the Company decided to consolidate and reorganize its
operations. This restructuring plan was formalized by the end of the second
quarter of 2000. The plan involves the Company removing itself from the
directory assistance operations for a telecommunications company, as it was not
considered part of the core business of the Company. In addition, the plan
involves consolidation of its collections systems and reorganization of its
information technology operations from a remote location to corporate
headquarters. Due to reorganization and shutdown of the directory assistance
operations, the plan includes the termination of 172 employees. All employees
were notified as of June 30, 2000. The plan also includes the relocation of
certain information technology personnel and the disposal of certain information
technology hardware and software.
The Company recorded a total charge of $1.3 million to complete this
restructuring, included in restructuring expenses. These charges include costs
for severance and benefits to terminate and relocate employees, and the
write-off of certain software and hardware.
Operating Income. Operating income was $0.2 million for the six months ended
June 30, 2000, a decrease of $2.2 million or 91.7 % from operating income of
$2.4 million for the same period in 1999. This decrease is primarily the result
of an increase in revenue of $12.2 million with an offsetting increase in
expenses of $14.3 million. Start-up costs related to the Company's growth and to
the opening of two new facilities including the impact of parallel staffing
costs temporarily reduced margins in the six month period as capacity was added
to meet the projected increase in business activity; the restructuring plan
decided in the second quarter of 2000 also impacted operating income. The
combined effect of these two non-recurring events was $2.4 million.
Interest Expense. Interest expense relating to the Term Loan Facility, Senior
Notes and capital leases was $7.0 million for the six months ended June 30, 2000
compared to $6.2 million for the same period in 1999, an increase of $0.8
million. This increase is the result of (i) an increase in interest rates on the
term loan facility, (ii) borrowings of $8.2 million against the revolving credit
facility and (iii) interest paid on capital lease obligations incurred since the
second quarter of 1999.
Net Loss. The Company incurred a net loss for the six months ended June 30, 2000
of $6.8 million as compared to a net loss of $3.8 million in the same period of
1999.
(Three months ended June 30, 2000 compared to three months ended June 30, 1999)
Revenue. Total revenue was $33.8 million for the three months ended June 30,
2000, as compared to $27.9 million for the three months ended June 30, 1999, an
increase of $5.9 million or 21.3%. The increase was primarily the result of (i)
an increase in revenue of $3.2 million from telecommunications account
placements (ii) an increase in revenue of $3.0 million from outsourced
pre-charge-off management services, (iii) an increase in revenue of $2.6 million
from consumer and financial services account placements and (iv) an increase in
revenue $0.5 million from legal collections. These increases were partially
offset by (i) a decrease in revenue of $1.8 million from on-site call center
management services for a major telecommunications company and (ii) a decrease
in revenue of $1.6 million from healthcare and institutional services.
Expenses. Salaries and benefits expense increased $3.7 million or 19.9% to $22.2
million for the three months ended June 30, 2000 from $18.5 million for the
three months ended June 30, 1999. This increase is primarily the result of the
Company's service expansion in outsourced pre-charge-off management services and
telecommunications.
Telecommunications expense remained level at $1.2 million for the three months
ended June 30, 2000 compared to $1.2 million for the same period in 1999.
Occupancy expense increased $0.5 million or 44.7 % to $1.6 million for the three
months ended June 30, 2000 from $1.1 million for the same period in 1999. The
increase is the result of annual rent escalations and the addition of two new
facilities in the fourth quarter of 1999 and the first quarter of 2000. These
new facilities provide the needed capacity for future growth.
Other operating and administrative expense increased $2.1 million or 60.6% to
$5.5 million for the three months ended June 30, 2000 from $3.4 million for the
same period in 1999. The increase is the result of the Company's service
expansion and parallel staffing costs.
Depreciation and amortization expense increased $0.7 million or 29.5% to $2.9
million for the three months ended June 30, 2000 from $2.3 million for the same
period ended June 30, 1999. The increase was primarily the result of
depreciation on capital assets acquired subsequent to the second quarter of
1999.
Restructuring charge. In order to reduce costs and improve productivity and
asset utilization, the Company decided to consolidate and reorganize its
operations. This restructuring plan was formalized by the end of the second
quarter of 2000. The plan involves the Company removing itself from the
directory assistance operations for a telecommunications company, as it was not
considered part of the core business of the Company. In addition, the plan
involves consolidation of its collections systems and reorganization of its
information technology operations from a remote location to corporate
headquarters. Due to reorganization and shutdown of the directory assistance
operations, the plan includes the termination of 172 employees. All employees
were notified as of June 30, 2000. The plan also includes the relocation of
certain information technology personnel.
The Company recorded a total charge of $1.3 million to complete this
restructuring, included in the restructuring expenses. These charges include
costs for severance and benefits to terminate and relocate employees, and the
write-off of certain software and hardware.
Operating (Loss) Income. Operating loss was $0.8 million for the three months
ended June 30, 2000, a decrease of $2.2 million or 159.2% from operating income
$1.4 million for the same period in 1999. This decrease is due to an increase in
revenue of $5.9 million with offsetting increases in expenses of $8.2 million.
The increase in expenses include (i) $0.7 million of start-up expenses for
expansion of pre-charge-off services and (ii) $1.3 million of restructuring
charges.
Interest Expense. Interest expense relating to the Term Loan Facility, Senior
Notes and capital leases was $3.5 million for the three months ended June 30,
2000 compared to $3.1 million for the same period in 1999, an increase of $0.4
million. This increase is the result of (i) an increase in interest rates on the
term loan facility, (ii) borrowings against the revolving credit facility and
(iii) interest paid on capital lease obligations incurred during the second
quarter of 2000.
Net Loss. The Company incurred a net loss for the three months ended June 30,
2000 of $4.4 million as compared to a net loss of $1.7 million in the same
period of 1999.
Liquidity and Capital Resources
During the first six months of 2000, the Company's continued growth resulted in
an increase in working capital requirements. To support this growth, the Company
purchased approximately $6.5 million of property and equipment which includes
$0.7 million acquired through capital leasing. These capital acquisitions along
with the additional working capital requirements were financed by an additional
equity investment of $6.0 million from the Company's current investors and
borrowings of $8.2 million under the Revolving Credit Facility.
Cash used in operating activities was $1.2 million for the six months ended June
30, 2000 as compared to $2.7 million for the six months ended June 30, 1999,
resulting in a decrease in cash used of $1.5 million. Net working capital
increased by $7.0 million to $8.6 million in the six months ended June 30, 2000
as compared to $1.6 million at December 31, 1999. This increase is primarily due
to an increase in cash and cash equivalents for the six months ended June 30,
2000 as compared to December 31, 1999. Net income before extraordinary items and
after adding back depreciation, amortization, non-recurring charges, taxes and
interest (EBITDA) increased 16% to $8.5 million for the six months ended June
30, 2000.
Cash used in investing activities for the six months ended June 30, 2000 was
$5.7 million as compared to $1.0 million for the six months ended June 30, 1999.
The Company's principal use of cash in investing activities during the first six
months of 2000 was for capital expenditures, primarily for new computers and
telecommunications equipment for the new facilities.
Cash provided by financing activities was $13.8 million for the six months ended
June 30, 2000 representing $6.0 million of equity contribution from current
investors, $8.2 million in proceeds from a revolving line of credit, $0.3
million of repayments on long term debt and $0.1 million of debt issuance costs.
Cash provided by financing activities was $3.3 million for the six months ended
June 30, 1999, representing $3.4 million in proceeds from a revolving line of
credit and repayments of $0.1 million on the term loan facility.
During the second quarter of 2000, the Company negotiated an amendment to its
credit agreement (the "Amended and Restated Credit Agreement") that creates an
additional $6.0 million of borrowing capacity and revises the cumulative EBITDA
and related financial covenants to reflect the Company's revised EBITDA
expectations. 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, liens, and asset sales. The Company was in
compliance with the revised covenants as of June 30, 2000. The Company will have
to have a significant increase in EBITDA to achieve third and fourth quarter
covenant levels.
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, 2000 and 1999 due to the uncertainty regarding the
realization of such benefits.
Year 2000
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. During the second quarter of 2000, the Company
experienced no disruptions in critical information technology and
non-information technology systems and believes those systems successfully
responded to the Year 2000 date change. The Company will continue to monitor its
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
promptly addressed.
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, 1999.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Long Term Debt
Non-Traded Instruments
As of June 30, 2000
(In $000's)
<TABLE>
<CAPTION>
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
-------- --------- -------- --------- --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable Rate:
(1) Term Loan Facility : $687 $1,250 $1,250 $1,200 $17,500 $ -- $21,887 $21,887
$ 18.0 million 10.52% 10.52% 10.52% 10.52% 10.52% 10.52%
$ 0.4 million 12.25% 12.25% 12.25% 12.25% 12.25% 12.25%
$ 3.45 million 12.50% 12.50% 12.50% 12.50% 12.50% 12.50%
(2) Revolving Loan
$ 8.2 million 12.00% -- -- -- -- -- $ 8,228 $8,228
Fixed Rate:
Senior Notes due 2008: $ -- $ -- $ -- $ -- $ -- $100,000 $100,000 $73,000
$100 million @ 10.25% 10.25%
Security Agreements $ 23 $ 63 $ 48 $ 134 $ 134
22.50% 22.50% 22.50%
</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.
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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/ Eric R. Dey
------------------------------------------------------------
Eric R. Dey
Chief Financial Officer
Dated: August 14, 2000
