<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1995, or
/ / Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from to
---------------
COMMISSION FILE NUMBER 0-5589
---------------
PAYCO AMERICAN CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
WISCONSIN
---------------------------------------------
(State or other jurisdiction of incorporation
or organization)
180 North Executive Drive, Brookfield, Wisconsin
------------------------------------------------
(Address of principal executive offices)
39-1133219
------------------------------------
(IRS Employer Identification Number)
53005
---------
(Zip Code)
(414) 784-9035
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
-------------------------------------------------------------
(former name,former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- -----
The number of shares outstanding of each of the issuer's classes of
common stock was 10,133,478 shares of common stock, par value $0.10,
outstanding as at March 31, 1995.
==============================================================================
<PAGE>
<TABLE>
<CAPTION>
PAYCO AMERICAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars except share & per share data)
- -----------------------------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER
1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <S> <C> <C>
ASSETS LIABILITIES & SHAREHOLDERS'
INVESTMENT
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and Cash Equivalents $13,004 $10,867 Collections Due to Clients $22,407 $17,794
Cash and Cash Equivalents Accounts Payable 5,326 5,459
Held for Clients 22,407 17,794
Short-Term Borrowings 9,653 6,200
Obligations under Capital
Accounts Receivable-Trade Leases 57 77
Net of Allowances 16,872 15,541 Accrued Liabilities-
Salaries and Benefits 5,165 5,597
Accounts Receivable- Taxes, Other Than Income 1,286 1,101
Purchased 14,367 13,826 Other 1,099 1,698
Prepaid Expenses 1,737 1,054 Deferred Revenue 421 192
Accrued Income Taxes - 23
Deferred Income Taxes 977 743 Accrued Income Taxes 1,128 -
------------ --------- ------------ ---------
Total Current Assets 69,364 59,848 Total Current Liabilities 46,542 38,118
PROPERTY AND EQUIPMENT: OTHER LONG-TERM LIABILITIES 878 942
Data Processing Equipment 34,426 33,105
Furniture and Equipment 11,703 11,334
Leasehold Improvements 3,297 2,998 LONG-TERM DEBT 334 334
Property Held under
Capital Leases 634 634 OBLIGATIONS UNDER CAPITAL
------------ --------- LEASES 56 61
50,060 48,071
Less-Accumulated COMMITMENTS AND
Depreciation and CONTINGENCIES - -
Amortization 35,646 34,463
------------ --------- SHAREHOLDERS' INVESTMENT:
Net Property and Equipment 14,414 13,608 Preferred Stock,
No Par Value-
ACCOUNTS RECEIVABLE- Authorized 500,000 Shares,
PURCHASED 566 4,164 None Issued - -
Common Stock,
OTHER LONG-TERM $.10 Par Value-Authorized
RECEIVABLES 839 839 50,000,000 Shares, Issued &
Outstanding, 10,133,478 &
NON-COMPETE COVENANTS, NET 2,300 2,691 10,128,503 Shares, Respectively 1,013 1,013
GOODWILL, NET 9,475 5,939 Additional Paid-In Capital 1,630 1,586
DEFERRED INCOME TAXES 114 287 Stock Options Issuable 704 704
OTHER ASSETS 463 122 Retained Earnings 46,378 44,740
------------ ---------
Total Shareholders' Investment 49,725 48,043
------------ --------- ------------ ---------
$97,535 $87,498 $97,535 $87,498
============ ========= ============ =========
<FN>
===========================================================================================================
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAYCO AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars except share & per share data)
----------------------------------------------------------------------
For the three month period
ended March 31, 1995 1994
----------------------------------------------------------------------
<S> <C> <C>
OPERATING REVENUE $42,868 $37,277
OPERATING EXPENSES:
Salaries and Benefits 23,795 20,378
Telephone 2,555 2,537
Postage and Supplies 2,582 2,249
Occupancy Costs 2,326 2,127
Data Processing Equipment 1,799 1,746
Amortization of Acquisition Costs 4,137 3,187
Other Operating Costs 2,638 2,500
----------- -----------
Total Operating Expenses 39,832 34,724
----------- -----------
Income from Operations 3,036 2,553
OTHER INCOME, Primarily from
Short-Term Investments 35 13
INTEREST EXPENSE 131 24
----------- -----------
Income before Income Taxes 2,940 2,542
PROVISION FOR INCOME TAXES 1,302 1,130
----------- -----------
NET INCOME $ 1,638 $ 1,412
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 10,133,478 10,077,945
NET INCOME PER SHARE $0.16 $0.14
<FN>
======================================================================
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAYCO AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
----------------------------------------------------------------------
For the three month period
ended March 31, 1995 1994
----------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 1,638 $ 1,412
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Amortization of Acquisition Costs 4,137 3,187
Depreciation and Amortization 1,189 1,082
Cost (Benefit) of Deferred Income Taxes (61) (107)
Changes in Assets and Liabilities:
Accounts Receivable (1,331) (298)
Prepaid Expenses (611) (509)
Accounts Payable (168) 546
Accrued Liabilities (875) (1,027)
Deferred Revenue 229 (3)
Accrued Income Taxes 1,151 451
--------- -----------
Net Cash Provided by Operations 5,298 4,734
--------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital Expenditures, Net of Retirements (1,245) (259)
Purchase of Accounts Receivable (428) (160)
Purchase of Other Businesses (4,960) (4,267)
Long-Term Notes Receivable - (179)
--------- -----------
Net Cash Used In Investing Activities (6,633) (4,865)
--------- -----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net Proceeds from Short-Term Borrowings 3,453 -
Payments Under Capital Lease Obligations (19) (29)
Other Long-Term Debt - 25
Proceeds from Exercise of Stock Options 38 15
----------- -----------
Net Cash Provided by Financing Activities 3,472 11
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents 2,137 (120)
Cash and Cash Equivalents at
Beginning of Period 10,867 14,014
----------- -----------
Cash and Cash Equivalents at End of Period $ 13,004 $ 13,894
========================================== =========== ===========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash Paid For:
Income Taxes, Net of Refunds $ 212 $ 787
Interest 128 46
<FN>
======================================================================
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
4
<PAGE>
PAYCO AMERICAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 1995
I. ACCOUNTING POLICIES
The information furnished in this report reflects all normal and recurring
adjustments which are, in the opinion of management, necessary to form a fair
statement of the results of the interim periods. This report should be read
in conjunction with the 1994 Annual Report to shareholders on Form 10-K.
A. STATEMENT OF CASH FLOWS
The following paragraph provides additional disclosure regarding cash
flow as required under the indirect method of reporting.
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid investments with a maturity of less than 90 days to be cash
equivalents.
B. TRADE ACCOUNTS RECEIVABLE
Accounts Receivable-Trade is presented net of an allowance for doubtful
accounts. The allowance was $421,000 and $555,000 for the period ended March
31, 1995 and December 31, 1994, respectively.
C. SHORT TERM BORROWINGS
The Company maintains a short-term borrowing agreement with the Bank
which provides the Company with an option to borrow under a line of credit or
issue commercial paper up to $25.0 million. During the first quarter of 1995,
interest rates on borrowed funds ranged from 6.05% to 6.20%
5
<PAGE>
PAYCO AMERICAN CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATIONS
Effective January 1, 1995, the Company purchased certain assets of Furst and
Furst (F&F). F&F provides accounts receivable management services primarily
to commercial clients through offices in Illinois, New Jersey and California.
Effective February 1, 1995 the Company purchased the collection business of
Continental Credit Adjustors (CCA). CCA is located in Houston, Texas and
provides primarily medical and retail collection services to Texas clients.
On a combined basis, these companies generated approximately $8.0 million in
revenue in 1994.
Accounts received for collection were $985 million and $726 million for the
three months ended March 31, 1995 and 1994, respectively, or a 36% increase.
Excluding placements from the 1995 acquisition of CCA and F&F, accounts
received for collection increased $212 million or 29%.
Operating revenue for the period ended March 31, 1995 and 1994 is summarized
below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
For the three months ended, March 31, March 31,
1995 1994
(in thousands)
- ----------------------------------------------------------------
<S> <C> <C>
Revenue:
Collection $32,822 $28,431
Accounts Receivable-Purchased 4,075 3,240
Student Loan Billing 1,774 1,687
Medicaid Billing 1,543 1,472
Telemarketing 1,720 1,543
Other 934 904
- ----------------------------------------------------------------
Total Operating Revenue $42,868 $37,277
================================================================
</TABLE>
Total operating revenue for the first three months of 1995 increased
15% while collection revenue increased 15.4%. Collection revenue from
CCA and F&F accounted for $1.9 million of total collection revenue.
Excluding the 1995 acquisitions, collection revenue increased 8.8% despite
an operating environment with continued competitive pressure on prices.
Revenue from purchased accounts receivable portfolios increased
26% to $4.1 million in the first quarter of 1995. This increase was
primarily the result of purchases of receivables during the second
half of 1994. During the first quarter of 1995 portfolios were purchased
at a cost of $428,000 compared to $160,000 in the first quarter of 1994.
Billing revenue, including Student Loan billing, Medicaid billing
and Other, increased 4.6% to $4.3 million during the first quarter of
1995 compared to the same period in 1994. Telemarketing revenue
increased 11.5% to $1.7 million compared to the first quarter of 1994.
New client business and increased business volume from existing clients
positively impacted Billing and Telemarketing revenue.
Operating expenses increased 14.7% to $39.8 million for the first
quarter of 1995 compared to the first quarter of 1994. Operating expenses
exclusive of the acquisition of CCA & F&F were flat.
6
<PAGE>
Salaries and benefits, the Company's most significant expense was $23.8
million for the period ended March 31, 1995 compared to $20.4 million
in 1994. Salary and benefits exclusive of 1995 acquisitions increased 10.9%
primarily as a result of an increase in number of collectors required to
handle larger business volume. The Company does not provide post-retirement
health or life insurance benefits or significant post-employment benefits to
employees.
Telephone expense was flat between periods at $2.5 million for the three
months ended March 31, 1995 compared to the same period in 1994. Included in
telephone expense are costs associated with dedicated communication datalines,
local and long distance service, and depreciation and maintenance on telephone
equipment. Telephone expense, exclusive of acquisitions, decreased by 2.4%.
Although telephone usage increased during the first quarter of 1995 compared
to the same period in 1994, the cost of increased usage was partially offset
by lower long-distance rates negotiated at the end of 1994.
Postage and supplies increased 15% to $2.6 million for the three month
period ended March 31, 1995 as compared to the same period in 1994.
Postage expense alone increased 24% compared to the first quarter of 1994.
The new U.S. postal rate, which became effective January 1, 1995 along with
increased business volume accounted for the increase in postage costs.
Exclusive of acquisitions, Postage and supplies increased 9.2%. Postage and
supplies expense historically fluctuates with the number of accounts received
for collection.
Occupancy costs which includes leased office space, depreciation of furniture
and fixtures, amortization of leasehold improvements and rental and repair of
office equipment increased 9.4% to $2.3 million. Occupancy costs exclusive
of acquisitions were flat in the first quarter of 1995 compared to the first
quarter of 1994.
Data processing equipment costs increased by 3.0% to $1.8 million for
the period ended March 31, 1995 when compared to the same period in
1994. Work continues to proceed according to plan on the World-class
Integrated Network (WIN). WIN is the Company's new receivable
management system which will replace PACS [registered trade mark] (Payco
Automated Collection System). The Company will invest approximately
$15 million for the purchase and customization of WIN hardware and software
in all offices. WIN installation is expected to be completed by year-end
1996. The Company also plans to invest approximately $4.0 million over 1995
and 1996 in order to upgrade its student loan billing system. Work proceeds
on schedule on the development of the new student loan billing system which
is expected to be completed in mid-1996.
Amortization of acquisition costs was $4.1 million for the first quarter
of 1995 compared to $3.2 million for the same period in 1994. This expense
category includes the amortization of non-compete agreements, debtor account
inventory, goodwill and purchase accounts receivable portfolios. Amortization
expense associated with purchased accounts receivable portfolios increased by
$0.9 million between quarters to $3.5 million. This increase is due to the
increase in the volume of collections on purchased receivables.
Other operating costs increased by $138,000 or 5.5% to $2.6 million in the
first quarter of 1995 compared to the first quarter of 1994 primarily as a
result of 1995 acquisitions. Other operating costs includes, among other
costs, business insurance, legal expense, skip tracing costs and travel and
entertainment costs.
7
<PAGE>
On March 8, 1995 a Consent Decree was approved settling the legal action
brought by the Department of Justice on behalf of the Federal trade Commission
which alleged violations of the Fair Debt Collection Practices Act. While
admitting no liability the Company paid a penalty in the amount of $500,000
which had been fully reserved for in prior periods. The Company believes
that compliance with the provisions of the consent decree will not materially
affect its financial condition or ongoing operations.
Other income increased $22,000 while interest expense increased $107,000
in the first quarter of 1995 compared to the first quarter of 1994. Other
income consists primarily of interest income. The increase in interest
expense is due primarily to the increase in short-term borrowings.
The effective tax rate decreased to 44.0% for the first three months of 1995
from 44.5% for the same period in 1994. The Company's provision for income
taxes changes with the levels of pre-tax income, levels of nondeductible
expenses, changes in tax law and the mix of state income tax rates.
Net income per share for the first three months of 1995 was $0.16
compared to $0.14 for the same period in 1994. The increase is a
result of a 15.0% increase in revenue coupled with a 14.7% increase in
operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $25.0 million short-term borrowing agreement with the Bank.
The agreement allows the Company to borrow funds under a line of credit
agreement or through the issuance of commercial paper. All loans made to the
Company by the bank under the line of credit are payable upon demand and are
evidenced by a single promissory note. The Company is not required to
maintain compensating balances, and there are no restrictive covenants under
the agreement. As of March 31, 1995, the Company had $15.3 million available
to borrow. Funds borrowed were used primarily to fund the Company's
acquisition program. The interest rate on outstanding borrowings at March 31,
1995 ranged from 6.05% to 6.20%. The total capital expenditure associated with
the WIN system is estimated to be approximately $15.0 million. Plans are to
complete the installation by the end of 1996. The Company also expects to
invest approximately $4.0 million over 1995 and 1996 in order to upgrade its
automated student loan system. The Company considers the short-term borrowing
agreement to be its primary liquidity resource.
8
<PAGE>
ITEM 1.
LEGAL PROCEEDINGS
On March 8, 1995 the Registrant reached a settlement in its
litigation with the Federal Trade Commission which was based on a complaint
filed in August of 1993 alleging that the Company had violated the Federal
Fair Debt Collection Practices Act. The case was resolved with a consent
decree in which the Company did not admit any liability. The consent decree
further provided that the Registrant pay a civil penalty of $500,000 and take
additional steps to ensure compliance with the Act. The Company had
previously established a reserve adequate to cover the cost of the consent
decree. The Company further believes that compliance with the provisions of
the consent decree will not materially affect its financial condition or
ongoing operations.
The Company is defendant in various legal proceedings involving claims
for damages which constitute ordinary routine litigation incidental to its
business.
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On March 10, 1995 a Form 8-K was filed in order to report the
following event.
On March 8, 1995 the Registrant reached a settlement in its
litigation with the Federal Trade Commission which was based on a complaint
filed in August of 1993 alleging that the Registrant had violated the Federal
Fair Debt Collection Practices Act.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAYCO AMERICAN CORPORATION
(Registrant)
Date: May 11, 1995 By: DAVID S. PATTERSON
------------ ------------------
David S. Patterson
Principal Operating Officer
Date: May 11, 1995 By: JOHN P. STETZENBACH
------------ -------------------
John P. Stetzenbach
Principal Financial and Accounting
Officer
10
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Pursuant to Item 601(c)(2)(i) of Regulations S-K, the Registrnt hereby disclaims
Exhibit 27.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 35411
<SECURITIES> 0
<RECEIVABLES> 17293
<ALLOWANCES> 421
<INVENTORY> 0
<CURRENT-ASSETS> 69364
<PP&E> 50060
<DEPRECIATION> 35646
<TOTAL-ASSETS> 97535
<CURRENT-LIABILITIES> 46542
<BONDS> 0
<COMMON> 1013
0
0
<OTHER-SE> 48712
<TOTAL-LIABILITY-AND-EQUITY> 97535
<SALES> 42868
<TOTAL-REVENUES> 42868
<CGS> 0
<TOTAL-COSTS> 39832
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131
<INCOME-PRETAX> 2940
<INCOME-TAX> 1302
<INCOME-CONTINUING> 1638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1638
<EPS-PRIMARY> .16
<EPS-DILUTED> 0
</TABLE>
