<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, 1996, 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 10,155,085 shares of common stock, par value $0.10,
outstanding as at March 31, 1996.
==============================================================================
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS PAYCO AMERICAN CORPORATION
- ------------------------------------------------------------------------------------------------------
MARCH 31, DEC. 31, MARCH 31, DEC. 31,
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
<S> <C> <C> <C> <C>
ASSETS LIABILITIES & SHAREHOLDERS'
INVESTMENT
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and Cash Equivalents $10,966 $7,752 Collections Due to Clients $25,940 $20,233
Cash and Cash Equivalents Accounts Payable 6,740 5,441
Held for Clients 25,940 20,233
Short-Term Borrowings 16,628 13,034
Other Notes Payable - 1,000
Accounts Receivable-Trade
Net of Allowances 19,266 21,013 Obligations under Capital
Leases 39 60
Accounts Receivable- Accrued Liabilities-
Purchased 9,855 11,012 Salaries and Benefits 5,107 6,493
Taxes, Other Than Income 1,284 1,224
Prepaid Expenses 1,544 1,527 Other 1,556 1,705
Deferred Revenue 317 118
Deferred Income Taxes 1,083 1,087
Accrued Income Taxes 1,137 49
------------------- -------------------
Total Current Assets 68,654 62,624 Total Current Liabilities 58,748 49,357
PROPERTY AND OTHER LONG-TERM LIABILITIES 807 834
EQUIPMENT:
Data Processing Equipment 49,333 45,373 LONG-TERM DEBT 334 334
Furniture and Equipment 12,804 12,793
Leasehold Improvements 3,605 3,513 OBLIGATIONS UNDER CAPITAL
Property Held under LEASES - -
Capital Leases 581 634
------------------- COMMITMENTS AND - -
66,323 62,313 CONTINGENCIES - -
Less Accumulated
Depreciation and SHAREHOLDERS' INVESTMENT:
Amortization 39,918 39,450 Preferred Stock,
------------------- No Par Value-
Net Property and Equipment 26,405 22,863 Authorized 500,000 Shares,
None Issued - -
<PAGE>
ACCOUNTS RECEIVABLE-
PURCHASED 4,619 4,338
Common Stock,
OTHER LONG-TERM $0.10 Par Value-Authorized
RECEIVABLES 479 519 50,000,000 Shares, Issued
& Outstanding Shares, 10,155,085. 1,016 1,016
NON-COMPETE
COVENANTS, NET 1,280 1,151 Additional Paid-In Capital 2,020 2,020
GOODWILL, NET 12,750 11,661 Cumulative Translation Adjustments (24) (24)
DEFERRED INCOME TAXES 285 238 Stock Options Issuable 148 148
OTHER ASSETS 211 281 Retained Earnings 51,634 49,990
-------------------
Total Shareholders' Investment 54,794 53,150
------------------- -------------------
$114,683 $103,675 $114,683 $103,675
=================== ===================
<FN>
======================================================================================================
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAYCO AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars except share & per share data)
- ------------------------------------------------------------
For the three month periods
ended March 31, 1996 1995
- ------------------------------------------------------------
<S> <C> <C>
OPERATING REVENUE $45,386 $42,868
OPERATING EXPENSES:
Salaries and Benefits 26,024 23,795
Telephone 2,745 2,555
Postage and Supplies 2,561 2,582
Occupancy Costs 2,207 2,326
Data Processing Equipment 2,677 1,799
Amortization of Acquisition Costs 3,069 4,137
Other Operating Costs 3,017 2,638
----------------------
Total Operating Expenses 42,300 39,832
----------------------
Income from Operations 3,086 3,036
OTHER INCOME, Primarily from
Short-Term Investments 40 35
INTEREST EXPENSE 241 131
----------------------
Income before Income Taxes 2,885 2,940
PROVISION FOR INCOME TAXES 1,241 1,302
----------------------
NET INCOME $1,644 $1,638
======================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 10,155,085 10,133,478
NET INCOME PER SHARE $0.16 $0.16
<FN>
============================================================
The accompanying notes are an integral part of these
consolidated statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAYCO AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
- ------------------------------------------------------------------
For the three month periods
ended March 31, 1996 1995
- ------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $1,644 $1,638
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Amortization of Acquisition Costs 3,069 4,137
Depreciation and Amortization 1,796 1,189
Cost (Benefit) of Deferred Income Taxes (43) (61)
Changes in Assets and Liabilities:
Accounts Receivable-Trade 1,746 (1,331)
Prepaid Expenses (17) (611)
Accounts Payable 1,299 (168)
Accrued Liabilities (1,501) (875)
Deferred Revenue 199 229
Accrued Income Taxes 1,088 1,151
------------------
Net Cash Provided by Operations 9,280 5,298
------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital Expenditures, Net of Retirements (5,339) (1,245)
Purchase of Accounts Receivable (1,734) (428)
Purchase of Other Businesses (1,605) (4,960)
Long-Term Notes Receivable 40 -
------------------
Net Cash Used In Investing Activities (8,638) (6,633)
------------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net Proceeds from Short-Term Borrowings 3,594 3,453
Net Payments on Other Notes Payable (1,000) -
Payments Under Capital Lease Obligations (22) (19)
Proceeds from Exercise of Stock Options - 38
------------------
Net Cash Provided by Financing Activities 2,572 3,472
------------------
Net Increase (Decrease) in Cash and
Cash Equivalents 3,214 2,137
Cash and Cash Equivalents at
Beginning of Period 7,752 10,867
------------------
Cash and Cash Equivalents at End of Period $10,966 $13,004
==================
=============================================== ==================
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash Paid For:
Income Taxes, Net of Refunds $196 $212
Interest 272 128
<FN>
==================================================================
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
<PAGE>
PAYCO AMERICAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 1996
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 1995 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 $522,000 and $604,000 for the period ended March
31, 1996 and December 31, 1995, respectively.
C. SHORT TERM BORROWINGS
The Company maintains a short-term borrowing agreement with its primary
lender. 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 1996, the weighted average interest rate on borrowed funds was
5.7%.
<PAGE>
PAYCO AMERICAN CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATIONS
Total operating revenue for the period ended March 31, 1996 was $45.4
million or a 5.9% increase over the same period of the prior year. The table
below, reflects a new presentation of the Company's revenue components. The
most significant change is the development of a health care outsourcing
division to market and deliver several accounts receivable management services
to the health care industry. These services include billing, insurance
follow-up and business office outsourcing. The March 31, 1995 revenue has
been reclassified to conform to the new presentation.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
For the three months ended, March 31, March 31,
1996 1995
(in thousands)
- ----------------------------------------------------------------
<S> <C> <C>
Revenue:
Retail Collection $29,824 $27,784
Health Care Outsourcing 4,950 3,791
Commercial Collection 3,690 2,643
Accounts Receivable-Purchased 3,465 4,075
Billing 2,197 2,319
Teleservicing 1,260 2,256
- ----------------------------------------------------------------
Total Operating Revenue $45,386 $42,868
================================================================
</TABLE>
The increase in retail collection revenue is primarily attributable to
increased collection of accounts in the student loan industry and accounts
from various state governments. The Company continues to experience
competitive pressure on prices. Health care outsourcing revenue increased
primarily due to the Company's contract with HBO & Company which commenced
September 1, 1995, to be primary subcontractor in performing business office
management for Maricopa County Health Care Systems. Commercial collection
revenue increased as a result of the revenue contributed by Grable, Greiner &
Wolff, the commercial collection agency acquired May 1, 1995. Accounts
receivable-purchased revenue and teleservicing revenue decreased in the first
quarter of 1996 when compared to first quarter of 1995. The market for
purchased receivables has become more competitive and the availability of
portfolios which meet the Company's purchase criterion has been limited.
Teleservicing revenue declined primarily because of a reduction in business in
the newspaper industry.
Operating expenses increased $2.5 million or 6.2% to $42.3 million for the
first quarter of 1996 compared to the first quarter of 1995. Total operating
expenses of businesses acquired during 1995 accounted for $1.1 million of the
overall increase between quarters. The Company's investment in WIN (World-
class Integrated Network) also has contributed to the overall increase in
expenses between first quarter of 1995 and first quarter of 1996. WIN is the
Company's new accounts receivable management system which will replace PACS
[registered trademark] (PAYCO Automated Collection System).
Salaries and benefits, the Company's most significant expense, was $26.0
million for the period ended March 31, 1996 compared to $23.8 million
for the period ended March 31, 1995. The 9.4% increase in salaries and
benefits was due primarily to the 1995 acquisitions of businesses, increased
compensation costs as a result of larger business volume and additional costs
incurred as a result of the development, installation and training required
for WIN.
The Company does not provide post-retirement health or life insurance benefits
or significant post-employment benefits to employees.
Telephone expense increased 7.4% between periods to $2.7 million for the three
months ended March 31, 1996 compared to the same period in 1995. Telephone
expense exclusive of 1995 business acquisitions increased 5.7%. Included in
telephone expense are costs associated with dedicated communication datalines,
local and long distance service, and depreciation and maintenance on telephone
equipment. Decreased telephone usage as a result of lower telemarketing
business offset by increased collection related telephone usage and increased
costs for maintenance contributed to the overall increase in telephone
expense.
Postage and supplies expenses were flat during the first quarter of 1996
compared to the first quarter of 1995. Exclusive of 1995 business
acquisitions, postage and supplies decreased 4.2%. Efforts to more closely
monitor postage and supplies expenditures has contributed to the decrease in
expense between quarters.
Occupancy costs which includes leased office space, depreciation of furniture
and fixtures, amortization of leasehold improvements and rental and repair of
office equipment decreased 5.1% to $2.2 million. Occupancy costs exclusive
of acquisitions of businesses in 1995 decreased 7.8% in the first quarter of
1996 compared to the first quarter of 1995 primarily as a result of the
relocation of certain offices.
Data processing equipment costs increased 48.8% in the first quarter of 1996
when compared to the first quarter of 1995. Exclusive of 1995 business
acquisitions, data processing equipment costs increased $0.8 million, or
44.9%, primarily as a result of the Company's investment in WIN. Included in
the first quarter 1996 expenses are approximately $400,000 in nonrecurring
costs associated with operating both the PACS and WIN system which are
anticipated to be eliminated once WIN installation is completed in all the
Company's collection offices. WIN will cost approximately $19-21 million when
installed in all of the Company's collection offices. During the first quarter
of 1996, the Edison, New Jersey, Marietta, Georgia and Brookfield, Wisconsin
offices were converted to the WIN system. These conversions bring the number
of offices operating on WIN to 13. Work also continues on the development of
the new student loan billing system. The total cost of the student loan
billing system will be approximately $4.0 million with implementation
scheduled to begin in early 1997. Through March 31, 1996, total investments
in the WIN and student loan systems were $13.2 million and $2.5 million,
respectively.
Amortization of acquisition costs was $3.1 million for the first quarter
of 1996 compared to $4.1 million for the same period in 1995. 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 decreased by
$0.9 million between quarters to $2.6 million. This decrease is due to the
decrease in the volume of collections on purchased receivables.
Other operating costs increased by $379,000 or 14.4% to $3.0 million in the
first quarter of 1996 compared to the first quarter of 1995 primarily as a
result of 1995 acquisitions of businesses and increased legal fees and
reserves. Other operating costs includes, among other costs, business
insurance, skip tracing costs and travel and entertainment costs.
Other income increased $5,000 while interest expense increased $110,000
in the first quarter of 1996 compared to the first quarter of 1995. Other
income consists primarily of interest income. The increase in interest
expense is due primarily to the level of short-term borrowings required as a
result of the Company's investment in WIN.
The effective tax rate decreased to 43.0% for the first three months of 1996
from 44.0% for the same period in 1995. 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 and 1996 was $0.16.
Increased revenue coupled with increased operating expenses, increased costs
related to borrowing and lower income taxes resulted in net income per share
remaining unchanged.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $25.0 million short-term borrowing agreement with its
primary lender. 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 its lender 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, 1996, the Company had $8.4
million available to borrow. Funds borrowed were used primarily to fund the
Company's investment in WIN. The weighted average interest rate at March 31,
1996 was 5.7%. The total capital expenditure associated with the WIN project
is estimated to be approximately $19-21 million. Plans are to complete the
installation by the end of 1997. The Company also expects to invest
approximately $4.0 million in order to upgrade its automated student loan
system. Through March 31, 1996, total investments in the WIN and student loan
systems were $13.2 million and $2.5 million, respectively. The Company
considers the short-term borrowing agreement to be its primary liquidity
resource.
<PAGE>
ITEM 1.
LEGAL PROCEEDINGS
The Company is defendant in various legal proceedings involving claims
for damages which constitute ordinary routine litigation incidental to its
business. In addition, the Company's wholly owned subsidiary Payco-General
American Credits, Inc. is party to a lawsuit filed on July 20, 1995 in the
Circuit Court of Etowah County, Alabama. The parties to the action are Jimmy
Rogers and Lillian H. Rogers, individuals, and as class representatives vs.
GAC, Inc. d/b/a/ and a/k/a Payco-General American Credits, Inc. a/k/a and
d/b/a General American Credits, Inc. and Transamerica Lender Finance, a
division of Transamerica Business Credit Corporation ("Transamerica"); MRCS,
Inc., d/b/a and a/k/a Medical Retail Commercial Specialists, Inc. and Family
Loan Company, Inc. The suit alleges that letters sent by MRCS and Payco-
General American Credits, Inc. which were performing collection services on
behalf of Transamerica, misstated the identity of the creditor, the past due
status of the accounts and the amount of interest owing. The suit further
alleges that consumers received harassing and threatening telephone calls
stating the above false information, misrepresenting the failure to pay the
entire balance would damage credit rating and asserting the lawsuits to
collect the entire balance would be forthcoming. Plaintiffs demand judgment
against defendants for compensatory and punitive damages in an amount deemed
appropriate by a jury, plus interest and the costs of the action. On January
29, 1996, Transamerica filed a cross-claim against defendants Medical Retail
Commercial Specialists, Inc. and Payco-General American Credits, Inc. The
cross-claim states that all of the alleged acts were without Transamerica's
knowledge and seeks judgment against MRCS and Payco-General American Credits,
Inc. for any liability, loss, cost or expense Transamerica has or will incur.
Payco-General American Credits, Inc. has in turn, filed a similar claim
against Transamerica. The Company believes it has meritorious defenses to the
complaint and cross-claim in this suit and will not suffer material loss as a
result thereof.
The various lawsuits to which the Company or subsidiaries are parties are
subject to many uncertainties and outcomes are not predictable with assurance.
Although the monetary liability with respect to these matters cannot be
ascertained, it is management's opinion that, reserves provided at period
ended March 31, 1996 are adequate and any monetary liability or financial
impact beyond that provided as of March 31, 1996 would not be material to the
Company's financial position.
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
<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 14, 1996 By: DAVID S. PATTERSON
------------ ------------------
David S. Patterson
Principal Operating Officer
Date: May 14, 1996 By: JOHN P. STETZENBACH
------------ -------------------
John P. Stetzenbach
Principal Financial and Accounting
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
March 31, 1996 Balance Sheet and Income Statement herewith filed and is
qualified in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 36906
<SECURITIES> 0
<RECEIVABLES> 19788
<ALLOWANCES> 522
<INVENTORY> 0
<CURRENT-ASSETS> 68654
<PP&E> 66323
<DEPRECIATION> 39918
<TOTAL-ASSETS> 114683
<CURRENT-LIABILITIES> 58748
<BONDS> 0
0
0
<COMMON> 1016
<OTHER-SE> 53778
<TOTAL-LIABILITY-AND-EQUITY> 114683
<SALES> 45386
<TOTAL-REVENUES> 45426
<CGS> 42300
<TOTAL-COSTS> 42300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 241
<INCOME-PRETAX> 2885
<INCOME-TAX> 1241
<INCOME-CONTINUING> 1644
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1644
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0
</TABLE>
