SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 March 31, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 333-16867
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Outsourcing Solutions Inc.
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(Exact name of registrant as specified in its charter)
Delaware 58-2197161
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
390 South Woods Mill Road, Suite 350
Chesterfield, Missouri 63017
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (314) 576-0022
Indicate by checkmark 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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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Outstanding at
Class March 31, 1999
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Voting common stock 3,477,126.01
Class A convertible nonvoting common stock 391,740.58
Class B convertible nonvoting common stock 400,000.00
Class C convertible nonvoting common stock 1,040,000.00
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5,308,866.59
============
Transitional Small Disclosure (check one): Yes [ ] No [ X ]
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PAGE 2
OUTSOURCING SOLUTIONS INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Part I. Financial Information Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1999 (unaudited) and December 31, 1998............. 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1999 and 1998 (unaudited)....... 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 1998 (unaudited)....... 5
Notes to Condensed Consolidated Financial Statements
(unaudited).................................................. 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... 12
Part II. Other Information............................................ 13
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PAGE 3
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts
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<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
Unaudited Audited
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,414 $ 8,814
Cash and cash equivalents held for clients 29,518 22,372
Current portion of purchased loans and
accounts receivable portfolios 33,418 35,057
Accounts receivable - trade, less allowance
for doubtful receivables of $1,002 and $1,309 46,724 40,724
Other current assets 9,445 8,777
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Total current assets 131,519 115,744
PURCHASED LOANS AND ACCOUNTS RECEIVABLE PORTFOLIOS 13,217 20,436
PROPERTY AND EQUIPMENT, net 39,850 40,317
INTANGIBLE ASSETS, net 421,620 425,597
DEFERRED FINANCING COSTS, net 13,060 13,573
OTHER ASSETS 2,785 2,824
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TOTAL $622,051 $618,491
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable - trade $ 9,242 $ 7,355
Collections due to clients 29,518 22,372
Accrued salaries, wages and benefits 14,976 13,274
Other current liabilities 54,022 55,071
Current portion of long-term debt 17,882 16,877
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Total current liabilities 125,640 114,949
LONG-TERM DEBT 507,600 511,271
OTHER LONG-TERM LIABILITIES 21,911 22,303
STOCKHOLDERS' DEFICIT:
8% nonvoting cumulative redeemable exchangeable 13,159 12,167
preferred stock; authorized 1,250,000 shares,
1,052,745.42 and 973,322.32 shares,
respectively, issued and outstanding, at
liquidation value of $12.50 per share
Voting common stock; $.01 par value; authorized 35 35
7,500,000 shares, 3,477,126.01 shares issued
and outstanding
Class A convertible nonvoting common stock; $.01 4 4
par value; authorized 7,500,000 shares,
391,740.58 shares issued and outstanding
Class B convertible nonvoting common stock; $.01 4 4
par value; authorized 500,000 shares, 400,000
shares issued and outstanding
Class C convertible nonvoting common stock; $.01 10 10
par value; authorized 1,500,000 shares,
1,040,000 shares issued and outstanding
Paid-in capital 66,958 66,958
Retained deficit (113,270) (109,210)
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Total stockholders' deficit (33,100) (30,032)
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TOTAL $622,051 $618,491
======== ========
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PAGE 4
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands)
<CAPTION>
Three Months Ended
March 31
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1999 1998
<S> <C> <C>
REVENUES $129,247 $114,826
EXPENSES:
Salaries and benefits 60,735 54,552
Service fees and other operating and 40,412 35,653
administrative expenses
Amortization of loans and accounts receivable 11,300 9,040
purchased
Amortization of goodwill and other intangibles 4,102 3,495
Depreciation expense 3,611 3,127
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Total expenses 120,160 105,867
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OPERATING INCOME 9,087 8,959
OTHER EXPENSE 76 -
INTEREST EXPENSE - Net 12,565 11,224
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LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (3,554) (2,265)
INCOME TAX BENEFIT - -
MINORITY INTEREST - 572
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NET LOSS (3,554) (2,837)
PREFERRED STOCK DIVIDEND REQUIREMENTS 506 234
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NET LOSS TO COMMON STOCKHOLDERS $ (4,060) $ (3,071)
======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
<PAGE>
PAGE 15
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands except share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(3,554) $ (2,837)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and amortization 8,461 7,286
Amortization of loans and accounts 11,300 9,040
receivable purchased
Other 76 -
Minority interest - 572
Change in assets and liabilities:
Other current assets (6,856) (949)
Accounts payable and other current liabilities 2,634 (4,309)
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Net cash from operating activities 12,061 8,803
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INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired - (163,670)
Purchase of loans and accounts receivable portfolios (2,442) (15,574)
Acquisition of property and equipment (3,395) (2,856)
Other 374 -
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Net cash from investing activities (5,463) (182,100)
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FINANCING ACTIVITIES:
Proceeds from term loans - 225,469
Borrowings under revolving credit agreement 67,550 73,400
Repayments under revolving credit agreement (66,050) (87,000)
Repayments of debt (4,263) (23,918)
Deferred financing fees (235) (2,935)
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Net cash from financing activities (2,998) 185,016
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NET INCREASE IN CASH AND CASH EQUIVALENTS 3,600 11,719
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,814 3,217
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CASH AND CASH EQUIVALENTS, END OF PERIOD $12,414 $ 14,936
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during period for interest $ 9,346 $ 3,319
======= ========
Net cash (received) paid during period for taxes $ (89) $ 92
======= ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES - During
the three months ended March 31, 1999 and 1998, the Company paid preferred stock
dividends of $992 and $468, respectively, through the issuance of 79,423.10
shares and 37,435.47 shares of preferred stock, respectively.
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
<PAGE>
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed 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, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For purposes of comparability, certain prior year
amounts have been reclassified to conform to current quarter presentation. These
Condensed Consolidated Financial Statements should be read in conjunction with
the Consolidated Financial Statements and notes thereto contained in the
Company's Form 10-K for the year ended December 31, 1998.
Comprehensive loss for the periods presented were equal to the Company's net
loss as the Company had no comprehensive income (loss) items.
NOTE 2. ACQUISITION
On January 23, 1998, the Company acquired through a tender offer approximately
77% of the outstanding shares of The Union Corporation's ("Union") common stock
for $31.50 per share. On March 31, 1998, the Company acquired the remaining
outstanding shares of Union when Union merged with a wholly-owned subsidiary of
the Company. The aggregate purchase price of the Union acquisition was
approximately $220,000 including transaction costs of $10,900 and assumed
liabilities. The Company financed the acquisition primarily with funds provided
by the amended credit agreement. Union, through certain of its subsidiaries,
furnishes a broad range of credit and receivables management outsourcing
services as well as management and collection of accounts receivable. The
acquisition was accounted for under the purchase method of accounting. The
Company allocated the total purchase price including additional liabilities
reserves to the fair value of the net assets acquired resulting in goodwill of
approximately $219,000. The goodwill will be amortized over 30 years using the
straight-line method. Union's consolidated operating results have been included
in the Company's consolidated results since January 23, 1998, recognizing the
minority interest through the completion date of the acquisition.
The unaudited proforma consolidated financial data presented below provides pro
forma effect of the Union acquisition as if such acquisition had occurred as of
the beginning of each period presented. The unaudited results have been prepared
for comparative purposes only and do not necessarily reflect the results of
operations of the Company that actually would have occurred had the acquisition
been consummated as of the beginning of each period presented, nor does the data
give effect to any transactions other than the acquisition.
For the three months
Ended March 31,
-------------------------
1999 1998
Revenues $129,247 $122,180
======== ========
Net loss $(3,554) $(3,958)
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NOTE 3. DEBT
In January 1998, the Company finalized the Second Amended and Restated Credit
Agreement for $466,663 (the "Agreement") with a group of banks to fund the Union
acquisition and refinance existing outstanding indebtedness. The Agreement, as
amended, consists of a $408,663 term loan facility and a $58,000 Revolving
Credit Facility (the "Revolving Facility"). The term loan facility consists of a
term loan of $59,187 ("Term Loan A"), a term loan of $124,476 ("Term Loan B")
and a term loan of $225,000 ("Term Loan C"), which mature on October 15, 2001,
2003 and 2004, respectively. The Company is required to make quarterly principal
repayments on each term loan. Term Loan A bears interest, at the Company's
option, (a) at a base rate equal to the greater of the federal funds rate plus
0.5% or the lender's customary base rate plus 1.5% or (b) at the reserve
adjusted Eurodollar rate plus 2.5%. Term Loan B and Term Loan C bear interest,
at the Company's option, (a) at a base rate equal to the greater of the federal
funds rate plus 0.5% or the lender's customary base rate, plus 2.0% or (b) at
the reserve adjusted Eurodollar rate plus 3.0%.
The Revolving Facility originally had a term of five years and is fully
revolving until October 15, 2001. The Revolving Facility bears interest, at the
Company's option, (a) at a base rate equal to the greater of the federal funds
rate plus 0.5% or the lender's customary base rate plus 1.5% or (b) at the
reserve adjusted Eurodollar rate plus 2.5%. Also, outstanding under the
Revolving Facility are letters of credit of $1,656.
The Agreement is guaranteed by all of the Company's present domestic
subsidiaries and is secured by all of the stock of the Company's present
domestic subsidiaries and by substantially all of the Company's domestic
property assets. The Agreement contains certain covenants the more significant
of which limit dividends, asset sales, acquisitions and additional indebtedness,
as well as requires the Company to satisfy certain financial performance ratios.
NOTE 4. LITIGATION
From time to time, the Company and certain of its subsidiaries are subject to
various investigations, claims and legal proceedings covering a wide range of
matters that arise in the normal course of business and are routine to the
nature of the Company's businesses. In addition, as a result of the Union
acquisition, certain subsidiaries of the Company are a party to several on-going
environmental remediation investigations by federal and state governmental
agencies and clean-ups and, along with other companies, has been named a
"potentially responsible party" for certain waste disposal sites. While the
results of litigation cannot be predicted with certainty, the Company has
provided for the estimated uninsured amounts and costs to resolve the pending
suits and management, in consultation with legal counsel, believes that reserves
established for the ultimate resolution of pending matters are adequate at March
31, 1999.
NOTE 5. 8% NONVOTING CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK
In January 1999, the Company increased its authorized 8% Nonvoting Cumulative
Redeemable Exchangeable Preferred Stock from 1,000,000 shares to 1,250,000
shares.
NOTE 6. PURCHASED LOANS AND ACCOUNTS RECEIVABLE PORTFOLIOS FINANCING
The following summarizes the transactions between the Company and OSI Funding
Corp. ("FINCO"), a qualifying special-purpose finance company formed in the
fourth quarter of 1998, for the three months ended March 31, 1999:
Sales of purchased loans and accounts receivable
portfolios by the Company to FINCO $17,658
Servicing fees paid by FINCO to the Company $1,843
Sales of purchased loans and accounts receivable portfolios by the Company to
FINCO were in the same amount and occurred shortly after such portfolios were
acquired by the Company from the various unrelated sellers. Accordingly, no gain
or loss was recorded by the Company on the sales to FINCO.
At March 31, 1999, FINCO had outstanding borrowings of $22,380.
NOTE 7. NEW ACCOUNTING PRONOUNCEMENT
In January 1999, the Company adopted Statement of Position No. 98-1, Accounting
for Costs of Computer Systems Developed or Obtained for Internal Use, ("SOP
98-1"), which is effective for fiscal years beginning after December 15, 1998.
The adoption of SOP 98-1 did not have a material impact on the consolidated
statement of operations and consolidated balance sheet for the quarter ended and
at March 31, 1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Revenues for the three months ended March 31, 1999 were $129.2 million compared
to $114.8 million in the same period last year - an increase of 12.6%. The
revenue increase of $14.4 million was due primarily to increased fee,
outsourcing and portfolio services revenues of $7.1 million - an increase of
6.2% over last year, and $7.3 million from the acquisition of Union. Revenues
from fee services were $93.7 million for the three months ended March 31, 1999
compared to $86.4 million in the comparable period in 1998. The increase in fee
revenues was due to a 1.9% increase in existing business and $5.7 million from
the Union acquisition. Revenues from purchased portfolio services increased to
$21.7 million for the three months ended March 31, 1999 compared to $18.5
million in 1998 - up 16.7%. The increased revenue was attributable to strategic
sales of on-balance sheet portfolios. Revenues from purchased portfolio services
excluding the sales of on-balance sheet portfolios were flat with last year due
to slightly lower collections of on-balance sheet portfolios offset by the
servicing fee revenue on the FINCO (formed in the fourth quarter of 1998)
collections of $4.7 million. The outsourcing services revenue of $13.8 million
compared favorably to prior year of $9.9 million due to increased revenue from
existing business of 23.0% and $1.6 million from the Union acquisition.
Operating expenses for the three months ended March 31, 1999 were $120.1 million
compared to $105.9 million for the comparable period in 1998. Operating
expenses, exclusive of amortization and depreciation charges, were $101.1
million for the three months ended March 31, 1999 and $90.2 million for the
comparable period in 1998 - an increase of 12.1%. The increase in operating
expenses, exclusive of amortization and depreciation charges, resulted primarily
from the Union acquisition, higher collection-related expenses associated with
the increased revenues and increased consulting expenses. Of the $120.1 million
in operating expenses for the three months ended March 31, 1999, $19.0 million
was attributable to amortization and depreciation charges compared to $15.7
million for the same period last year - an increase of 21.4%. The higher
amortization and depreciation charges resulted from additional depreciation and
amortization of goodwill related to the Union acquisition and increased
portfolio amortization resulting from increased portfolio sales of certain
on-balance sheet portfolios.
As a result of the above, the Company generated operating income of $9.1 million
for the three months ended March 31, 1999 compared to $9.0 million for the
comparable period in 1998.
Earnings before interest expense, taxes, depreciation and amortization (EBITDA)
for the three months ended March 31, 1999 was $28.1 million compared to $24.6
million for the same period in 1998. The increase of $3.5 million consisted of
$0.7 million as a result of the Union acquisition with the remaining $2.8
million primarily attributable to the increased revenue from existing business
of $7.1 million.
Net interest expense for the three months ended March 31, 1999 was $12.6 million
compared to $11.2 million for the comparable period in 1998. The increase was
due to additional indebtedness incurred to finance the Union acquisition.
Consistent with management's assessment made in the fourth quarter of 1997, the
potential tax benefits generated by additional net operating loss carryovers or
the future reversal of the net deductible temporary differences for the three
months ended March 31, 1999 and 1998 were fully offset by a net valuation
allowance of $1.4 million and $0.9 million, respectively.
Minority interest in 1998 resulted from the Union acquisition. On January 23,
1998, the Company acquired approximately 77% of the outstanding common stock of
Union through a tender offer. The acquisition of all remaining outstanding
common stock of Union was completed on March 31, 1998. The Company recognized
minority interest in earnings of Union during the period from January 23, 1998
to March 31, 1998.
Due to the factors stated above, the net loss for the three months ended March
31, 1999 of $3.6 million compared unfavorably to the net loss of $2.8 million
for the three months ended March 31, 1998.
Financial Condition, Liquidity and Capital Resources
At March 31, 1999, the Company had cash and cash equivalents of $12.4 million.
The Company's credit agreement provides for a $58.0 million revolving credit
facility, which allows the Company to borrow for working capital, general
corporate purposes and acquisitions, subject to certain conditions. As of March
31, 1999, the Company had outstanding $27.0 million under the revolving credit
facility leaving $29.4 million, after outstanding letters of credit, available
under the revolving credit facility.
Since December 31, 1998, cash and cash equivalents increased $3.6 million
primarily due to cash from operations of $12.1 million offset primarily by cash
utilized for the net repayment of debt of $2.8 million, purchases of loans and
accounts receivable portfolios of $2.4 million and capital expenditures of $3.4
million. The Company also held $29.5 million of cash for clients in restricted
trust accounts at March 31, 1999.
For the first three months in 1999, the Company made capital expenditures of
$3.4 million primarily for the replacement and upgrading of equipment and
expansion of the Company's information services systems. The Company anticipates
spending approximately $17.5 million for 1999.
Year 2000
As the Year 2000 approaches, many corporate systems worldwide could malfunction
or produce incorrect results because they cannot process date-related
information properly. Dates play a key role in dependable functioning of the
software applications, software systems, information technology infrastructure,
and embedded technology (i.e., non-technical assets such as time clocks and
building services) the Company relies upon in day-to-day operations for
innumerable tasks. This includes any tasks requiring date-dependent arithmetic
calculations, sorting and sequencing data, and many other functions.
The Company identified this problem as a key focus during 1997 and as part of
any subsequent due-diligence procedures related to acquisitions completed during
1998. The Company has assessed the impact of Year 2000 issues on the processing
date-related information for all of its information systems infrastructure
(e.g., production systems) and significant non-technical assets. As the new
millennium approaches, the Company has developed and implemented a Year 2000
program to deal with this important issue in an effective and timely manner.
This problem has received significant senior management attention and resources.
Management reviews have been held on this topic. During 1998 and 1999, the
Company's Board of Directors received and will continue to receive quarterly
reports at each regular Board meeting regarding the Company's overall Year 2000
compliance status and readiness.
An independent consulting firm has been retained to provide independent
verification and testing of the production systems. Under the direction of the
Company's Senior Vice President and Chief Information Officer, the Company has
established a program management structure, a management process and methodology
and proactive client and vendor management strategies to manage the Year 2000
risk.
Because many of the Company's client relationships are supported through
computer-system interfaces, it is critical that the Company works proactively
with its clients to achieve Year 2000 compliance. The Company has established a
proactive client management strategy focused on enabling the Company to work
together with clients to assure Year 2000 compliance between respective computer
systems.
The implementation of the client management strategy commenced in 1998. Letters
were sent to significant clients, inquiring about their Year 2000 compliance
plans and status. The Company has established a follow-up process with each key
client, taking a proactive, customer-focused approach to achieving Year 2000
compliance with its customers.
The Company has also communicated with its strategic suppliers and equipment
vendors, including suppliers of non-technical assets, seeking assurances that
they and their products will be Year 2000 ready. The Company's goal is to obtain
as much detailed information as possible about its strategic suppliers and
equipment vendors' Year 2000 plans to identify those companies which appear to
pose any significant risk of failure to perform their obligations to the Company
as a result of the Year 2000. The Company has compiled detailed information
regarding all of its strategic suppliers and equipment vendors. This will be an
ongoing process during the Year 2000 project. For those strategic suppliers and
equipment vendors whose response was not satisfactory, the Company has developed
contingency plans to ensure that sufficient alternative resources are available
to continue with business operations.
The target date for completion of all production systems and significant
non-production systems (e.g., predictive dialer systems, phone switches, wide
area network hardware), including non-technical assets, is June 1999. Testing is
well underway for all systems with completion anticipated to be no later than
June 1999.
Spending for modifications and updates are being expensed as incurred and is not
to have a material impact on the results of operations or cash flows. The cost
of the Company's Year 2000 project is being funded from cash flows generated
from operations. The Company estimates that its total Year 2000 expenses will be
in the range of $1.4 to $1.6 million. To date, the Company has expended
approximately $1.3 million, primarily for contract programmers and consulting
costs associated with the evaluation, assessment and remediation of computer
systems.
The Company is dependent upon its own internal computer technology and relies
upon the timely performance of its suppliers and customers and their systems. A
substantial part of the Company's day-to-day operations is dependent on power
and telecommunications services, for which alternative sources of services may
be limited. A large-scale Year 2000 failure could impair the Company's ability
to provide timely performance results required by the Company's customers,
thereby causing potential liability, lost revenues and additional expenses, the
amounts which have not been estimated. The Company's Year 2000 project seeks to
identify and minimize this risk and includes testing of its in-house
applications, purchased software and hardware to ensure that all such systems
will function before and after the Year 2000. The Company is continually
refining its understanding of the risk the Year 2000 poses to its strategic
suppliers and customers based upon information obtained through its surveys.
This refinement will continue through 1999.
The Company's Year 2000 project includes the development of contingency plans
for business critical systems, as well as for strategic suppliers and customers
to attempt to minimize disruption to its operations in the event of a Year 2000
failure. The Company will be formulating plans to address a variety of failure
scenarios, including failures of its in-house applications, as well as failures
of strategic suppliers and customers. The Company anticipates that it will
complete Year 2000 contingency planning by June 1999.
Forward-Looking Statements
The following statements in this document are or may constitute forward-looking
statements made in reliance upon the safe harbor of the Private Securities
Litigation Reform Act of 1995: (1) statements concerning the cost and successful
implementation of the Company's Year 2000 initiatives, (2) statements concerning
the anticipated costs and outcome of legal proceedings and environmental
liabilities, (3) statements regarding the Company's expected capital
expenditures, (4) any statements preceded by, followed by or that include the
word "believes," "expects," "anticipates," "intends," "should," "may," or
similar expressions; and (5) other statements contained or incorporated by
reference in this document regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to: (1) the demand for the Company's services, (2)
the demand for accounts receivable management generally, (3) general economic
conditions, (4) changes in interest rates, (5) competition, including but not
limited to pricing pressures, (6) changes in governmental regulations including,
but not limited to the federal Fair Debt Collection Practices Act and comparable
state statutes, (7) the status and effectiveness of the Company's Year 2000
efforts, (8) legal proceedings, (9) environmental investigations and clean up
efforts, (10) the Company's ability to rationalize operations of recent
acquisitions, and (11) the Company's ability to generate cash flow or obtain
financing to fund its operations, service its indebtedness and continue its
growth and expand successfully into new markets and services.
These forward-looking statements speak only as of the date they were made. These
cautionary statements should be considered in connection with any written or
oral forward-looking statements that the Company may issue in the future. The
Company does not undertake any obligation to release publicly any revisions to
such forward-looking statements to reflect later events or circumstances or to
reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to the risk of fluctuating interest rates in the normal
course of business. From time to time and as required by the Company's credit
agreement, the Company will employ derivative financial instruments as part of
its risk management program. The Company's objective is to manage risks and
exposures and not to trade such instruments for profit or loss.
Since December 31, 1998 (the most recent completed fiscal year), there have been
no material changes in the reported market risks.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company and certain of its subsidiaries are involved in
various investigations, claims and legal proceedings covering a wide range of
matters that arise in the normal course of business and are routine to the
nature of the Company's business. Other information with respect to legal
proceedings appears in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
In January 1999, pursuant to written consent of shareholders of the Company's
voting common stock and preferred stock, the Company amended and restated its
certificate of incorporation to increase its authorized 8% Nonvoting Cumulative
Redeemable Exchangeable Preferred Stock from 1,000,000 shares to 1,250,000
shares. These consents were executed by holders of 2,831,126.01 shares of the
Company's voting common stock and 973,322.32 shares of the Company's preferred
stock. Pursuant to the same written consent, the same holders of the Company's
voting common stock (1) elected the following persons to serve as directors of
the Company until the next annual meeting of shareholders, such persons
constituting all directors of the Company: Timothy G. Beffa, David E. De Leeuw,
David G. Hanna, Frank J. Hanna, III, Courtney F. Jones, Robert A. Marshall,
William B. Hewitt, David E. King, Nathan W. Pearson, Jr., Jeffrey E. Stiefler
and Tyler T. Zachem; (2) approved, ratified and adopted indemnification
agreements by and between the Company and all persons who serve as directors of
the Company from time to time and such certain officers of the Company as
specified from time to time by the Chief Executive Officer; and (3) approved,
ratified and adopted all prior acts of the Company's Board of Directors.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
Exhibit 10 Form of Indemnity Agreement, entered into by and between
the Company and its directors and certain officers.
Exhibit 27 Financial Date Schedule (Unaudited)
(b). Reports on Form 8-K
There were no reports on Form 8-K filed for the three-month period
ended March 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OUTSOURCING SOLUTIONS INC.
(Registrant)
/s/ TIMOTHY G. BEFFA
-----------------------------------------------------
Timothy G. Beffa
President and Chief Executive Officer
/s/ DANIEL T. PIJUT
-----------------------------------------------------
Daniel T. Pijut
Vice President, Corporate Controller and
Chief Accounting Officer
Date: May 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Note: This schedule contains summary financial information extracted from
the Form 10-Q for the Quarter Ended March 31, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001027574
<NAME> Outsourcing Solutions Inc. and Subsidiaries
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 41,932
<SECURITIES> 0
<RECEIVABLES> 44,726
<ALLOWANCES> 1,002
<INVENTORY> 33,418
<CURRENT-ASSETS> 131,519
<PP&E> 68,582
<DEPRECIATION> 28,732
<TOTAL-ASSETS> 622,051
<CURRENT-LIABILITIES> 125,640
<BONDS> 0
0
13,159
<COMMON> 53
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 622,051
<SALES> 0
<TOTAL-REVENUES> 129,247
<CGS> 0
<TOTAL-COSTS> 120,160
<OTHER-EXPENSES> 76
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,565
<INCOME-PRETAX> (3,554)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,554)
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (3,544)
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<EPS-DILUTED> 0
</TABLE>
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of ______________, is made by
and between Outsourcing Solutions Inc., a Delaware corporation (the "Company"),
______________ (the "Indemnitee"), an "agent" (as hereinafter defined) of the
Company.
R E C I T A L S
A. The Company recognizes that competent and experienced persons
are increasingly reluctant to serve as directors or officers of corporations
unless they are protected by comprehensive liability insurance or
indemnification, or both, due to increased exposure to litigation costs and
risks resulting from their service to such corporations, and due to the fact
that the exposure frequently bears no reasonable relationship to the
compensation of such directors and officers;
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;
C. The Company and the Indemnitee recognize that plaintiffs often
seek damages in such large amounts and the costs of litigation may be so
enormous (whether or not the case is meritorious), that the defense and/or
settlement of such litigation is often beyond the personal resources of officers
and directors;
D. The Company believes that it is unfair for its directors and
officers to assume the risk of huge judgments and other expenses which may occur
in cases in which the director or officer received no personal profit and in
cases where the director or officer was not culpable;
E. The Company, after reasonable investigation, has determined
that the liability insurance coverage presently available to the Company is
inadequate to cover all possible exposure for which the Indemnitee should be
protected and/or unreasonably expensive. The Company believes that the interests
of the Company and its shareholders would best be served by a combination of
such insurance (if reasonably available) and the indemnification by the Company
of the directors and officers of the Company;
F. Section 145 of the General Corporation Law of Delaware
("Section 145"), under which the Company is organized, empowers the Company to
indemnify its officers, directors, employees and agents by agreement and to
indemnify persons who serve, at the request of the Company, as the directors,
officers, employees or agents of other corporations or enterprises, and
expressly provides that the indemnification provided by Section 145 is not
exclusive;
G. The Board of Directors has determined that contractual
indemnification as set forth herein is not only reasonable and prudent but
necessary to promote the best interests of the Company and its shareholders;
H. The Company desires and has requested the Indemnitee to serve
or continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to the
Company; and
I. The Indemnitee is willing to serve, or to continue to serve,
the Company, only on the condition that he is furnished the indemnity provided
for herein.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth below, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions.
(a) Agent. For purposes of this Agreement, "agent" of
the Company means any person who is or was a director, officer, employee or
other agent of the Company or a subsidiary of the Company; or is or was serving
at the request of, for the convenience of, or to represent the interest of the
Company or a subsidiary of the Company as a director, officer, employee or agent
of another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company, or was
a director, officer, employee or agent of another enterprise at the request of,
for the convenience of, or to represent the interests of such predecessor
corporation.
(b) Expenses. For purposes of this Agreement, "expenses"
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, all attorneys' fees and related disbursements,
other out-of-pocket costs and reasonable compensation for time spent by the
Indemnitee for which he is not otherwise compensated by the Company or any third
party, provided that the rate of compensation and estimated time involved is
approved by the Board of Directors), actually and reasonably incurred by the
Indemnitee in connection with either the investigation, defense or appeal of a
proceeding or establishing or enforcing a right to indemnification under this
Agreement, Section 145 or otherwise, and amounts paid in settlement by or on
behalf of Indemnitee, but shall not include any final judgments, fines or
penalties actually levied against the Indemnitee.
(c) Proceedings. For the purposes of this Agreement,
"proceeding" means any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative, investigative or any other
type whatsoever.
(d) Subsidiary. For purposes of this Agreement,
"subsidiary" means any corporation,limited liability company, partnership, joint
venture or any similar entity of which more than 40% of the outstanding
securities, interests, or similar ownership instruments are owned directly or
indirectly by the Company, by the Company and one or more other subsidiaries, or
by one or more other subsidiaries.
(e) Other Enterprise. For purposes of this Agreement,
"other enterprise" shall include employee benefit plans; references to "fines"
shall include any excise tax assessed with respect to any employee benefit
plans; references to "serving at the request of the Company" shall include any
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
any person who acts in good faith and in a manner he reasonably believes to be
in the best interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Company" as referred to in this Agreement.
2. Agreement to Serve. The Indemnitee agrees to serve and/or
continue to serve as an agent of the Company, at its will (or under separate
agreement, if such agreement exists), in the capacity Indemnitee currently
serves as an agent of the Company, so long as he is duly appointed or elected
and qualified in accordance with the applicable provisions of the Bylaws of the
Company or any subsidiary of the Company or until such time as he tenders his
resignation in writing, provided, however, that nothing contained in this
Agreement is intended to create any right to continued employment by Indemnitee
in any capacity.
3. Indemnity in Third Party Proceedings. The Company shall
indemnify the Indemnitee if the Indemnitee is a party to or threatened to be
made a party to or otherwise involved in any proceeding (other than a proceeding
by or in the name of the Company to procure judgment in its favor) by reason of
the fact that the Indemnitee is or was an agent of the Company, or by reason of
any act or inaction by him in any such capacity, against any and all expenses
and liabilities of any type whatsoever (including, but not limited to,
judgments, fines and penalties), actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of such
proceeding, but only if the Indemnitee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
proceeding by judgment, order of court, settlement, conviction or on plea of
nolo contendere, or its equivalent, shall not, of itself, create a presumption
that Indemnitee did not act in good faith in a manner which he reasonably
believed to be in the best interests of the Company, and with respect to any
criminal proceedings, that such person had reasonable cause to believe that his
conduct was unlawful.
4. Indemnity in Derivative Actions. The Company shall indemnify
the Indemnitee if the Indemnitee is a party to or threatened to be made a party
to or otherwise involved in any proceeding by or in the name of the Company to
procure a judgment in its favor by reason of the fact that the Indemnitee is or
was an agent of the Company, or by reason of any act or inaction by him in any
such capacity, against all expenses actually and reasonably incurred by the
Indemnitee in connection with the investigation, defense, settlement, or appeal
of such proceeding, but only if the Indemnitee acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, except that no indemnification under this subsection shall be made
in respect of any claim, issue or matter as to which the Indemnitee shall have
been finally adjudged to be liable to the Company by a court of competent
jurisdiction due to willful misconduct of a culpable nature in the performance
of his duty to the Company, unless and only to the extent that any court in
which such proceeding was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
such court shall deem proper.
5. Indemnification of Expenses of Successful Party.
Notwithstanding any other provisions of this Agreement, to the extent that the
Indemnitee has been successful on the merits or otherwise in defense of any
proceeding or in defense of any claim, issue or matter therein, including the
dismissal of an action without prejudice, the Company shall indemnify the
Indemnitee against all expenses actually and reasonably incurred in connection
with the investigation, defense or appeal of such proceeding.
6. Partial Indemnification. If the Indemnitee is entitled
under any provision of this Agreement to indemnification by the Company for some
or a portion of any expenses or liabilities of any type whatsoever (including,
but not limited to, judgments, fines or penalties), actually and reasonable
incurred by him in the investigation, defense, settlement or appeal of a
proceeding but is not entitled, however, to indemnification for the total amount
thereof, the Company shall nevertheless indemnify the Indemnitee for the portion
thereof to which the Indemnitee is entitled.
7. Advancement of Expenses. Subject to Section 11(a) below, the
Company shall advance all expenses incurred by the Indemnitee in connection with
the investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that the Indemnitee is not entitled to be
indemnified by the Company as authorized by this Agreement. The advances to be
made hereunder shall be paid by the Company to or on behalf of the Indemnitee
within thirty (30) days following delivery of a written request therefor by the
Indemnitee to the Company.
8. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of
the commencement of or the threat of commencement of any proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with respect
thereto may be sought from the Company under this Agreement, notify the Company
of the commencement or threat of commencement thereof.
(b) Any indemnification requested by the Indemnitee under
Section 3 and/or 4 hereof shall be made no later than forty-five (45) days after
receipt of the written request of Indemnitee unless a determination is made
within said forty-five (45) day period (i) by the Board of Directors of the
Company by a majority vote of a quorum thereof consisting of directors who are
not parties to such proceedings, or (ii) in the event such a quorum is not
obtainable, at the election of the Company, either by independent legal counsel
in a written opinion or by a panel of arbitrators, one of whom is selected by
the Company, another of whom is selected by the Indemnitee and the last of whom
is selected by the first two arbitrators so selected, that the Indemnitee has
not met the relevant standards for indemnification set forth in Section 3 and 4
hereof.
(c) Notwithstanding a determination under Section 8(b)
above that the Indemnitee is not entitled to indemnification with respect to any
specific proceeding, the Indemnitee shall have the right to apply to any court
of competent jurisdiction for the purpose of enforcing the Indemnitee's right to
indemnification pursuant to this Agreement. The burden of proving that the
indemnification or advances are not appropriate shall be on the Company. Neither
the failure of the Company (including its Board of Directors or independent
legal counsel or the panel of arbitrators) to have made a determination prior to
the commencement of such action that indemnification or advances are proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct, nor an actual determination by the Company (including its Board of
Directors or independent legal counsel or the panel of arbitrators) that the
Indemnitee has not met such applicable standard of conduct, shall be a defense
to the action or create any presumption that the Indemnitee has not met the
applicable standard of conduct.
(d) The Company shall indemnify the Indemnitee against all
expenses incurred in connection with any hearing or proceeding under this
Section 8 unless a court of competent jurisdiction finds that each of the claims
and/or defenses of the Indemnitee in any such proceeding was frivolous or in bad
faith.
9. Assumption of Defense. In the event the Company shall be
obligated to pay the expenses of any proceeding against the Indemnitee, the
Company, if appropriate, shall be entitled to assume the defense of such
proceeding, with counsel reasonably acceptable to the Indemnitee, upon the
delivery to the Indemnitee of written notice of its election to do so. After
delivery of such notice, approval of such counsel by the Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to the
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
the Indemnitee with respect to the same proceeding, provided that (i) the
Indemnitee shall have the right to employ his counsel in such proceeding at the
Indemnitee's expense; and (ii) if (a) the employment of counsel by the
Indemnitee has been previously authorized in writing by the Company, (b) the
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and the Indemnitee in the conduct of any such
defense, or (c) the Company shall not, in fact, have employed counsel to assume
the defense of such proceeding, the fees and expenses of the Indemnitee's
counsel shall be at the expense of the Company.
10. Insurance. The Company may, but is not obligated to, obtain
directors' and officers' liability insurance ("D&O Insurance") as may be or
become available in reasonable amounts from established and reputable insurers
with respect to which the Indemnitee is named as an insured. Notwithstanding any
other provision of the Agreement, the Company shall not be obligated to
indemnify the Indemnitee for expenses, judgments, fines or penalties, which have
been paid directly to the Indemnitee by D&O Insurance. If the Company has D&O
Insurance in effect at the time the Company receives from the Indemnitee any
notice of the commencement of a proceeding, the Company shall give prompt notice
of the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the policy. The Company shall thereafter take all
necessary or desirable action to cause such insurers to pay, on behalf of the
Indemnitee, all amounts payable as a result of such proceeding in accordance
with the terms of such policy.
11. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or
advance expenses to the Indemnitee with respect to proceedings or claims
initiated or brought voluntarily by the Indemnitee and not by way of defense,
except with respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise
as required under Section 145, but such indemnification or advancement of
expenses may be provided by the Company in specific cases if the Board of
Directors finds it to be appropriate; or
(b) Action for Indemnification. To indemnify the
Indemnitee for any expenses incurred by the Indemnitee with respect to any
proceeding instituted by the Indemnitee to enforce or interpret this Agreement,
if a court of competent jurisdiction determines that each of the material
assertions made by the Indemnitee in such proceeding was not made in good faith
or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee
under this Agreement for any amounts paid in settlement of a proceeding affected
without the Company's written consent. The Company shall not settle any
proceeding without the Indemnitee's written consent. Neither the Company nor
Indemnitee will unreasonably withhold consent to any proposed settlement; or
(d) Certain Matters. To indemnify the Indemnitee on
account of any proceeding with respect to (i) remuneration paid to Indemnitee if
it is determined by final judgment or other final adjudication that such
remuneration was in violation of law, (ii) which final judgment is rendered
against the Indemnitee for an accounting of profits made from the purchase or
sale by Indemnitee of securities of the Company pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar
provisions of any federal, state or local statute, or (iii) which it is
determined by final judgment or other final adjudication that the Indemnitee's
conduct was knowingly fraudulent or dishonest.
12. Nonexclusivity. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Certificate of Incorporation or Bylaws, in any court in
which a proceeding is brought, the vote of the Company's shareholders or
disinterested directors, other agreements or otherwise, both as to action in his
official capacity and to action in another capacity while occupying his position
as an agent of the Company, and the Indemnitee's rights hereunder shall continue
after the Indemnitee has ceased acting as an agent of the Company and shall
inure to the benefit of the heirs, executors and administrators of the
Indemnitee.
13. Subrogation. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights.
14. Interpretation of Agreement. It is understood that the
parties hereto intend this Agreement to be interpreted and enforced so as to
provide indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law.
15. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, (i) the validity, legality and enforceability of the remaining
provisions of the Agreement (including without limitation, all portions of any
paragraphs of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to
the fullest extent possible, the provisions of this Agreement (including,
without limitation, all portions of any paragraph of this Agreement containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable and to give effect to Section 14 hereof.
16. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
17. Successor and Assigns. The terms of this Agreement shall
bind, and shall inure to the benefit of, the successors and assigns of the
parties hereto.
18. Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given (i) if delivered by hand and receipted for by the party addressee or (ii)
if mailed by certified or registered mail with postage prepaid, on the third
business day after the mailing date. Addresses for notice to either party are as
shown on the signature page of this Agreement, or as subsequently modified by
written notice.
19. Governing Law. This Agreement shall be governed exclusively
by and construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware. If a court of competent jurisdiction shall make a final
determination that the provisions of the law of any state other than Delaware
govern indemnification by the Company of its officers and directors, then the
indemnification provided under this Agreement shall in all instances be
enforceable to the fullest extent permitted under such law, notwithstanding any
provision of this Agreement to the contrary.
The parties hereto have entered into this Indemnity Agreement
effective as of the date first above written.
OUTSOURCING SOLUTIONS INC.
By
--------------------------------------
Timothy G. Beffa
President, Chief Executive Officer
Address: 390 South Woods Mill Road
Suite 350
St. Louis, MO 63017
Indemnitee:
-------------------------
Address:
-------------------------
