Annual Report (Form 10-K), fiscal year 1994

ITEM 1 DESCRIPTION OF BUSINESS
The Registrant, Payco American Corporation, was incorporated August 7, 1969 as a Delaware Corporation and was reincorporated in Wisconsin on June 28, 1993. The Registrant and its subsidiaries (hereafter referred to as the "Company") are engaged in the accounts receivable management and collection business. The Company is regulated by the Fair Debt Collection Practice Act and the Telephone Consumer Protection Act which are enforced by the Federal Trade Commission, and by various state regulatory commissions. Through its network of more than 40 offices across the United States, and Puerto Rico, the Company provides a full range of account receivable management services which includes the following: third-party debt collection services for clients in the credit card, education, energy, health care, retail and telecommunications industries as well as local state and federal government agencies and departments, commercial (business to business) debt collection, pre-collection programs, current-account billing programs for health care and student loan clients, contract management services in which Company personnel work on-site at a client's location to render expertise in various accounts receivable areas, from billing to collection, worldwide training and consulting, and telemarketing services. In addition, as part of its acquisition program, the Company has purchased, at a discount, a total of 54 portfolios of accounts receivable of which 11 portfolios were purchased in 1994. The Company is also majority owner of joint ventures in Mexico City, Mexico and Tokyo, Japan that provide receivable management services.
The Company does business under several trade names or product trade styles which are as follows:
Payco American Corporation, PAYCO National Account Systems, NAS Payco-General American Credits University Accounting Service, UAS Retail Merchants Collection Service National Collex National Business Division Creditors Protective Association IMC Credit Services IMPACT FM Services Corporation FM Services of Arizona Missouri Medical Collection Inc. Hospital & Physician Services Herring Financial Services, Inc. Central Patient Billing Inc. Asset Recovery and Management Corp. Jennifer Loomis & Associates Inc., JLA AdvantagePlus, CircPlus, PayPlus Medical Accounting Services, MAS CheckBack Select, CVS Pay Tech, Inc. Paystar Federal Collection Bureau, S.A. DE C.V. Professional Recoveries Inc. Furst and Furst (F&F) Continental Credit Adjustors (CCA)
The Company maintains offices in the following metropolitan areas:
Phoenix and Tucson, Arizona Los Angeles and Pleasanton, California Denver, Colorado Miami, Orlando, Fort Myers, Jacksonville and Lakeland, Florida Atlanta, Georgia Chicago, Illinois Indianapolis, Indiana
Newport, Kentucky Augusta, Maine Baltimore, Maryland Boston, Massachusetts Detroit, Michigan Minneapolis, Minnesota Springfield, Missouri Las Vegas, Nevada Edison an Rochelle New Jersey Yonkers, New York Middleburg Heights, Dublin and Springfield, Ohio Oklahoma City, Oklahoma Portland, Oregon Philadelphia and Pittsburgh, Pennsylvania Dallas and Houston, Texas Herndon and Richmond, Virginia Seattle, Washington Brookfield, Wisconsin Mexico City, Mexico San Juan, Puerto Rico
The volume of accounts received by the Company for collection during the year ended December 31, 1994 was approximately $3.2 billion. Accounts received for collection in 1993 totalled approximately $3.5 billion.
The Company receives accounts from a wide range of clients including the federal government, student loan guarantors, hospitals, universities, utilities, oil companies and retail and bank credit card providers. American Express Co., contributed approximately 9% of the Company's operating revenue in 1994, 10% in 1993 and 9% in 1992.
Collections on the accounts received are made through solicitation of payment through the mail and more importantly through direct telephone contact with consumers. All accounts received for collection are assigned a work standard, which is based on various criteria, including, contractual agreement to work accounts in a certain manner, dollar balances of the account, age of the account, etc. To aid the Company in monitoring these work standards as well as to increase collector productivity and client service, the Company developed the Payco Automated Collection System (PACS[registered trademark]). PACS[registered trademark] is a computer-based collection system that substantially automates the collection process. The Company began in 1994 the purchase and customization of its "World-class Integrated Network" (WIN). This new technologically advanced accounts receivable management system is expected to completely replace PACS[registered trademark] in all existing location by the end of 1996. During the fourth quarter of 1994 WIN was installed at the Company's Lakeland, Florida office. The Company estimates that the investment in software purchases and customization and computer hardware will be approximately $15 million for the WIN project. The Company also expects to invest approximately $4.0 million over the next two years, in order to upgrade its automated student loan billing system.
The Company devotes significant and continuous efforts, through training of personnel and monitoring of compliance with the Fair Debt Collection Practices Act in order to provide ethical, innovative, high quality accounts receivable management services which meet client needs and comply with the law. In addition to traditional collection services, the Company provides service in the area of student loan billing, letter program, hospital billing, including interstate Medicaid billing, telemarketing, management and training seminars and in-house projects and also provides temporary employees to the health care market. The Company also engages in the purchase of discounted accounts receivable portfolios through its subsidiary Asset Recovery & Management Corp. As of December 31, 1994 the Company had purchased 54 portfolios at a total cost of approximately $ 51.6 million. The primary source of purchased accounts receivables through 1994 was the Federal Deposit Insurance Corporation and the Resolution Trust Corporation. The availability of these portfolios in the future, is uncertain. The Company has continued to purse new markets for purchasing accounts receivable portfolios.
The Company and its subsidiaries employed 2,751 full-time employees and 572 part-time employees as of December 31, 1994. Of such employees, 232 were engaged in administration and management, 2,247 in sales and collection, and the remainder in clerical activities.
The Company is among the largest firms in the accounts receivable management industry. Intense competition is provided by numerous local, regional and several national agencies and it is the policy of most large businesses to utilize the services of several agencies as well as to make their own collection efforts.
ITEM 2



ITEM 2 PROPERTIES
All of the offices listed in Item 1 above are in leased space totaling approximately 416,000 square feet as of December 31, 1994. The leases for such offices expire between February 28, 1995 and September 30, 2007 and provide for aggregate annual rentals for 1994 of approximately $5.4 million. The Company leases its headquarters facility of approximately 66,000 square feet for a term of 20 years ending March 31, 2000. Annual rentals under this lease for 1994 were $710,000 which may escalate at a rate not to exceed 5% annually. In addition, the Company leases a modern data processing facility of approximately 37,000 square feet which houses the Company's computer operations. Annual rentals under this lease for 1994 were $273,000, which may escalate at a rate not to exceed 5% annually. The Company considers the office space and other facilities leased by it to be modern and adequate for the conduct of its business. The Company also owns furniture, computer equipment, telephone equipment,office equipment and leases various types of office equipment which are considered adequate for the conduct of its business.
ITEM 3

ITEM 3 LEGAL PROCEEDINGS
The Company is a defendant in various legal proceedings involving claims for damages which constitute ordinary routine litigation incidental to its business. The Company has provided for the estimated defense costs and liability associated with pending litigation through charges to operations.
On March 8, 1995 the Company reached a settlement in its litigation with the Federal Trade Commission (FTC), which had been pending in federal court in Wisconsin. In a complaint filed in August, 1993, the FTC alleged that the Company had violated the Federal Fair Debt Collection Practices Act. The Company vigorously defended the case, and asserted that any violations of the Act were contrary to the policy and practice of the Company. The case was resolved with a Consent Decree, in which the Company did not admit any liability. The Consent Decree further provides that the Company shall take additional steps to ensure compliance with the Act, and pay a penalty of $500,000. The Company had previously established a reserve adequate to cover the cost of the Consent Decree. The Company further believes that compliance with provisions of the Consent Decree will not materially effect its financial condition or ongoing operations.
ITEM 4

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1994.
PART II -------
ITEM 5

ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The information about the market for the Company's stock and stock quotations as required by Item 5 of Form 10-K is included in the SELECTED FINANCIAL DATA and MARKET FOR COMPANY'S STOCK AND RELATED SECURITY MATTERS sections of the accompanying Annual Report to Shareholders for 1994 which appears as Exhibit 13 in this filing, and is incorporated by reference in this Form 10-K Annual Report.
The Company has no cash dividend paying history.
ITEM 6

ITEM 6 SELECTED FINANCIAL DATA
The selected financial data required by Item 6 of Form 10-K is included in SELECTED FINANCIAL DATA section of the accompanying Annual Report to Shareholders for 1994, which appears as Exhibit 13 in this filing and is incorporated by reference in this Form 10-K Annual Report.
ITEM 7

ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
The discussion and analysis required by Item 7 of Form 10-K is included in MANAGEMENT DISCUSSION AND ANALYSIS of the accompanying Annual Report to Shareholders for 1994, which appears as Exhibit 13 in this filing and is incorporated by reference in this Form 10-K Annual Report.
ITEM 8


ITEM 8 FINANCIAL STATEMENTS
The following financial statements, related notes thereto, and auditor's report required by Item 8 of Form 10-K, are included in the accompanying Annual Report to Shareholders for the years ended December 31, 1994, which appears as Exhibit 13 in this filing and are hereby incorporated by reference in this Form 10-K Annual Report:
Consolidated Balance Sheets - December 31, 1994 and 1993 Consolidated Statements for the Three Years Ended December 31, 1994:
Income Shareholders' Investment Cash Flows Notes to Consolidated Financial Statements Report of Independent Public Accountants
ITEM 9

ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III --------
ITEM 10



ITEM 10
Except for the table of Executive officers below, all other information called for by Item 10 is hereby incorporated by reference from the Registrant's definitive Proxy Statement for its Annual Meeting to be held on May 2, 1995 which Proxy Statement will be filed within 120 days after December 31, 1994.
EXECUTIVE OFFICERS OF REGISTRANT --------------------------------- OFFICER HAS SERVED IN CAPACITY OFFICER POSITIONS AGE INDICATED SINCE - ------ ---------- --- ------------- Dennis G. Punches Chairman of the Board 59 January 1990
Neal R. Sparby President, Principal 58 October 1991 Executive Officer
David S. Patterson Executive Vice- 54 October 1991 President Principal Operating Officer
William W. Kagel Senior Vice President- 58 August 1969 Production
Alvin W. Keeley Senior Vice President- 57 May 1979 Marketing
James R. Bohmann Treasurer and Senior 48 May 1985 Vice President-Corporate Development(effective January 1, 1993)
Patrick E. Carroll Senior Vice President- 52 August 1987 Sales
Susan Mathison Vice President- 46 August 1987 Administration and Secretary (effective October, 1991)
Philip C. Colin Vice President- 58 January 1989 Information Systems
John P. Stetzenbach Controller and 39 January 1987 Vice President- Finance & Principal Financial Officer, (effective January 1, 1993)
ITEM 11, 12 and 13.
The information called for by Items 11, 12 and 13 is hereby incorporated by reference from the Registrant's definitive Proxy statement for its Annual Meeting to be held on May 2, 1995 which Proxy Statement will be filed within 120 days after December 31, 1994.
PART IV -------
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements--The financial statements filed as part of this Annual Report are listed under Item 8.
(a)(2) Financial Statement Schedules:
All schedules have been omitted because they are not applicable, not required or information is included in the Financial Statements or the Notes thereto.
Separate financial statements of the Registrant have been omitted since it is primarily an operating company and all subsidiaries included in the Consolidated Financial Statements are majority owned.
(a)(3) Exhibits required to be filed by Item 601 of Regulation S-K:
EXHIBIT PAGE REFERENCE NUMBER - --------- ------ 3(a) Articles of Incorporation of New Payco, N/A Inc. and Agreement and Plan of Merger of New Payco, Inc. and Payco American Corporation dated March 26, 1993, which are Exhibits A and B, respectively, to Registrant's definitive Proxy Statement for the 1993 Annual Meeting of Shareholders, are hereby incorporated by reference to such Proxy Statement.
3(b) By-Laws of New Payco, Inc. which is Exhibit C to N/A Registrant's definitive Proxy Statement for the 1993 Annual Meeting of Shareholders, is hereby incorporated by reference to such Proxy Statement.
10(a) Lease agreement between Payco American Corporation N/A and the Brookfield Investment Company dated July 12, 1979--Exhibit 1 of Registrant's Form 10-K for the fiscal year ended December 31, 1979 is hereby incorporated by reference.
10(b) Lease agreement between Payco American Corporation N/A and the Percom Investment Company dated August 5, 1983--Exhibit 10(c) of Registrant's Form 10-K for the fiscal year ended December 31, 1983 is hereby incorporated by reference.
10(c) Purchase Order #92136 of Registrant dated N/A June 8, 1982, pertaining to the purchase of software and hardware related to the Payco Automated Collection System--Exhibit 10(d) of Registrant's Form 10-K for fiscal year ended December 31, 1983 is hereby incorporated by reference.
10(d) Lease agreement between Payco American Corporation N/A and the Westlake Investment Company dated March 1, 1985--Exhibit 10(e) of Registrant's Form 10-K for the fiscal year ended December 31, 1985 is hereby incorporated by reference.
10(e) Lease agreement between Payco American Corporation N/A and the Dublin Investment Company dated July 14, 1986--Exhibit 10(f) of Registrant's Form 10-K for the fiscal year ended December 31, 1986 is hereby incorporated by reference.
10(f) Lease agreement between Payco American Corporation N/A and the Hacienda Investment Company dated October 14, 1986--Exhibit 10(g) of Registrant's Form 10-K for the fiscal year ended December 31, 1986 is hereby incorporated by reference.
10(g) Modification, dated February 17, 1987, of the N/A lease agreement filed as Exhibit 10(b) between Payco American Corporation and Percom Investment Company.--Exhibit 10(h) of Registrant's Form 10-K for fiscal year ended December 31, 1986 is hereby incorporated by reference.
10(h) Modification, dated December 30, 1986, of the N/A lease agreement filed as Exhibit 10(a) between Payco American Corporation and Brookfield Investment Company.--Exhibit 10(i) of Registrant; Form 10-K for fiscal year ended December 31, 1986 is hereby incorporated by reference.
10(i) 1988 Stock Option Plan of Payco American N/A Corporation--Incorporated by reference Exhibit A of Registrant's definitive Proxy Statement for the 1989 Annual Meeting of Shareholders.
10(j) 1992 Stock Option Plan of Payco American N/A Corporation--Incorporated by reference Exhibit A of Registrant's definitive Proxy Statement for the 1992 Annual Meeting of Shareholders.
10(k) Amendment to 1992 Payco American Stock N/A Option Plan, Incorporated by reference to Registrant's definitive Proxy Statement for the 1993 Annual Meeting of Shareholders.
10(l) Modification, dated December 30, 1992 to the N/A lease agreement filed as Exhibit 10(d) between Payco American Corporation and Westlake Investment Company Exhibit 10(l) of Registrant's Form 10-K for fiscal year ended December 31, 1992 is hereby incorporated by reference.
13 Annual Report to security holders Herewith Attached
21 List of subsidiaries as of December 31, 1994. Herewith Attached
23 Consent of Indenpendent Public Accountants Herewith Attached
27 Financial Data Schedule Herewith Attached
(b)(3) Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange Commission during the fourth quarter of the fiscal year ended December 31, 1994.
SIGNATURES ==========
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Payco American Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DATE MARCH 20, 1995 BY NEAL R. SPARBY ------------------ --------------- Neal R. Sparby, President & Principal Executive Officer PAYCO AMERICAN CORPORATION
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By JAMES R. BOHMANN DATE MARCH 20, 1995 ------------------------- -------------- James R. Bohmann, Director
By PATRICK E. CARROLL DATE MARCH 20, 1995 ------------------------ -------------- Patrick E. Carroll, Director
By WILLIAM W. KAGEL DATE MARCH 20, 1995 ------------------------ -------------- William W. Kagel, Director
By ALVIN W. KEELEY DATE MARCH 20, 1995 ------------------------ -------------- Alvin W. Keeley, Director
By DAVID S. PATTERSON DATE MARCH 20, 1995 ------------------------ -------------- David S. Patterson, Director & Principal Operating Officer
By DENNIS G. PUNCHES DATE MARCH 20, 1995 ------------------------ -------------- Dennis G. Punches Chairman of the Board
By NEAL R. SPARBY DATE MARCH 20, 1995 ------------------------ -------------- Neal R. Sparby, Director & Principal Executive Officer
By JOHN P. STETZENBACH DATE MARCH 20, 1995 ------------------------ -------------- John P. Stetzenbach, Principal Financial & Accounting Officer
By WILLIAM A. INGLEHART DATE MARCH 20, 1995 ------------------------ -------------- William A. Inglehart Director
By (1) DATE ------------------------ -------------- Raymond J. Larkin Director
By (1) DATE ------------------------ -------------- Richard G. Miles Director
By (1) DATE ------------------------ -------------- Bo S. Goranson Director
By (1) DATE ------------------------ -------------- Dennis Shea Director
(1) Not available for signature




ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements--The financial statements filed as part of this Annual Report are listed under Item 8.
(a)(2) Financial Statement Schedules:
All schedules have been omitted because they are not applicable, not required or information is included in the Financial Statements or the Notes thereto.
Separate financial statements of the Registrant have been omitted since it is primarily an operating company and all subsidiaries included in the Consolidated Financial Statements are majority owned.
(a)(3) Exhibits required to be filed by Item 601 of Regulation S-K:
EXHIBIT PAGE REFERENCE NUMBER - --------- ------ 3(a) Articles of Incorporation of New Payco, N/A Inc. and Agreement and Plan of Merger of New Payco, Inc. and Payco American Corporation dated March 26, 1993, which are Exhibits A and B, respectively, to Registrant's definitive Proxy Statement for the 1993 Annual Meeting of Shareholders, are hereby incorporated by reference to such Proxy Statement.
3(b) By-Laws of New Payco, Inc. which is Exhibit C to N/A Registrant's definitive Proxy Statement for the 1993 Annual Meeting of Shareholders, is hereby incorporated by reference to such Proxy Statement.
10(a) Lease agreement between Payco American Corporation N/A and the Brookfield Investment Company dated July 12, 1979--Exhibit 1 of Registrant's Form 10-K for the fiscal year ended December 31, 1979 is hereby incorporated by reference.
10(b) Lease agreement between Payco American Corporation N/A and the Percom Investment Company dated August 5, 1983--Exhibit 10(c) of Registrant's Form 10-K for the fiscal year ended December 31, 1983 is hereby incorporated by reference.
10(c) Purchase Order #92136 of Registrant dated N/A June 8, 1982, pertaining to the purchase of software and hardware related to the Payco Automated Collection System--Exhibit 10(d) of Registrant's Form 10-K for fiscal year ended December 31, 1983 is hereby incorporated by reference.
10(d) Lease agreement between Payco American Corporation N/A and the Westlake Investment Company dated March 1, 1985--Exhibit 10(e) of Registrant's Form 10-K for the fiscal year ended December 31, 1985 is hereby incorporated by reference.
10(e) Lease agreement between Payco American Corporation N/A and the Dublin Investment Company dated July 14, 1986--Exhibit 10(f) of Registrant's Form 10-K for the fiscal year ended December 31, 1986 is hereby incorporated by reference.
10(f) Lease agreement between Payco American Corporation N/A and the Hacienda Investment Company dated October 14, 1986--Exhibit 10(g) of Registrant's Form 10-K for the fiscal year ended December 31, 1986 is hereby incorporated by reference.
10(g) Modification, dated February 17, 1987, of the N/A lease agreement filed as Exhibit 10(b) between Payco American Corporation and Percom Investment Company.--Exhibit 10(h) of Registrant's Form 10-K for fiscal year ended December 31, 1986 is hereby incorporated by reference.
10(h) Modification, dated December 30, 1986, of the N/A lease agreement filed as Exhibit 10(a) between Payco American Corporation and Brookfield Investment Company.--Exhibit 10(i) of Registrant; Form 10-K for fiscal year ended December 31, 1986 is hereby incorporated by reference.
10(i) 1988 Stock Option Plan of Payco American N/A Corporation--Incorporated by reference Exhibit A of Registrant's definitive Proxy Statement for the 1989 Annual Meeting of Shareholders.
10(j) 1992 Stock Option Plan of Payco American N/A Corporation--Incorporated by reference Exhibit A of Registrant's definitive Proxy Statement for the 1992 Annual Meeting of Shareholders.
10(k) Amendment to 1992 Payco American Stock N/A Option Plan, Incorporated by reference to Registrant's definitive Proxy Statement for the 1993 Annual Meeting of Shareholders.
10(l) Modification, dated December 30, 1992 to the N/A lease agreement filed as Exhibit 10(d) between Payco American Corporation and Westlake Investment Company Exhibit 10(l) of Registrant's Form 10-K for fiscal year ended December 31, 1992 is hereby incorporated by reference.
13 Annual Report to security holders Herewith Attached
21 List of subsidiaries as of December 31, 1994. Herewith Attached
23 Consent of Indenpendent Public Accountants Herewith Attached
27 Financial Data Schedule Herewith Attached
(b)(3) Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange Commission during the fourth quarter of the fiscal year ended December 31, 1994.
SIGNATURES ==========
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Payco American Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DATE MARCH 20, 1995 BY NEAL R. SPARBY ------------------ --------------- Neal R. Sparby, President & Principal Executive Officer PAYCO AMERICAN CORPORATION
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By JAMES R. BOHMANN DATE MARCH 20, 1995 ------------------------- -------------- James R. Bohmann, Director
By PATRICK E. CARROLL DATE MARCH 20, 1995 ------------------------ -------------- Patrick E. Carroll, Director
By WILLIAM W. KAGEL DATE MARCH 20, 1995 ------------------------ -------------- William W. Kagel, Director
By ALVIN W. KEELEY DATE MARCH 20, 1995 ------------------------ -------------- Alvin W. Keeley, Director
By DAVID S. PATTERSON DATE MARCH 20, 1995 ------------------------ -------------- David S. Patterson, Director & Principal Operating Officer
By DENNIS G. PUNCHES DATE MARCH 20, 1995 ------------------------ -------------- Dennis G. Punches Chairman of the Board
By NEAL R. SPARBY DATE MARCH 20, 1995 ------------------------ -------------- Neal R. Sparby, Director & Principal Executive Officer
By JOHN P. STETZENBACH DATE MARCH 20, 1995 ------------------------ -------------- John P. Stetzenbach, Principal Financial & Accounting Officer
By WILLIAM A. INGLEHART DATE MARCH 20, 1995 ------------------------ -------------- William A. Inglehart Director
By (1) DATE ------------------------ -------------- Raymond J. Larkin Director
By (1) DATE ------------------------ -------------- Richard G. Miles Director
By (1) DATE ------------------------ -------------- Bo S. Goranson Director
By (1) DATE ------------------------ -------------- Dennis Shea Director
(1) Not available for signature