SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
July 31, 2002 (July 25, 2002)
Evercom, Inc.
(Exact name of registrant as specified in its charter)
Delaware 333-33639 75-2680266
(State or other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
8201 Tristar Drive
Irving, Texas 75063
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(972) 988-3737
Item 5. Other Events.
On July 25, 2002, Evercom, Inc. (the "Company") issued a press release
announcing preliminary unaudited operating and financial results, a copy of
which is filed herewith as Exhibit 99.1.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits
99.1 Press Release dated July 25, 2002.
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 hereunto duly authorized.
Dated: July 30, 2002 EVERCOM, INC.
By: /s/ Keith Kelson
-----------------------------
Keith Kelson
Chief Financial Officer
010873.00014:725450.01
INDEX TO EXHIBITS
Exhibit
Number Description
99.1 Press Release dated July 25, 2002.
EXHIBIT 99.1
Evercom, Inc.
Contact: Keith Kelson, Chief Financial Officer
Phone: 972-988-3737
To Business Editor/PRNewswire/
Evercom, Inc. Reports Certain Preliminary
Unaudited Operating and Financial Results
IRVING, Texas, July 25 /PRNewswire/ -- Evercom, Inc. (formerly known as
Talton Holdings, Inc.), a provider of inmate telecommunications systems, today
announced the following preliminary unaudited operating and financial results.
These results are subject to change upon the completion of the Company's annual
audit for the year ended December 31, 2001 or as a result of additional
information that may become available before such financial statements are
finalized. A key variable in the Company's financial statements is its bad debt
reserve estimates. The Company's billing cycle for calls billed through local
exchange carriers can be quite long - from six to nine months in the vast
majority of cases. As more information becomes available to the Company prior to
the finalization of its financial statements, this reserve could change. Any
such variation from the Company's estimates could have a material adverse effect
on the Company and the value of its Senior Notes. For more discussion regarding
this risk and other Risk Factors associated with the Company, please refer to
the "Risk Factors" section of the Company's Form 10-Q dated November 14, 2001
that is on file with the Securities and Exchange Commission. Certain
reclassifications have been made to conform to the classifications used in the
Company's most recent filings with the Securities and Exchange Commission.
2001 Preliminary Unaudited Results
The Company generated operating revenue of $245.2 million for the year
ended December 31, 2001 as compared to $235.3 million and $237.5 million for the
years ended December 31, 2000 and 1999, respectively. The increase in operating
revenue was primarily due to new sales initiatives in the Company's traditional
inmate business coupled with higher equipment sales to Solutions customers.
The Company generated operating income of $6.1 million for the year ended
December 31, 2001 as compared to $15.7 million and $8.8 million for the years
ended December 31, 2000 and 1999, respectively. The decline in operating income
was primarily due to an increase in bad debt expense in large part caused by the
deteriorating economy. Average commission rates in the Core business for 2001
were 38.1%.
The Company generated $28.3 million of earnings before interest, income
taxes, depreciation, amortization, and an extraordinary loss on debt
extinguishment ("EBITDA") for the year ended December 31, 2001 as compared to
$38.8 million and $37.5 million for the years ended December 31, 2000 and 1999,
respectively. The decline in EBITDA was primarily due to an increase in bad debt
expense in large part caused by the deteriorating economy.
The Company generated net cash from operations of $10.7 million for the
year ended December 31, 2001 as compared to $20.2 million and $15.9 million for
the years ended December 31, 2000 and 1999, respectively. Cash used in investing
activities for the year ended December 31, 2001 was $15.9 million, consisting
primarily of $13.9 million for new business, contract renewals and
infrastructure improvements. Also in 2001 the Company paid $2.0 million for
acquisitions made in 2001 and prior years. As of December 31, 2001 the Company
had $3.6 million of availability under its Senior Credit Facility and total
long-term indebtedness outstanding of $163.5 million, consisting of $115 million
of Senior Notes and $48.5 million of borrowings under the Senior Credit
Facility. Interest expense for the year ended December 31, 2001 was $19.0
million.
As a result of the refinancing of its Senior Credit Facility in December
2001, the Company incurred an extraordinary loss on the extinguishment of debt
of $3.3 million before considering the income tax effect of such loss.
2002 Preliminary, Unaudited Results
The following operating and financial results of the Company through May
31, 2002 are estimated, unaudited and have not been subject to any scrutiny from
the Company's independent auditors. These estimates are subject to change as a
result of additional information that may become available before such financial
statements are finalized, in particular additional information concerning its
bad debt reserves.
For the five months ended May 31, 2002, the Company generated revenues of
$105.2 million, representing a 3% increase over the same period in 2001,
operating income of $5.0 million and EBITDA of $12.2 million. Throughout 2002
bad debt rates have continued to increase as a percentage of the Company's
revenue, although the Company has recently experienced an abatement of this
trend. However, due to the recent volatility of the financial markets and the
effect this could have on the overall economy, the Company has taken an
additional reserve for bad debt expense. Operating income results have benefited
by approximately $1.8 million for the five months ended May 31, 2002 as a result
of the discontinuance of goodwill amortization in conjunction with the
implementation of Financial Accounting Standards Board Statement No. 142
effective January 1, 2002.
"Evercom, not unlike many businesses, was severely impacted by the
deteriorating economy in 2001 as manifested by an increasing rate of bad debt
expense," said Dick Falcone, the Company's Chief Executive Officer. "From a
revenue perspective, the Company proved resilient to recession and before
considering bad debt expense, the Company's margins and profitability in its
Core business were consistent between 1999, 2000 and 2001. However, the
deteriorating economy and increasing unemployment rates proved very detrimental
to collection efforts by inmate telecommunications providers, increasing our
total bad debt expense by an estimated 4% of revenue in the Core business in
2001."
"Despite the unfortunate bad debt results in 2001 we were successful at
growing revenue," Mr. Falcone additionally stated. "Our Core business generated
$211 million of revenue in 2001 as compared to $205 million in 2000. We
accomplished this by intensely focusing on exemplary customer service and
technology leadership; efforts that I believe have established Evercom as the
premier brand in the industry. In addition to our success in growing our Core
business, we generated growth in our new Solutions business, adding close to $10
million of revenue from new Solutions partners in 2001, from a base of almost
zero in 2000."
Financing and Other Considerations
As of May 31, 2002 the Company had $3.7 million of borrowing availability
under its Senior Credit Facility and had long-term indebtedness outstanding of
$158.8 million, consisting of $115 million of Senior Notes and $43.8 million of
borrowings under its Senior Credit Facility. The Company incurred $4.6 million
for capital expenditures for the five-month period ended May 31, 2002. As a
result of liquidity constraints, the Company did not make a $6.3 million
interest payment on its Senior Notes that was due on July 1, 2002.
As previously disclosed, Evercom is in default of certain covenants under
its Senior Credit Facility. Under the terms of the forbearance agreement, the
Company's senior lenders will not exercise remedies available to them during the
period ending July 29, 2002. The Company is in the process of exploring
strategic and financial alternatives. This includes discussions with potential
investors, the Company's investors and creditors, and potential strategic
partners.
The Company is currently evaluating a potential write-down of the carrying
value of its long-lived assets in conjunction with Financial Accounting
Standards Board Statement No. 121. Because of the Company's recent operating
results, it is likely the Company will record a write-down of its long-lived
assets in its financial statements for the year ended December 31, 2001.
However, the amount of such write-down is not determinable at this time.
Therefore, the results of operations presented herein do not reflect any
write-down that may ultimately be recorded in the Company's financial statements
for the year ended December 31, 2001. Such an adjustment, if required, would
primarily represent a write-down of the Company's intangible assets such as
goodwill.
Evercom is a provider of inmate telecommunications systems, serving
approximately 2,000 correctional facilities throughout the United States. The
Company has become a recognized leader in providing comprehensive, innovative
technical solutions and responsive value-added service to the corrections
industry.
This Press Release includes forward-looking statements, within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended. All statements other than
statements of historical fact are forward-looking statements for purposes of
these provisions, including any projections of earnings, revenue or other
financial items, any statements of the plans and objectives of management for
future operations, and statements concerning proposed new products or services,
any statements regarding future economic conditions or performance and any
statement of assumptions underlying any of the foregoing. Terms such as
"anticipates," "believes," "estimates," "expects," "plans," "predicts," "may,"
"should," "will," the negative thereof and similar expressions are intended to
identify forward-looking statements.
SOURCE Evercom, Inc.
CO: Evercom, Inc.
ST: Texas
IN: TLS
SU: ERN
07/25/02
Evercom
8201 Tristar Drive
Irving, TX 75063
Contact Person: Keith Kelson, Chief Financial Officer