BILL.L Regulatory News (BILL)

27 Sep 2006 07:04

Billing Services Group Limited27 September 2006 PRESS RELEASE 27 September 2006 Billing Services Group Limited ('BSG', the 'Company' or 'Group') Interim Results Trading In Line With Management Expectations BSG, one of the telecommunications industry's leading clearing and settlement,payment and financial risk management solutions groups, today announces interimresults for the six months to 30 June 2006. Highlights • EBITDA* increased by 27.3% to US$21.8 million (2005: US$17.1 million)* • Turnover increased by 16.2% to US$86.6 million (2005: US$74.5 million) • Entered into new $330 million credit facility at a lower interest rate • Completed acquisitions of United Clearing Plc (March 2006) and the third party verification business of VoiceLog, LLC (June 2006) • Roland Bopp appointed CEO on 3 April 2006 • 60 new contracts signed * EBITDA excludes the charge for compensation expense required under FAS 123(R)and payments to United Clearing employees related to option exercise Current Trading • Remains in line with Directors' revised expectations • US$5 million net annualised cost savings identified from January 2007 - US$2 million operating expenses - US$3 million in capital expenditures • Announced appointment of Stephen Davies as non-executive director and resignation of Peter Walker from the Board separately today Commenting on developments, Roland Bopp, Chief Executive Officer, BSG said: "I am pleased to report that current trading is in line with managementexpectations. Following our July full-year reassessment I believe that there isa new resolve within management to improve profitability. We are streamliningoperations to reduce costs and expanding into markets with new revenueopportunities. Our worldwide employees have stepped up to the challenge and Iam confident we will succeed." Enquiries: Billing Services Group Limited +44 (0)20 7608 8000Roland Bopp, Chief Executive Officer (27 September only)Norman Phipps, Chief Financial Officer Evolution Securities +44 (0)20 7071 4300Fergus Marcroft Gainsborough Communications +44 (0)20 7190 1705Julian Walker NOTES TO EDITORS Billing Services Group ("BSG") BSG (www.billingservicesgroup.com) is one of the leading global providers ofclearing, settlement, payment and financial risk management solutions forcommunications service providers. BSG manages diverse financial transactions for the world's largest voice, dataand IP communications companies with an extensive portfolio of clearinghouseservices. The Company is able to reach hundreds of millions of end users,providing efficient and effective transaction processing solutions thatauthorize, collect and settle communications related charges on behalf of itscustomers. A publicly traded, global enterprise (AIM: BILL), BSG is a trusted and reliablepartner in the clearing and settlement industry, serving clients throughoutNorth America, Europe, South America, Africa, Asia and the Caribbean. TheCompany processes over 20 billion transactions annually for over 750 customers. Positioned at the centre of network commerce, the Company has the ability toprocess and manage billions of financial transactions with the highest standardsof security, reliability and trust, all in real time. A ubiquitous, scalable andefficient platform allows the Company to meet the needs of today's complexnetwork interconnections and anticipates the needs of converging technologiesfor tomorrow with the same ease and ability. BSG monetizes financial network transactions by facilitating the financialexchange of customers' services. Comprehensive and flexible products coupledwith alternative payment services allow for deployment into new markets,integration across networks, and quick fulfillment of customer requirements. Chief Executive's Statement The businesses of BSG performed in line with management's expectations duringthe first half of the year. As we reported on 24 July, consistent with industrytrends, new services are experiencing longer incubation cycles. Since my appointment as Chief Executive Officer of BSG in April 2006, we havecompleted an over-subscribed Group debt refinancing, initiated a restructuringof the Board and management to better reflect the requirements of the businessand introduced a major cost reduction programme which has to date identifiedannualised net savings of US$5 million. Throughout this, the Company has continued to provide exceptional levels ofservices to its existing customers whilst expanding its operations and exploringnew markets. Operational Review The business has been strengthened by the addition of 43 new clearing andsettlement customers in North America and 17 new clearing and settlementcontracts across the wireless division. In addition, the Company also renewedall material contracts that came up for renewal during the first 6 months of2006. During the period, BSG acquired United Clearing Plc ("UCL"), a strategiccomplement to the Company's wireless processing business, and derived theinherent benefit of UCL's existing base of more than 60 contracts. Assimilationof this business with the Company's other European acquisition, EDS Germany, hasnow been substantially completed. In May, the Company announced the complete refinancing of its debt with a newUS$330 million multicurrency credit facility. This new facility gives us greaterflexibility in managing worldwide operations, and it has allowed us to reduceour average borrowing cost by more than 400 basis points. During the first halfof 2006, we recognized a US$21.1 million debt extinguishment charge attributableto the accelerated write-off of deferred financing costs and prepaymentpenalties associated with the old debt. We are in compliance with the financialcovenants of the new credit agreement. On 30 June 2006, BSG acquired the third party verification business of VoiceLog,a leading provider of third party verification services, as a strategiccomplement to the Company's North American wireline business. BSG Employees The Company has completed the operations staffing of its wireless managementteams for North America, South America, Eastern Europe and Asia. In addition to my own appointment as Chief Executive Officer, in July weinitiated a restructuring of the Board to better reflect the requirements of thebusiness going forward. Patrick Heneghan was appointed as Non-Executive Chairmanand Randy Brouckman, the Company's Chief Operating Officer, was appointed to theBoard as an executive director. Respectively, they replaced Patrick Haynes andMike Labedz, who both stood down from further operational involvement in theCompany. The Company has accepted the resignation of non-executive director Peter Walker.Mr Walker will be replaced by Stephen Davies, the former non-executive chairmanof United Clearing Plc announced separately today. The Company continues toconsider the appointment of additional European non-executive directors and willupdate shareholders on any developments as appropriate. Current Trading and Prospects The Group generated US$21.8 million of EBITDA in the first half of 2006,compared to US$17.1 million in the first half of 2005. The US$4.7 millionincrease in EBITDA is largely the result of the German wireless clearingbusiness acquired in August 2005. We have focused significant attention and resources on opportunities in wirelessclearing and settlement. We acquired our wireless clearing business from EDSlast summer and added a financial wireless settlement business (UnitedClearing). Both acquisitions made meaningful contributions to 2006 revenue andEBITDA. Since the period end, the Group has further expanded its presence in EasternEurope, providing data clearing services to Belarus Telecommunications Network,the mobile GSM operator, and enhanced its Asian market presence by providingTrue Move, Thailand's leading mobile operator, with international roamingfinancial and clearing services. In the UK, Orange has renewed its financial clearing and settlement serviceswith BSG and the Company has expanded its geographic footprint by securing apresence in the Middle East, with a new contract to provide financial clearingand settlement services to Saudi Telecom. In July 2006, we gave guidance to the market regarding turnover and EBITDA for2006 and the business continues to trade within management expectations for thefull year. In August, we began the implementation of a restructuring program which involvespersonnel reductions and office closures. Effective 1 January 2007, we expectthis programme to reduce gross annual cash costs by approximately US$7 million(US$5 million net, including the effect of personnel additions under growthinitiatives.) The cash cost to the Group from these actions will be a one-offexceptional restructuring and other items charge estimated between US$5 millionand US$6 million. This charge is not reflected in the guidance figures for 2006EBITDA. Roland BoppChief Executive OfficerBilling Services Group Limited Financial Review of the Six Months Ended 30 June 2006 It should be noted that comparable results for the six months ended 30 June 2005include the results of BSG's predecessor company, Billing Services Group, LLC,which was the ultimate holding company for all business units before theformation of Billing Services Group Limited on 15 June 2005. Certain Terms Revenues. BSG's revenues are derived from its North American wireline businessand from its European mobile roaming clearing and settlement businesses. NorthAmerican revenue is derived primarily from fees charged to wireline longdistance providers for data clearing, financial settlement, informationmanagement, payment and financial risk management and customer servicefunctions. European revenue largely consists of fees charged to wirelesscarriers for clearinghouse services (both data clearing and financialsettlements) related to international roaming charges. Cost of Services and Gross Profit. BSG's cost of services for its North Americanwireline business primarily includes fees charged by local exchange carriers("LECs") for billing and collection services. Such fees are assessed for eachrecord submitted and for each bill rendered to end-user customers. BSG chargesits customers a negotiated fee for LEC services. Accordingly, gross profitgenerated by the North America business is generally a function of processingfees charged per message and any differential between the LEC fees charged byBSG and the related LEC cost of service. There is no material cost of servicesassociated with revenues from the Group's European business. Cash Operating Expenses. Cash operating expenses are comprised of all selling,marketing, customer service, facilities and administrative costs (includingpayroll and related expenses) incurred in support of operations and settledthrough the payment of cash. Depreciation and Amortization. Depreciation expense applies to certain softwaredevelopment, furniture and fixtures, telecommunications and computer equipment.Amortization expense relates to definite-lived intangible assets recorded thatare amortized in accordance with SFAS No. 142 "Goodwill and Other IntangibleAssets" under US GAAP. These assets consist primarily of contracts with LECs andcustomers, and software and trademarks, all of which are amortized over theirrespective useful lives. Amortization expense also includes deferred financingfees, which are amortized over the term of the related loans. Comparison of Results for the Six Months Ended 30 June 2006 to Six Months Ended30 June 2005. Total Revenue. Total revenue of US$86.6 million in the first half of 2006increased by US$12.1 million, or 16.2%, compared to US$74.5 million of revenuein the first half of 2005. The increase in revenue was primarily related to theinclusion of US$16.1 million of revenue from BSG Germany (acquired in August2005) and US$3.0 million of revenue from United Clearing (acquired in March2006), offset by a US$7.0 million reduction in revenue from North Americanoperations. The decline in North American revenue reflects reduced transactionvolumes, which resulted from increased consumer use of wireless phones and VoIPthat has led to market share erosion experienced by the Company'stelecommunications customers. Cost of Services and Gross Profit. Cost of services of US$40.3 million duringthe first half of 2006 decreased by US$4.0 million, or 9.0%, compared to thefirst half of 2005. The decrease in cost of services is primarily due to thedecrease in the volume of wireline billing transactions in North America. TheCompany's gross profit margin during the first half of 2006 was 53.4%, comparedto 40.5% during the first half of 2005. The 12.9 percentage point increase inmargin resulted largely from the addition of 100% gross margin business from BSGGermany. Cash Operating Expenses. Cash operating expenses of US$24.4 million in the firsthalf of 2006 were US$11.4 million, or 87.5%, higher than in the first six monthsof 2005. The increase in expenses largely reflects US$9.1 million of expensesfrom acquired companies. Depreciation and Amortization Expense. Depreciation and amortization expense inthe first half of 2006 (excluding amortization of deferred finance costs) wasUS$11.3 million, compared to US$4.9 million in the first half of 2005. TheUS$6.4 million increase is attributable to US$6.7 million of such charges in2006 from acquired companies, offset by lower depreciation charges from NorthAmerican operations. Debt Extinguishment Costs. The Company refinanced its debt in May 2006. Theproceeds under the facility were used to pay off of existing debt, plus US$9.1million of prepayment penalties and US$7.3 million of fees and expenses. TheCompany wrote off US$12.0 million of unamortized deferred finance costs relatedto the refinanced debt. The Company was at all times in compliance with allcovenants of the new credit agreement. Non Cash Compensation Expense. BSG adopted Statement of Financial AccountingStandards No. 123 (revised 2004), Share-Based Payment (Statement 123(R)) on 01January 2006. As a result, the Company recognized US$1.6 million of non-cashcompensation expense during the first half of 2006. Changes in Working Capital. BSG's cash balance at 30 June 2006 was US$48.9million, compared to US$50.3 million at 31 December 2005. Fluctuations in dailycash balances are normal due to the variability of funds collected from LECs andprocessed on a daily basis. In the North American business unit, funds arereceived daily from LECs but most of such funds are ordinarily disbursed tocustomers only once each week. The Company's working capital position (net of funded debt) at 30 June 2006 wasUS$2.0 million compared to negative US$3.4 million at 31 December 2005. TheUS$5.4 million increase was primarily the result of the acquisition of UnitedClearing and the corresponding inclusion of its cash upon consolidation. TheCompany can operate with a small or even negative working capital position,because a significant portion of its current liabilities would require paymentover time, typically over an 18-month period, only if North American customerswere to reduce significantly the volume of business done with the Company orterminate their relationships. Capital Expenditures. During the first six months of 2006, the Company incurredcapital expenditures of US$9.3 million, including ongoing software development,purchases of telecommunications and computer equipment and capitalized interest.Specifically, capital expenditures included US$1.1 million in payments to Oraclefor a software license in Germany and US$0.6 million of capitalized interestexpense. Cash Flow for the Six Months Ended 30 June 2006 Cash flow from operating activities. Net cash used in operating activities wasUS$12.3 million during the first half of 2006. Net cash used in operatingactivities was principally attributable to a US$19.1 million loss, a US$9.4million decrease in payables to customers, a US$4.7 million decrease in deferredtaxes and a US$4.7 million decrease in accounts payable and accrued liabilities,offset by US$12.1 million of depreciation and amortization expense and a US$12.0million write-off of deferred finance costs associated with refinanced debt. Cash flow from investing activities. Cash used in investing activities wasUS$18.1 million during the first half of 2006, and it included US$14.0 millionto purchase the third party verification business of VoiceLog, LLC, US$9.3million of capital expenditures, and a US$2.7 million increase in purchasedreceivables, offset by US$7.2 million related to the purchase of United ClearingPlc. Cash flow from financing activities. Cash provided by financing activities wasUS$29.2 million during the first half of 2006. The Group borrowed US$281.9million under new credit facilities. Such funds were used to repay US$245.5million in refinanced debt and pay US$7.3 million in financing costs. A copy of this statement is available on the Company's website(www.billingservicesgroup.com) and copies are available from BSG's NominatedAdvisor at the address below: Billing Services Group Limitedc/o Evolution Securities Limited100 Wood StreetLondon EC2V 7ANUnited Kingdom Billing Services Group Limited Consolidated Statement of Operations (In USD thousands, except per share amounts) (Unaudited) (Unaudited) (Audited) Six Months Ended Six Months Ended Year Ended June 30, 2006 June 30,2005 December 31,2005 (1)(2)(3) ----------------------------------------------------- Operating revenues $86,570 $74,491 $157,313 Cost of services 40,342 44,337 88,665 ----------- ----------- ------------ Gross profit 46,228 30,154 68,648 Operating expenses 24,432 13,027 27,316 Depreciation 3,235 1,127 3,702 Amortization 8,933 7,066 11,925 ----------- ----------- ------------ Operating income 9,628 8,934 25,705 Other (expense) income: Interest expense (10,700) (4,576) (14,648) Prepayment penalties (9,058) (580) (580) Write-off of deferred finance costs (11,995) - (2,722) Interest income 1,293 1,227 2,468 Equity in loss from investment - - (65) Foreign currency transactions (200) - - SFAS 123(R) non-cash compensation (1,555) - - Other expense, net (1,127) (781) (1,187) ----------- ----------- ------------ Total other expense, net (33,342) (4,710) (16,734) ----------- ----------- ------------ (Loss) income from operations before provision for income taxes (23,714) 4,224 8,971 Income tax benefit 4,641 (1,490) (3,833) (expense) ----------- ----------- ------------ Net (loss) income $(19,073) $2,734 $5,138 Net (loss) income per share: Basic and diluted $(0.070) $0.015 $0.025 Weighted average shares outanding 271,351 179,830 208,219 Notes(1) Accounts for UCL option payments as an increase to goodwill(2) Subject to UCL purchase accounting adjustments; includes UCL from March 1, 2006(3) Subject to BSG TPV, LLC purchase accounting adjustments; includes opening balance sheet at June 30, 2006 Billing Services Group Limited Consolidated Balance Sheets ASSETS (In USD thousands) (Unaudited) (Unaudited) (Audited) June 30, 2006 June 30, 2005 December 31,2005 (1)(2)(3) ------------------------------------------------------ Assets Current assets: Cash and cash equivalents $48,930 $57,156 $50,347 Accounts receivable 31,955 21,434 28,541 Purchased receivables 25,739 28,302 22,994 Deferred taxes-current 1,568 1,417 913 Income tax receivable 2,400 537 2,400 Prepaid expenses and other assets 4,317 1,029 2,198 ---------- --------- ----------- Total current assets 114,909 109,875 107,393 Property and equipment 53,042 19,443 41,484 Less accumulated depreciation 10,139 5,255 6,690 ---------- --------- ----------- Total property and equipment,net 42,903 14,188 34,794 Investment at equity 1,435 - 1,435 Capitalized interest costs related to software development 2,657 1,376 2,057 Deferred finance costs 6,107 5,355 11,463 Intangible assets,net of accumulated amortization 97,888 73,521 97,544 Goodwill 227,550 36,619 172,862 Other assets 3,849 731 1,481 ---------- --------- ----------- Total Assets $497,298 $241,665 $429,029 ========== ========= =========== Notes(1) Accounts for UCL option payments as an increase to goodwill(2) Subject to UCL purchase accounting adjustments; includes UCL from March 1, 2006(3) Subject to BSG TPV, LLC purchase accounting adjustments; includes opening balance sheet at June 30, 2006 Billing Services Group Limited Consolidated Balance Sheets LIABILITIES AND SHAREHOLDERS' EQUITY (In USD thousands) (Unaudited) (Unaudited) (Audited) June 30, 2006 June 30, 2005 December 31,2005 (1)(2)(3)(4) ---------------------------------------------------- Current liabilities: Accounts payable $15,360 $13,698 $17,337 Third party payables 77,088 89,948 78,125 Accrued liabilities 18,161 17,848 15,322 Current portion of senior debt payable 10,750 10,400 10,400 Purchase price payable 2,305 - - Note payable - 83 38 ---------- --------- ----------- Total current liabilities 123,664 131,977 121,222 Long term debt, net of current portion 254,062 127,000 211,588 Pension liabilities 4,596 - 4,284 Deferred taxes-non current 11,302 2,406 14,111 Other liabilities 2,952 8,419 11,293 ---------- --------- ----------- Total liabilities 396,576 269,802 362,498 Commitments and contingencies Shareholders' equity Common stock 279,863 - 254,604 Additional paid-in capital (deficit) (171,439) (28,069) (187,733) Retained earnings (deficit) (15,661) (65) 3,411 Accumulated other comprehensive gain 7,959 (3) (3,751) (loss) ---------- --------- ----------- Total shareholders' equity (deficit) 100,722 (28,137) 66,531 ---------- --------- ----------- Total Liabilities and Sharholders' Equity $497,298 $241,665 $429,029 ========== ========= =========== Notes(1) Accounts for UCL option payments as an increase to goodwill(2) Subject to UCL purchase accounting adjustments; includes UCL from March 1, 2006(3) Subject to BSG TPV, LLC purchase accounting adjustments; includes opening balance sheet at June 30, 2006(4) The Company has cancelled 1,295,518 common shares in consideration for the forgiveness of certain employee loans. The Company now has 279,863,248 common shares in issue Billing Services Group Limited Consolidated Statement of Cash Flows (In USD thousands) (Unaudited) (Unaudited) (Audited) Six Months Ended Six Months Ended Year Ended June 30, 2006 June 30, 2005 December 31, 2005 (1)(2)(3) ----------------------------------------------------- Operating ActivitiesNet (loss) income $(19,073) $2,734 $5,138Adjustments to reconcile net(loss)income to net cash provided by (used in) operating activities: Depreciation 3,235 1,127 3,702 Amortization of intangibles 8,004 7,066 11,815 Amortization of deferred finance charges 874 - 4,174 Write-off of deferred finance costs 11,995 - - Amortization of discount on debt - - 803 Amortization of other assets 55 - - Paid-in-kind interest on debt 1,490 - 387 Equity in loss of investment - - 65 SFAS 123(R) non-cash compensation 1,555 - - Changes in operating assets and liabilities: (Increase) decrease in receivables (882) 3,269 4,078 (Increase) in other current assets (1,476) (480) - (Increase) in income tax receivable - - (1,863) (Increase) in prepaid expenses and other assets (708) (153) (1,753) (Decrease) increase in trade accounts payable (2,420) (839) 1,021 (Decrease) in third-party payables (9,364) (19,446) 30,140) (Decrease) increase in accrued liabilities (2,279) 241 (5,806) Increase in accrued interest 473 19 - Increase (decrease)in accrued sales tax related to customers 933 (195) - Provision for deferred taxes (4,710) (312) 3,260 (Decrease) in pension liability (26) - - (Decrease) increase in other liabilities (15) (91) 1,828 ----------- ----------- ----------- Net cash used in operating activities (12,339) (7,060) (3,291) Notes(1) Accounts for UCL option payments as an increase to goodwill(2) Subject to UCL purchase accounting adjustments; includes UCL from March 1, 2006(3) Subject to BSG TPV, LLC purchase accounting adjustments; includes opening balance sheet at June 30, 2006 Billing Services Group Limited Consolidated Statement of Cash Flows (In USD thousands) (Unaudited) (Unaudited) (Audited) Six Months Ended Six Months Ended Year Ended June 30, 2006 June 30, 2005 December 31,2005 (1)(2)(3) -------------------------------------------------------Investing Activities Purchase of United Clearing Plc, net of cash acquired 7,234 - - Purchase of BSG Germany 705 - (155,557) Purchase of BSG TPV,LLC (13,980) - - Adjustment of purchase price of BC Holding I Corporation, net of cash acquired - - 103 Purchase of property and equipment,including $600 of capitalized interest and $1,062 for Oracle license in 2006 (9,284) (4,100) (13,041) Purchase of investment - - (1,500) Net (advances)receipts on purchased receivables (2,745) (1,655) 3,653 ------------ ----------- ----------- Net cash used ininvesting activities (18,070) (5,755) (166,342) Financing Activities Proceeds from sales of common stock 164 1,584 96,972 Borrowings of long-term debt 269,400 140,000 219,512 Borrowing on revolving credit facility 12,500 - - Payments on long term debt (245,480) (71,008) (88,590) Payments on note payable (38) (45) (90) Distributions paid - (71,300) (71,300) Financing costs (7,304) (5,569) (12,757) ------------ ----------- ----------- Net cash provided by(used in) financingactivities 29,242 (6,338) 143,747 Effect of exchange rate changes on cash (250) (4) (80) ------------ ----------- ----------- Net decrease in cash and cash equivalents (1,417) (19,157) (25,966) Cash and cash equivalents, beginning of period 50,347 76,313 76,313 ------------ ----------- ----------- Cash and cash equivalents, end of period $48,930 $57,156 $50,347 ============= ============ ============ Notes(1) Accounts for UCL option payments as an increase to goodwill(2) Subject to UCL purchase accounting adjustments; includes UCL from March 1, 2006(3) Subject to BSG TPV, LLC purchase accounting adjustments; includes opening balance sheet at June 30, 2006 BILLING SERVICES GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 BASIS OF PRESENTATION The accompanying unaudited financial statements of Billing Services GroupLimited and subsidiaries (collectively, "BSG," the "Group," or the "Company")have been prepared in accordance with generally accepted accounting principlesfor interim financial information. Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements. Management uses estimates and assumptions in preparing financial statements inaccordance with generally accepted accounting principles. Those estimates andassumptions affect the reported amounts of assets and liabilities, thedisclosure of contingent assets and liabilities, and the reported amounts ofrevenues and expenses. Actual results could vary from the estimates that wereused. NOTE 2 NET INCOME (LOSS) PER COMMON SHARE Basic and diluted net income (loss) per share are computed by dividing the netincome (loss) by the weighted average number of shares of common stockoutstanding during the relevant periods. Diluted net income per share includes the effect of all dilutive options,warrants and instruments convertible into common stock. Diluted net loss pershare equals basic loss per share because the exercisability of the outstandingstock options is based upon market conditions that have not been met during theperiod. NOTE 3 ACQUISTIONS On March 3, 2006, the Company declared the share for share exchange offer forthe entire issued and to be issued share capital of United Clearing Plc whollyunconditional and with effect from that date United Clearing became a subsidiaryof the Company. In connection with the share for share exchange offer, theCompany issued 25.3 million BSG shares to holders of United Clearing securities.From March 3, 2006 (date of acquisition) through June 30, 2006, United Clearinggenerated revenue of US$3.0 million and pre-tax income of US$0.6 million. On June 30, 2006, a member of the Group purchased substantially all of theassets (and assumed certain identified liabilities) of the third partyverification business of VoiceLog, LLC, a North American business engaged inthird party verification services. The Group paid the seller US$14.0 million atclosing and may pay up to US$2.3 million in additional purchase price uponfinalization of certain post-closing calculations which are usual and customaryin a transaction of this nature. The acquisition was accounted for underpurchase accounting. There was no impact to the Group's income statement for thesix months ended June 30, 2006. BILLING SERVICES GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (UNAUDITED) NOTE 4 LONG-TERM DEBT On May 5, 2006, the Group refinanced its debt. The Company borrowed US$255.0million and used the proceeds to (i) repay then-existing debt totaling US$227.2million; (ii) pay prepayment penalties totaling US$9.1 million; (iii) pay US$7.3million in fees and other expenses; and (iv) add US$10.0 million to workingcapital. The new credit agreement consists of the following: (US$ in millions) Maturity First lien credit facility (US operations) 105 2012 First lien credit facility (German operations) 110 2012 Second lien facility (US operations) 40 2013 Revolving credit (available worldwide) 15 2012 ------ Total US$270 Additionally, the credit agreement includes an uncommitted US$60 millionsupplemental facility for use in financing acquisitions. Borrowings under the credit facility are at the following rates per annum: Interest Rate on LIBOR/Euribor Actual Rate at Loans June 30, 2006 ----------------- -------------- First Lien (US) LIBOR + 2.5% 7.69% First Lien (Germany) EURIBOR + 2.5% 5.32% Second Lien LIBOR + 6.00% 11.19% On June 29, 2006, the Group borrowed an additional US$12.5 million under therevolving credit facility to finance, in part, the acquisition of the thirdparty verification business of VoiceLog, LLC. At June 30, 2006, the $12.5million borrowing carried an interest rate of 9.5%. NOTE 5 COMMITMENTS AND CONTINGENCIES The Company is involved in various claims, legal actions and regulatoryproceedings arising in the ordinary course of business. The Company believes itis unlikely that the final outcome of any of the claims or proceedings to whichthe Company is a party will have a material adverse effect on the Company'sfinancial position or results of operations. Due to the inherent uncertainty oflitigation, however, there can be no assurance that the resolution of anyparticular claim or proceeding would not have a material adverse effect on theCompany's results of operations for the fiscal period in which such resolutionoccurred. Forward Looking Statements This report contains certain "forward-looking" statements and informationrelating to the Group that are based on the beliefs of the Group's management aswell as assumptions made by and information currently available to the Group'smanagement. When used in this report, the words "anticipate," "believe,""estimate," "expect" and "intend" and words or phrases of similar import, asthey relate to the Group or its subsidiaries or Group management, are intendedto identify forward-looking statements. Such statements reflect the currentrisks, uncertainties and assumptions related to certain factors including,without limitation, competitive factors, general economic conditions, customerrelations, relationships with vendors, interest rates, foreign exchange rates,governmental regulation and supervision, seasonality, product introductions andacceptance, technological change, changes in industry practices, onetime eventsand other factors described herein and in other announcements made by the Group.Based upon changing conditions, should any one or more of these risks oruncertainties materialize, or should any underlying assumptions prove incorrect,actual results may vary materially from those described herein as anticipated,believed, estimated, expected or intended. The Group does not intend to updatethese forward-looking statements. This information is provided by RNS The company news service from the London Stock Exchange