-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, i2hzsKJUM440MftzUkaMZjqbhzDm6RpWWf7JxEUC/iCdEJ/lahELj2Jn39Guwpou BIp6EEPA+yYx8iYiwgis8w== 0000356226-94-000020.txt : 19941125 0000356226-94-000020.hdr.sgml : 19941125 ACCESSION NUMBER: 0000356226-94-000020 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19930331 FILED AS OF DATE: 19941122 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLICY MANAGEMENT SYSTEMS CORP CENTRAL INDEX KEY: 0000356226 STANDARD INDUSTRIAL CLASSIFICATION: 6411 IRS NUMBER: 570723125 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10557 FILM NUMBER: 94561376 BUSINESS ADDRESS: STREET 1: ONE PMS CTR STREET 2: PO BOX TEN CITY: COLUMBIA STATE: SC ZIP: 29202 BUSINESS PHONE: 8037354000 10-Q/A 1 PAGE <1> SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31, 1993 Commission file number 0-10175 POLICY MANAGEMENT SYSTEMS CORPORATION (Exact name of registrant as specified in its charter) South Carolina 57-0723125 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One PMS Center (P.O. Box Ten) Blythewood, S.C. (Columbia, S.C.) 29016 (29202) (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (803) 735-4000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 No X Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 22,574,656 Common shares, $.01 par value, as of April 30, 1993 The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for the fair presentation of the results for the periods reported. Such information should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1992. PAGE <2> POLICY MANAGEMENT SYSTEMS CORPORATION INDEX PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Statements of Income for the three months ended March 31, 1993 and 1992.......... 3 Consolidated Balance Sheets as of March 31, 1993 and December 31, 1992................ 4 Consolidated Statements of Cash Flows for the three months ended March 31, 1993 and 1992.......... 5 Notes to Consolidated Financial Statements............ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................. 13 Item 4. Submission of Matters to a Vote of Security Holders................................ 13 Item 6. Exhibits and Reports on Form 8-K.................. 13 Signatures................................................... 14 INTRODUCTORY NOTE THE INFORMATION CONTAINED HEREIN HAS BEEN RESTATED IN NOVEMBER 1994 TO REFLECT ADJUSTMENTS RESULTING FROM SPECIAL AUDITS OF THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS (SEE NOTE 2 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS). UNLESS OTHERWISE STATED, HOWEVER, INFORMATION CONTAINED HEREIN IS AS OF MARCH 31, 1993. PAGE <3> PART I FINANCIAL INFORMATION POLICY MANAGEMENT SYSTEMS CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31, 1993 1992 (Restated) (Restated) (In Thousands, Except Per Share Data) Revenues: Licensing....................................... $ 19,855 $ 17,793 Services........................................ 99,360 99,655 119,215 117,448 Costs and Expenses: Employee compensation and benefits.............. 39,597 41,692 Computer and communications expense............. 10,877 10,295 Information services and data acquisition costs......................................... 26,928 21,971 Other operating costs and expenses.............. 26,496 25,777 103,898 99,735 Operating income.................................. 15,317 17,713 Other Income and Expenses: Investment income............................... 3,329 2,993 Gain on sale of marketable securities........... 2,936 156 Interest expense and other charges.............. (339) (356) 5,926 2,793 Income before income taxes........................ 21,243 20,506 Income taxes...................................... 7,618 6,666 Net income........................................ $ 13,625 $ 13,840 Net income per share.............................. $ .58 $ .60 Weighted average number of shares................. 23,534 23,115 See accompanying notes. PAGE <4> POLICY MANAGEMENT SYSTEMS CORPORATION CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1993 1992 (Unaudited) (Audited) (As restated) (As restated) (In Thousands, Except Share Data) Assets Current assets: Cash and equivalents.................................. $111,057 $ 31,959 Marketable securities................................. 119,957 206,562 Receivables, net of provisions for uncollectible amounts of $1,447 ($1,630 at 1992).................. 98,333 86,479 Income tax receivable................................. 3,196 2,891 Deferred income taxes................................. 6,741 8,083 Other................................................. 10,073 7,939 Total current assets............................... 349,357 343,913 Property and equipment, at cost less accumulated depreciation & amortization of $83,131 ($83,730 at 1992)..................................... 143,655 131,696 Receivables............................................. 16,794 22,252 Goodwill and other intangible assets.................... 100,312 100,792 Capitalized software costs.............................. 103,445 99,414 Deferred income taxes................................... - 2,580 Other................................................... 5,652 6,295 Total assets.................................... $719,215 $706,942 Liabilities Current liabilities: Accounts payable and accrued expenses................. $ 40,883 $ 37,022 Accrued contract termination costs.................... 3,179 4,008 Current portion of long-term debt..................... 2,958 3,670 Income taxes payable.................................. 155 - Unearned revenues..................................... 10,556 11,500 Other................................................. 961 1,026 Total current liabilities.......................... 58,692 57,226 Long term debt.......................................... 6,153 6,001 Deferred income taxes................................... 53,347 56,112 Other................................................... 7,082 8,527 Total liabilities............................... 125,274 127,866 Stockholders' Equity Special stock, $.01 par value, 5,000,000 shares authorized..................................... - - Common stock, $.01 par value, 75,000,000 shares authorized, 23,544,824 shares issued and outstanding (23,524,197 at 1992).................................. 235 235 Additional paid-in capital.............................. 308,927 307,906 Retained earnings....................................... 286,391 272,766 Foreign currency translation adjustment................. (1,612) (1,831) Total stockholders' equity......................... 593,941 579,076 Total liabilities and stockholders' equity...... $719,215 $706,942 See accompanying notes.
PAGE <5> POLICY MANAGEMENT SYSTEMS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 1993 1992 (Restated) (Restated) (In Thousands) Operating Activities Net income............................................... $ 13,625 $ 13,840 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................... 15,892 12,887 Deferred income taxes................................. 211 960 Gain on sale of marketable securities................. (2,936) (156) Changes in assets and liabilities: Receivables........................................... (5,911) (2,228) Income tax receivable................................. - 421 Accounts payable and accrued expenses................. 5,863 5,400 Income taxes payable.................................. 510 666 Other, net............................................... (5,552) 1,135 Cash provided by operations......................... 21,702 32,925 Investing Activities Proceeds from sales/maturities of marketable securities, net........................................ 187,465 16,416 Purchases of marketable securities, net.................. (99,219) (31,086) Acquisition of property and equipment.................... (25,028) (23,462) Capitalized internal software development costs.......... (5,532) (6,338) Purchased software....................................... (1,235) (838) Proceeds from disposal of property & equipment........... 6,950 44 Business acquisitions.................................... (2,840) (2,194) Cash provided (used) by investing activities........ 60,561 (47,458) Financing Activities Payments on long term debt............................... (3,673) (28) Issuance of common stock under stock option plans........ 663 2,990 Cash provided (used) by financing activities........ (3,010) 2,962 Effect of exchange rate changes on cash.................... (155) - Net increase (decrease) in cash and equivalents............ 79,098 (11,571) Cash and equivalents at beginning of period................ 31,959 39,609 Cash and equivalents at end of period...................... $111,057 $ 28,038 Noncash Activities Long-term debt arising from and assumed in connection with business acquisition.............................. $ 2,987 $ 2,187 Supplemental Information Interest paid............................................ 278 207 Income taxes paid........................................ 6,535 4,534 See accompanying notes.
PAGE <6> POLICY MANAGEMENT SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1993 (Unaudited) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements are prepared on the basis of generally accepted accounting principles and include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All material intercompany balances and transactions have been eliminated. Certain amounts previously presented in the consolidated financial statements for prior periods have been reclassified to conform to current classifications. The consolidated balance sheet as of December 31, 1992 has been audited and is restated herein. The consolidated statements of operations and cash flows for the three months ended March 31, 1993 and 1992 have been restated by the Company, without audit, to conform to the adjustments to the Company's retained earnings as of December 31, 1992, as discussed in Note 2. These adjustments include all adjustments which are, in the opinion of management, necessary to state fairly the results for the period presented. NOTE 2. RESTATEMENT OF RESULTS OF OPERATIONS In August 1993, the Company engaged independent accountants to conduct a special audit of the Company's balance sheet as of December 31, 1992 and its consolidated financial statements as of and for the six months ended June 30, 1993. As a result of this audit, the Company determined that retained earnings previously reported as of December 31, 1992 required adjustment. These adjustments were due to errors in the application of accounting principles and subsequent discovery of facts existing at February 26, 1993, the date of the predecessor auditor's report (see Note 2 of Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 1993). In February 1994, the Company engaged independent accountants to audit the Company's consolidated financial statements as of and for the twelve months ended December 31, 1993 and 1992. As a result of the audit of the Company's consolidated financial statements as of and for the twelve months ended December 31, 1993 and 1992, the Company determined the specific period or periods affected by the above adjustments. The components (net of PAGE <7> related tax effects) of the adjustment to previously reported net income for the three months ended March 31, 1993 and 1992, are as follows: Increase (Decrease) to Net Income (In Thousands) Deferral of revenues due to changes in timing of revenue recognition................ $3,190 $ 233 Reduction of expenses due to capitalization of certain software costs.................... 335 471 Recognition of expenses due to changes in timing of expense accrual.................... (738) (867) Reserve for losses on certain services contracts........................... 1,057 (210) Reduction of current income tax liability due to previously unrecorded tax credits......... - 498 Net income adjustment for the three months ended March 31, 1993 and 1992................ $3,844 $ 125 After giving effect to these adjustments, the principle elements of the Company's consolidated statements of income for the three months ended March 31, 1993 and 1992, were restated as follows: Three Months Ended March 31, 1993 (As Previously Reported) (Restated) (In Thousands) Revenues......................... $120,410 $119,215 Operating income................. 8,570 15,317 Other income and expenses, net... 5,947 5,926 Income before income taxes....... 14,517 21,243 Net income....................... 9,781 13,625 Net income per share............. .42 .58 Three Months Ended March 31, 1992 (As Previously Reported) (Restated) (In Thousands) Revenues......................... $116,078 $117,448 Operating income................. 18,324 17,713 Other income and expenses, net... 2,784 2,793 Income before income taxes....... 21,108 20,506 Net income....................... 13,715 13,840 Net income per share............. .59 .60 Deferral of revenues due to changes in timing of revenue recognition includes situations where (i) there were errors in accounting for contracts under the percentage of completion method; (ii) there were delays in receiving signed contracts; (iii) PAGE <8> customers prepaid or were billed for services performed in subsequent periods or where refunds or provisions for credit were contractually required and (iv) the Company had future delivery obligations under certain contracts. NOTE 3. SUBSEQUENT EVENTS In April 1993, litigation was commenced against the Company and certain of its present and former officers and directors in the United States District Court for the District of South Carolina, Columbia Division. In the litigation, which is a class action on behalf of purchasers of the Company's common stock between March 18, 1992 and July 8, 1993, the plaintiffs allege that the Company failed to prepare its financial statements in accordance with generally accepted accounting principles and omitted to disclose certain information regarding, among other things, its business and prospects in violation of the Federal securities laws, the South Carolina Code and common law. The Company believes it has meritorious defenses to the claims and is vigorously defending the litigation. The plaintiffs seek unspecified compensatory damages, legal fees and litigation costs. The Company is unable to predict the outcome or the potential financial impact of this litigation. In June 1993, the Securities and Exchange Commission ("SEC") commenced a formal investigation into possible violations of the Federal securities laws in connection with the Company's public reports and financial statements, as well as trading in the Company's securities. The SEC has issued a formal order of investigation which provides the SEC staff with the power to subpoena documents and to compel testimony in connection with their investigation. The Company is cooperating with the SEC in connection with the investigation. NOTE 4. CHANGES IN ESTIMATED USEFUL LIVES For all years through December 31, 1992, the Company had amortized goodwill over an estimated useful life of 25 years. As a result of its most recent evaluation, the Company has revised its estimates of the period of future benefit for goodwill. Consequently, effective January 1, 1993, the Company began to amortize goodwill over an estimated life of 15 years for goodwill related to information and computer services company acquisitions and 10 years for goodwill related to software company acquisitions. The Company believes these new lives more appropriately reflect the current economic circumstances for such businesses and the related period of future benefit. Longer lives will be used for future business acquisitions only where independent third party studies support such lives. The effect of this change in accounting estimate was to increase amortization expense by $970,000 ($.03 per PAGE <9> share) during the three months ended March 31, 1993. For all years through December 31, 1992, the Company amortized internally developed software on a straight-line basis over an estimated useful life of four years. The Company's recent experience indicates that an estimated useful life of five years would more appropriately reflect the actual useful life of such software. Accordingly, commencing January 1, 1993, the Company began to amortize such software on a straight-line basis over five years. Amortization charged to expense was $5,126,000 for the three months ended March 31, 1993. As a result of this change in estimated life, amortization expense was $441,000 ($.01 per share) less than it would have been using the previous four-year life for the three months ended March 31, 1993. NOTE 5. STOCK REPURCHASE On April 7 and 8, 1993 the Company repurchased, on the open market, all of the 970,668 shares of the Company's common stock authorized under a previously approved stock repurchase program for a total consideration of $48,660,000. PAGE <10> POLICY MANAGEMENT SYSTEMS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The consolidated balance sheet as of December 31, 1992 has been audited and is restated herein. The consolidated statements of operations and cash flows for the three months ended March 31, 1993 and 1992 have been restated by the Company, without audit, to conform to the adjustments to the Company's retained earnings as of December 31, 1992, as discussed in Note 2 of Notes to Consolidated Financial Statements. These adjustments include all adjustments which are, in the opinion of management, necessary to state fairly the results for the period presented. Liquidity and Capital Resources The $7.5 million decrease in cash and equivalents and current marketable securities between December 31, 1992 and March 31, 1993 was primarily attributable to the following significant nonrecurring expenditures: business and software product acquisitions, including debt and contingent payments relating to business acquisitions, ($8.2 million); acquisition of data processing and communications equipment, support software and office furniture, fixtures and equipment used in the Company's operations ($23.4 million); and payments for construction of additional office and dining facilities at the Company's corporate headquarters in Columbia, South Carolina ($.9 million). Significant nonrecurring expenditures anticipated for the remainder of 1993 are as follows: acquisition of data processing and communications equipment, support software and office furniture, fixtures and equipment ($8.5 million); acquisition of software products and debt payments relating to past business acquisitions ($6.7 million); and completion of construction of additional dining facilities at the Company's corporate headquarters ($1.2 million). The Company believes that current cash and investment reserves and cash to be provided by operations will be sufficient to satisfy its existing and presently anticipated operating and capital resource needs. Results of Operations Set forth below are certain operating items expressed as a percentage of revenues and the percent increase (decrease) for those items between the periods presented: PAGE <11> Percent Percentage Increase of Revenues (Decrease) Three Months Three Months Ended March 31, Ended March 31, 1993 1992 1993 vs 1992 Revenues................ 100.0 100.0 1.5 Operating income........ 12.8 15.1 (13.5) Income before income taxes................. 17.8 17.5 3.6 Income taxes............ 6.4 5.7 14.3 Net income.............. 11.4 11.8 ( 1.6) The increase in total revenues for the first quarter of 1993 over the corresponding quarter of 1992 of 1.5% was significantly less than the Company's normal growth trend. This was primarily attributable to revenues from both new business, systems licensing and services, and project implementation services from existing customers being lower than projected for the 1993 first quarter, with the sharpest deviation from planned results occurring in the health component of the Company's business. The Company expects uncertainty surrounding health care reform and difficult industry conditions to continue to adversely impact its financial results. Revenues from systems licensing were $19.9 and $17.8 million for the three months ended March 31, 1993 and 1992, respectively, representing 16.7% and 15.1% of total revenues. The increase between 1993 and 1992 results primarily from an increase in initial license revenues of $1.2 million and a $.8 million increase in revenues from continuing monthly license charges for maintenance, enhancements and services availability ("MESA") and for continuing right-to-use licenses. Total services revenues for the three months ended March 31, 1993 decreased $.3 million (.3%) compared to the corresponding period in 1992. Revenues from professional and outsourcing services decreased $9.7 million (15.5%) to $52.5 million for the first quarter in 1993 from $62.1 million for the corresponding quarter in 1992, due primarily to a reduction in professional services provided by the Company's health insurance systems business and total policy management services, principally related to the New Jersey Market Transition Facility (MTF) project. Revenues from information services were $42.9 million for the first quarter in 1993 compared with $37.3 million for the corresponding quarter in 1992. This $5.6 million increase (14.9%) is primarily attributable to an increase in business associated with automobile property and casualty information services and life information services. PAGE <12> The operating margin for the three months ended March 31, 1993 was 12.8%, compared to 15.1% for the corresponding period in 1992. The decline in the operating margin was primarily attributable to lower than projected revenues as explained above. Employee compensation and benefits decreased slightly as a result of a reduction in the number of employees in certain areas of the Company's operations and a decrease in performance bonus expense. The increase in information services and data acquisition costs resulted primarily from an increase in the volume of state fees for motor vehicle reports, relating to new business and normal growth in the property and casualty information services business. Other income and expenses for the three months ended March 31, 1993 and 1992 include a gain on the sale of marketable securities of $2.9 and $.2 million, respectively. The effective income tax rate (income taxes expressed as a percentage of pre-tax income) was 35.9% and 32.5% for the three months ended March 31, 1993 and 1992, respectively. The increase in the effective rate between the periods was due primarily to an increase in amortization of goodwill relating to business acquisitions, which is not deductible for income tax purposes. PAGE <13> PART II OTHER INFORMATION POLICY MANAGEMENT SYSTEMS CORPORATION Items 2, 3 and 5 are not applicable. Item 1. Legal Proceedings See Note 3, "Subsequent Events", of Notes to Consolidated Financial Statements. Item 4. Submission of Matters to a Vote of Security Holders At the annual meeting of stockholders, held April 27, 1993, the Company's stockholders approved the Company's 1993 Long-Term Incentive Plan for Executives (18,353,483 votes for, 1,404,114 votes against, 233,100 abstentions and 2,368,044 broker non-votes). Additionally, the Company's stockholders approved a proposal to amend the Company's 1989 Stock Option Plan to increase the number of shares of $ .01 par value Common Stock reserved for issuance under said plan from 1,200,000 shares to 2,500,000 shares (16,366,842 votes for, 1,508,870 votes against, 244,355 abstentions and 4,239,674 broker non-votes). Item 6. Exhibits and Reports on Form 8-K. Exhibits There are no exhibits required to be filed with this Quarterly Report on Form 10-Q. Reports on Form 8-K The Company filed a report on Form 8-K, dated January 19, 1993 under Item 4. Changes in Registrant's Certifying Accountant, relating to the change in the Company's principal independent auditors. PAGE <14> POLICY MANAGEMENT SYSTEMS CORPORATION 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. POLICY MANAGEMENT SYSTEMS CORPORATION (Registrant) Date: November 17, 1994 By: Timothy V. Williams Executive Vice President (Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----