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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, 1992 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 X No_____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
23,157,229 Common shares, $.01 par value, as of April 30, 1992
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, 1991.
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POLICY MANAGEMENT SYSTEMS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1992 and December 31, 1991................ 3
Consolidated Statements of Income for the
three months ended March 31, 1992 and 1991.......... 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1992 and 1991.......... 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 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, 1992.
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PART I
FINANCIAL INFORMATION
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1992 1991
(As Restated) (As Restated)
(In Thousands, Except
Share Data)
ASSETS
Current assets:
Cash and equivalents...................................... $ 28,038 $ 39,609
Marketable securities..................................... 172,807 157,805
Receivables, net of provisions for uncollectible amounts
of 1,186 ($1,198 at 1991)............................... 91,231 87,398
Income tax receivable..................................... 696 1,117
Deferred income taxes..................................... 6,313 6,981
Other..................................................... 6,240 6,840
Total current assets.................................. 305,325 299,750
Property and equipment, at cost less accumulated
depreciation and amortization of $77,163
($76,352 at 1991)......................................... 120,998 117,908
Receivables................................................. 10,309 11,568
Note receivable............................................. 9,500 9,500
Intangibles, less accumulated amortization of
$23,061 ($20,979 at 1991)................................. 106,062 105,874
Capitalized software costs, less accumulated
amortization of $74,797 ($69,866 at 1991)................. 81,174 77,669
Deferred income taxes....................................... 497 -
Other....................................................... 11,999 10,423
Total assets........................................ $645,864 $632,692
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses..................... $ 41,415 $ 51,523
Accrued contract termination costs........................ 2,057 1,095
Capital lease obligations................................. 126 -
Current portion of long-term debt......................... 5,756 3,689
Unearned revenues......................................... 11,809 9,204
Other..................................................... 1,070 1,994
Total current liabilities.............................. 62,233 67,505
Capital lease obligations................................... 56 -
Long-term debt.............................................. 6,298 5,976
Deferred income taxes....................................... 51,686 50,897
Other....................................................... 8,216 8,435
Total liabilities................................... 128,489 132,813
STOCKHOLDERS' EQUITY
Special stock, $.01 par value, 5,000,000 shares
authorized................................................ - -
Common stock, $.01 par value, 75,000,000 shares
authorized, 23,154,231 shares issued and outstanding
(23,054,713 at 1991)...................................... 232 231
Additional paid-in capital.................................. 292,969 289,314
Retained earnings........................................... 225,084 211,244
Unrealized loss on marketable equity securities............. (910) (910)
Total stockholders' equity............................. 517,375 499,879
Total liabilities and stockholders'equity .......... $645,864 $632,692
<FN>
See accompanying notes.
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POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months
Ended March 31,
1992 1991
(Restated) (Restated)
(In Thousands, Except
Per Share Data)
REVENUES
Licensing.................................... $ 17,793 $ 21,209
Services..................................... 99,655 77,357
117,448 98,566
COSTS AND EXPENSES
Employee compensation and benefits........... 41,692 38,510
Computer and communications expenses......... 10,295 7,744
Information services and data
acquisition costs.......................... 21,971 18,046
Other operating costs and expenses........... 25,777 17,983
99,735 82,283
OPERATING INCOME............................... 17,713 16,283
INVESTMENT INCOME, NET OF INTEREST EXPENSE..... 2,793 1,232
INCOME BEFORE INCOME TAXES..................... 20,506 17,515
INCOME TAXES................................... 6,666 6,067
NET INCOME..................................... $ 13,840 $11,448
NET INCOME PER SHARE........................... $ .60 $ .59
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING..... 23,115 19,523
FULLY DILUTED NET INCOME PER SHARE............. - $ .54
See accompanying notes.
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POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months
Ended March 31,
1992 1991
(Restated) (Restated)
Operating Activities (In Thousands)
Net income.................................... $13,840 $11,448
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization.............. 13,063 9,917
Deferred income taxes...................... 960 2,837
Changes in assets and liabilities:
Receivables................................ (2,228) (5,235)
Income tax receivable...................... 421 (1,370)
Accounts payable and accrued expenses...... 5,400 684
Income taxes payable....................... 666 -
Other, net.................................... 1,484 (4,712)
Cash provided by operations.............. 33,606 13,569
Investing Activities
Increase in marketable securities............. (15,002) (3,592)
Acquisition of property and equipment......... (23,462) (1,752)
Capitalized internal software
development costs........................... (6,338) (7,604)
Purchased software............................ (838) -
Proceeds from disposal of property
and equipment............................... 44 26
Business acquisitions......................... (2,194) (3,960)
Cash used for investing activities....... (47,790) (16,882)
Financing Activities
Payments on capital lease obligations......... (349) (613)
Payments on long-term debt.................... (28) (2,538)
Issuance of common stock under stock
option plans................................ 2,990 4,794
Cash provided by financing activities.... 2,613 1,643
Net decrease in cash and equivalents............ (11,571) (1,670)
Cash and equivalents at beginning of period..... 39,609 27,911
Cash and equivalents at end of period........... $ 28,038 $ 26,241
Noncash Activities
Long-term debt arising from and assumed
in connection with business acquisition..... $ 2,187 $ 3,186
Supplemental Information
Interest paid................................. 207 2,995
Income taxes paid............................. 4,534 4,448
See accompanying notes.
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POLICY MANAGEMENT SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1992
(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, 1991, and
the consolidated statements of operations and cash flows for the
three months ended March 31, 1992 and 1991 have been restated by
the Company, without audit, to conform to the adjustments to the
Company's retained earnings as of December 31, 1992 and 1991, as
discussed in Note 2.
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, 1992).
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, 1992, the Company determined the specific prior period or
periods affected by the adjustments. The components (net of
related tax effects) of the adjustment to previously reported net
income for the three months ended March 31, 1992, are as follows:
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Increase (Decrease)
to Net Income
(In Thousands)
Deferral of revenues due to changes in
timing of revenue recognition.................... $ 233
Reduction of expenses due to capitalization
of certain software costs........................ 471
Recognition of expenses due to changes in
timing of expense accrual........................ (867)
Reserve for losses on certain services contracts... (210)
Reduction of current income tax liability due
to previously unrecorded tax credits............. 498
Net income adjustment for the three months
ended March 31, 1992............................. $ 125
After giving effect to these adjustments, the principle
elements of the Company's consolidated statement of income for the
three months ended March 31, 1992 were restated as follows:
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
The components (net of related tax effects) of the adjustment
to previously reported net income for the three months ended March
31, 1991, are as follows:
Increase (Decrease)
to Net Income
(In Thousands)
Deferral of revenues due to changes in
timing of revenue recognition.................... $ 1,114
Reduction of expenses due to capitalization
of certain software costs........................ 1,727
Recognition of expenses due to changes in
timing of expense accrual........................ (665)
Reserve for losses on certain services contracts... (1,188)
Net income adjustment for the three months
ended March 31, 1991............................. $ 988
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After giving effect to these adjustments, the principle
elements of the Company's consolidated statement of income for the
months ended March 31, 1991 were restated as follows:
Three Months Ended
March 31, 1991
(As Previously
Reported) (Restated)
(In Thousands)
Revenues......................... $ 96,375 $ 98,566
Operating income................. 14,683 16,283
Other income and expenses, net... 1,235 1,232
Income before income taxes....... 15,918 17,515
Net income....................... 10,460 11,448
Net income per share............. .54 .59
Fully diluted net income
per share...................... .49 .54
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)
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. NET INCOME PER SHARE
Net income per share is based upon the weighted average
number of common shares outstanding. Outstanding stock options are
common stock equivalents, but are excluded from the computation of
net income per share since their dilutive effect is not material.
The computation of fully diluted net income per share, which is
based upon the weighted average number of common shares plus common
stock equivalents outstanding and the assumed conversion of all
outstanding convertible debt until actually converted in May 1991,
is as follows:
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(Restated)
Three Months
Ended March 31,
1991
(In Thousands, Except
Net Income: Per Share Data)
Net income as reported.................... $11,448
Interest and amortization on convertible
debt (net of income taxes).............. 862
Adjusted net income................... $12,310
Shares:
Weighted average number of common shares
outstanding............................. 19,523
Common stock equivalents (stock options).. 600
Convertible debt.......................... 2,759
Fully diluted shares.................... 22,882
Fully diluted net income per share.......... $ .54
Had conversion of the convertible debt occurred on January 1,
1991, net income per share would have approximated fully diluted
net income per share for the three months ended March 31, 1991.
NOTE 4. MARKETABLE SECURITIES
Marketable equity securities held for long-term investment are
included in other noncurrent assets at market value of $1,100,000
at both March 31, 1992 and December 31, 1991. A valuation reserve
has been established for the amount by which the cost of these
securities, $2,010,000 at both March 31, 1992 and December 31,
1991, exceeds market value and is included in stockholders' equity.
NOTE 5. OTHER MATTERS
The Internal Revenue Service recently completed its normal
examination of the Company's consolidated federal income tax
returns for the years 1985 through 1988 and has proposed certain
adjustments for those years. The Company believes that its judgment
in the areas for which adjustments have been proposed has been
appropriate and intends to contest the proposed adjustments.
Additionally, the Company believes that adequate amounts of federal
income tax have been provided in its consolidated financial
statements for these years.
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POLICY MANAGEMENT SYSTEMS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The consolidated balance sheet as of December 31, 1991, and
the consolidated statements of operations and cash flows for the
three months ended March 31, 1992 and 1991 have been restated by
the Company, without audit, to conform to the adjustments to the
Company's retained earnings as of December 31, 1992 and 1991, 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
periods presented.
Financial Condition
Cash and equivalents and current marketable securities
increased $ 3.4 million between December 31, 1991 and March 31,
1992. Significant nonrecurring expenditures during the three
months ended March 31, 1992 include the following: business
acquisitions, including debt and contingent payments relating to
business acquisitions, ($ 2.2 million); acquisition of data
processing and communications equipment and office furniture,
fixtures and equipment used in the Company's operations ($19.4
million); and payments for construction of additional office
facilities at the Company's corporate headquarters in Columbia,
South Carolina, to accommodate the Company's continued rapid growth
($2.5 million).
Significant nonrecurring expenditures anticipated for the
remainder of 1992 are as follows: debt payments relating to past
business acquisitions ($ 3.6 million); acquisition of data
processing and communications equipment and office furniture,
fixtures and equipment ($4.9 million); completion of construction
of additional office facilities at the Company's corporate
headquarters ($6.2 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.
Receivables increased primarily as a result of new system
licenses and an increase in services performed for customers.
Results of Operations
Set forth below are certain operating items expressed as
a percentage of revenues and the percent increase for those items
between the periods presented:
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Percentage Percent
of Revenues Increase
Three Months Three Months
Ended March 31, Ended March 31,
1992 1991 1992 VS 1991
Revenues............... 100.0 100.0 19.2
Operating income....... 15.1 16.5 8.8
Income before income
taxes................ 17.5 17.8 17.1
Income taxes........... 5.7 6.2 9.9
Net income............. 11.8 11.6 21.0
Revenues
Total licensing revenues were $17.8 and $21.2 million for the
three months ended March 31, 1992 and 1991, respectively,
representing 15.1% and 21.5% of total revenues. Total licensing
revenues for 1992 decreased $3.4 million (16.1%) compared to 1991,
due primarily to a reduction in initial license revenues of $3.4
million. Revenues from continuing monthly license charges for
maintenance, system enhancements and services availability ("MESA")
and for continuing right-to-use licenses remained unchanged for the
three months comparison.
Total services revenues were $99.7 and $77.4 million for the
three months ended March 31, 1992 and 1991, respectively,
representing 84.9% and 78.5% of total revenues. Changes in the
total services revenue were affected by activities in professional,
outsourcing and information services, as described below.
Total revenues from professional and outsourcing services for
the three months ended March 31, 1992 were $62.1 million as
compared with $48.4 million for 1991. This $13.7 million increase
is primarily attributable to policy management and processing
services to the New Jersey Market Transition Facility (MTF)
project, facilities management and outsourcing contracts in Europe
and Australia and several new outsourcing contracts in the United
States.
Revenues from information services were $37.3 and $27.0
million for the three months ended March 31, 1992 and 1991,
respectively. The increase ($10.3 million) is primarily
attributable to an increase in new business associated with
automobile property and casualty information services and life
information services.
Costs and Expenses
Employee compensation and benefits expense increased $3.2
million for the three months ended March 31, 1992 compared to 1991,
primarily as a result of increased costs associated with European
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and Australian facilities management and outsourcing contracts.
Computer and communications expenses increased $2.6 million
for the three months ended March 31, 1992 compared to 1991. This
increase was primarily related to increased costs associated with
policy management and processing services, principally the MTF
project and to European and Australian facilities management and
outsourcing contracts.
Information services and data acquisition costs increased $3.9
million to $22.0 million for the three months ended March 31, 1992
compared to $18.0 million for the corresponding period in 1991.
This increase is due primarily to an increase in the volume of
state fees for motor vehicle reports, related to new business,
which is part of the Company's property and casualty information
services business.
Other operating costs and expenses for the three months ended
March 31, 1992 increased $7.8 million compared to the corresponding
period in 1991. These increases result primarily from increased
costs associated with providing total policy management outsourcing
services, principally the New Jersey MTF and costs associated with
European and Australian facilities management and outsourcing
contracts.
The increase in investment income, net of interest expense,
for the three months ended March 31, 1992 over the corresponding
1991 period was primarily attributable to $1.4 million of interest
expense in the 1991 first quarter relating to $ 100 million of
convertible debt of the Company which was converted in May 1991.
The effective income tax rate (income taxes expressed as a
percentage of pre-tax income) was 32.5% and 34.6% for the three
months ended March 31, 1992 and 1991, respectively. The decrease
in the effective rate between the periods was due primarily to an
increase in nontaxable investment income.
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PART II
OTHER INFORMATION
POLICY MANAGEMENT SYSTEMS CORPORATION
Items 1, 2, 3, 4 and 5 are not applicable.
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 did not file any reports on Form 8-K during the
quarter ended March 31, 1992.
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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)