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 June 30, 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.
23,177,122 Common shares, $.01 par value, as of July 31, 1992
The information furnished herein reflects all adjustments which
are, in the opinion of management, necessary for the fair presentation
of the results for the periods reported. Such information should be
read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 1991.
PAGE <2>
POLICY MANAGEMENT SYSTEMS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1992 and December 31, 1991................. 3
Consolidated Statements of Income for the six and
three months ended June 30, 1992 and 1991........... 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 1992 and 1991............. 5
Notes to Consolidated Financial Statements............ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations................................... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................. 13
Signatures................................................... 14
INTRODUCTORY NOTE
THE INFORMATION CONTAINED HEREIN HAS BEEN RESTATED IN NOVEMBER
1994 TO REFLECT ADJUSTMENTS RESULTING FROM SPECIAL AUDITS OF THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS (SEE NOTE 2 OF NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS). UNLESS OTHERWISE STATED,
HOWEVER, INFORMATION CONTAINED HEREIN IS AS OF JUNE 30, 1992.
<PAGE> 3
PART I
FINANCIAL INFORMATION
<TABLE>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
June 30, December 31,
1992 1991
(As Restated) (As Restated)
(In Thousands, Except Share Data)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents........................................$ 23,656 $ 39,609
Marketable securities....................................... 185,138 157,805
Receivables, net of provisions for uncollectible amounts
of $1,283 ($1,198 at 1991)................................ 91,934 87,398
Income tax receivable....................................... 3,584 1,117
Deferred income taxes....................................... 6,149 6,981
Other....................................................... 7,705 6,840
Total current assets..................................... 318,166 299,750
Property and equipment, at cost less accumulated depreciation
and amortization of $77,678 ($76,352 at 1991)............... 125,718 117,908
Receivables................................................... 8,020 11,568
Note receivable............................................... 9,500 9,500
Intangibles, less accumulated amortization of
$25,187 ($20,979 at 1991)................................... 103,945 105,874
Capitalized software costs, less accumulated
amortization of $80,170 ($69,866 at 1991)................... 82,056 77,669
Deferred income taxes......................................... 1,013 -
Other......................................................... 11,241 10,423
Total assets..........................................$659,659 $632,692
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses.......................$ 39,222 $ 51,523
Accrued contract termination costs.......................... 2,498 1,095
Current portion of capital lease obligations................ 99 -
Current portion of long-term debt........................... 5,675 3,689
Unearned revenues........................................... 10,815 9,204
Other....................................................... 1,216 1,994
Total current liabilities................................ 59,525 67,505
Capital lease obligations..................................... 34 -
Long-term debt................................................ 6,157 5,976
Deferred income taxes......................................... 52,174 50,897
Other......................................................... 8,340 8,435
Total liabilities..................................... 126,230 132,813
STOCKHOLDERS' EQUITY
Special stock, $.01 par value, 5,000,000 shares authorized.... - -
Common stock, $.01 par value, 75,000,000 shares authorized,
23,166,045 shares issued and outstanding (23,054,713 at 1991). 232 231
Additional paid-in capital.................................... 293,488 289,314
Retained earnings............................................. 240,569 211,244
Unrealized loss on marketable equity securities............... (860) (910)
Total stockholders' equity............................... 533,429 499,879
Total liabilities and stockholders' equity............$659,659 $632,692
<FN>
See accompanying notes.
</TABLE>
PAGE <4>
<TABLE>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
1992 1991 1992 1991
(Restated) (Restated) (Restated) (Restated)
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
REVENUES
Licensing............................. $ 35,692 $ 35,450 $ 17,899 $ 14,241
Services.............................. 202,995 160,812 103,340 83,455
238,687 196,262 121,239 97,696
COSTS AND EXPENSES
Employee compensation and benefits.... 83,603 78,144 41,911 39,634
Computer and communications expenses.. 19,745 14,924 9,450 7,180
Information services and data
acquisition costs................... 45,458 38,166 23,487 20,120
Other operating costs and expenses.... 51,946 35,419 26,169 17,436
200,752 166,653 101,017 84,370
OPERATING INCOME........................ 37,935 29,609 20,222 13,326
INVESTMENT INCOME, NET OF
INTEREST EXPENSE...................... 5,633 3,203 2,840 1,971
INCOME BEFORE INCOME TAXES.............. 43,568 32,812 23,062 15,297
INCOME TAXES............................ 14,243 11,281 7,577 5,214
NET INCOME.............................. $ 29,325 $ 21,531 $ 15,485 $ 10,083
NET INCOME PER SHARE.................... $ 1.27 $ 1.06 $ .67 $ .48
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................... 23,138 20,252 23,162 20,981
FULLY DILUTED NET INCOME PER SHARE...... - $ 1.00 - $ .46
See accompanying notes.
PAGE <5>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
1992 1991
(Restated) (Restated)
(In Thousands)
Operating Activities
Net income.......................................$ 29,325 $ 21,531
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization................. 26,624 20,851
Deferred income taxes......................... 1,096 5,388
Changes in assets and liabilities:
Receivables................................... (642) (6,270)
Income tax receivable......................... (2,467) (2,593)
Accounts payable and accrued expenses......... 3,207 (1,927)
Income taxes payable.......................... 814 -
Other, net....................................... 169 (9,530)
Cash provided by operations................. 58,126 27,450
Investing Activities
Increase in marketable securities................ (27,333) (24,822)
Acquisition of property and equipment ........... (34,183) (5,789)
Capitalized internal software development costs.. (12,221) (14,932)
Purchased software............................... (1,211) (368)
Proceeds from disposal of property and equipment. 164 1,623
Business acquisitions............................ (2,194) (3,960)
Cash used for investing activities.......... (76,978) (48,248)
Financing Activities
Payments on capital lease obligations............ (398) (1,027)
Payments on long-term debt....................... (64) (3,073)
Issuance of common stock under stock
option plans................................... 3,361 11,603
Cash provided by financing activities....... 2,899 7,503
Net decrease in cash and equivalents............... (15,953) (13,295)
Cash and equivalents at beginning of period........ 39,609 27,911
Cash and equivalents at end of period..............$ 23,656 $ 14,616
Noncash Activities
Long-term debt arising from and assumed in
connection with business acquisitions..........$ 2,187 $ 3,186
Supplemental Information
Interest paid.................................... 326 4,900
Income taxes paid................................ 14,869 8,787
See accompanying notes.
PAGE <6>
POLICY MANAGEMENT SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 and six months ended June 30, 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. These adjustments include
all adjustments which are, in the opinion of management, necessary
to state fairly the results for the periods 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, 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 above adjustments. The components (net of
related tax effects) of the adjustment to previously reported net
income for the three and six months ended June 30, 1992, are as
follows:
PAGE <7>
Increase (Decrease) to Net Income
Three Months Six Months
Ended June 30, Ended June 30,
1992 1992
(In Thousands)
Deferral of revenues due to changes in
timing of revenue recognition................. $(1,018) $ (785)
Reduction of expenses due to capitalization
of certain software costs..................... 74 545
Recognition of expenses due to changes in
timing of expense accrual..................... 1,698 831
Reserve for losses on certain services
contracts..................................... (180) (390)
Reduction of current income tax liability due
to previously unrecorded tax credits.......... 516 1,014
Net income adjustment........................... $ 1,090 $ 1,215
After giving effect to these adjustments, the principle
elements of the Company's consolidated statement of income for the
three and six months ended June 30, 1992 were restated as follows:
Three Months Ended Six Months Ended
June 30, 1992 June 30, 1992
(As Previously (As Previously
Reported) (Restated) Reported) (Restated)
(In Thousands)
Revenues.....................$123,119 $121,239 $239,197 $238,687
Operating income............. 19,326 20,222 37,650 37,935
Other income and
expenses, net.............. 2,809 2,840 5,593 5,633
Income before income taxes... 22,135 23,062 43,243 43,568
Net income................... 14,395 15,485 28,110 29,325
Net income per share......... .62 .67 1.21 1.27
The components (net of related tax effects) of the adjustment
to previously reported net income for the three and six months
ended June 30, 1991, are as follows:
Increase (Decrease) to Net Income
Three Months Six Months
Ended June 30, Ended June 30,
1991 1991
(In Thousands)
Deferral of revenues due to changes in
timing of revenue recognition.................... $(2,172) $(1,058)
Reduction of expenses due to capitalization
of certain software costs........................ 1,278 3,005
Recognition of expenses due to changes in
timing of expense accrual........................ (168) (833)
Reserve for losses on certain services contracts... (289) (1,477)
Net income adjustment.............................. $(1,351) $ (363)
PAGE <8>
After giving effect to these adjustments, the principle
elements of the Company's consolidated financial statement of
income for the three and six months ended June 30, 1991 were
restated as follows:
Three Months Ended Six Months Ended
June 30, 1991 June 30, 1991
(As Previously (As Previously
Reported) (Restated) Reported) (Restated)
(In Thousands)
Revenues.....................$101,619 $ 97,696 $197,994 $196,262
Operating income............. 15,588 13,326 30,271 29,609
Other income and
expenses, net.............. 1,891 1,971 3,126 3,203
Income before income taxes... 17,479 15,297 33,397 32,812
Net income................... 11,434 10,083 21,894 21,531
Net income per share......... .54 .48 1.08 1.06
Fully diluted net income
per share.................. .52 .46 1.01 1.00
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:
PAGE <9>
(Restated) (Restated)
Six Months Three Months
Ended June 30, Ended June 30,
1991 1991
(In Thousands, Except
Net Income: Per Share Data)
Net income as reported.......... $21,531 $10,083
Interest and amortization on
convertible debt (net of
income taxes)................ 1,334 473
Adjusted net income......... $22,865 $10,556
Shares:
Weighted average number of
common shares outstanding..... 20,252 20,981
Common stock equivalents
(stock options)............... 485 370
Convertible debt................ 2,169 1,580
Fully diluted shares.......... 22,906 22,931
Fully diluted net income
per share....................... $ 1.00 $ .46
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 six and three months ended June 30,
1991.
NOTE 4. MARKETABLE SECURITIES
Marketable equity securities held for long-term investment are
included in other noncurrent assets at market value of $1,150,000
at June 30, 1992 ($1,100,000 at December 31, 1991). A valuation
reserve has been established for the amount by which the cost of
these securities, $2,010,000 at both June 30, 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 is contesting 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.
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, 1991, and
the consolidated statements of operations and cash flows for the
three and six months ended June 30, 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 $11.4 million between December 31, 1991 and June 30,
1992. Significant nonrecurring expenditures during the six months
ended June 30, 1992 include the following: business acquisitions,
including debt and contingent payments relating to business
acquisitions, ($2.3 million); acquisition of data processing and
communications equipment, computer software and office furniture,
fixtures and equipment used in the Company's operations ($24.5
million); and payments for construction of additional office
facilities at the Company's corporate headquarters in Columbia,
South Carolina, ($5.6 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, computer software and
office furniture, fixtures and equipment ($5.0 million); and
completion of construction of additional office facilities at the
Company's corporate headquarters ($3.1 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.
Other noncurrent assets increased primarily as a result of the
acquisition of computer software for internal use.
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:
PAGE <11>
Percentage of Revenues
Six Months Three Months
Ended June 30, Ended June 30,
1992 1991 1992 1991
Operating income....... 15.9 15.1 16.7 13.6
Income before income
taxes................ 18.3 16.7 19.0 15.7
Income taxes........... 6.0 5.7 6.2 5.3
Net income............. 12.3 11.0 12.8 10.3
Percent Increase
Six Months Three Months
Ended June 30, Ended June 30,
1992 vs. 1991 1992 vs. 1991
Revenues................ 22.0 24.1
Operating income........ 28.1 52.0
Income before income
taxes................. 33.0 51.0
Income taxes............ 26.3 45.3
Net income.............. 36.2 54.0
Revenues
Total licensing revenues were $17.9 and $35.7 million for the
three and six months ended June 30, 1992, respectively,
representing 14.8% and 15.0% of total revenues. Total licensing
revenues for the three months ended June 30, 1992 increased $3.7
million (25.7%) compared to the corresponding period in 1991, due
primarily to an increase in initial license revenues of $2.9
million. Revenues from continuing monthly license charges for
maintenance, system enhancements and services availability ("MESA")
and for continuing right-to-use licenses increased $.8 million for
the three months comparison.
Total services revenues were $103.3 and $203.0 million for the
three and six months ended June 30, 1992, respectively,
representing 85.2% and 85.0% of total revenues. Compared to $83.5
and $160.8 million for the three and six months ended June 30,
1991, respectively, representing 85.4% and 81.9% 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 were
$63.2 and $125.3 million for the three and six months ended June
30, 1992 as compared with $53.2 and $101.7 million, respectively,
for the corresponding periods in 1991. These increases are
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.
PAGE <12>
Revenues from information services were $40.1 and $77.4
million for the three and six months ended June 30, 1992 as
compared with $27.8 and $54.7 million for the corresponding periods
in 1991. These increases are 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 $2.3
million and $5.5 million for the three and six months ended June
30, 1992 compared to the corresponding periods in 1991, primarily
as a result of increased costs associated with European and
Australian facilities management and outsourcing contracts.
Computer and communications expenses increased $2.3 million
and $4.8 million for the three and six months ended June 30, 1992
compared to the corresponding periods in 1991. These increases
were 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 $3.4
and $7.3 million for the three and six months ended June 30, 1992
compared to the corresponding periods in 1991. These increases are
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 and six
months ended June 30, 1992 increased $8.7 and $16.5 million
compared to the corresponding periods 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 six and three months ended June 30, 1992 over the
corresponding periods in 1991 was primarily attributable to
interest expense of $2.1 million and $ .7 million for the six and
three months ended June 30, 1991, repectively, 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 32.7% and 34.4% for the six
months ended June 30, 1992 and 1991, respectively. The decrease in
the effective rate between the periods was due primarily to an
increase in nontaxable investment income.
PAGE <13>
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 June 30, 1992.
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)
</TABLE>
