DALLAS, Jan. 21 /PRNewswire-FirstCall/ -- SOURCECORP, Incorporated
(Nasdaq: SRCPE) (the "Company") today provided an update on the internal
investigation it announced October 27, 2004, which is focused on one of its
operating subsidiaries in the Information Management Division of the Company's
Information Management and Distribution reportable segment.
On October 27, 2004, the Company announced that its previously issued
financial statements and related independent auditors' report for the year
ended December 31, 2003, as well as its previously issued financial statements
for the 2004 quarterly periods ended March 31, 2004 and June 30, 2004, should
no longer be relied upon. In that release, the Company gave a preliminary
indication, based on the Company's then current assessment of the information
available to it at that time, of certain potential adjustments to revenue and
fully diluted earnings per share from continuing operations for the periods
therein indicated (the "Preliminary Estimated Adjustments"). The Company
further noted that until the investigation was complete, the impact on
previously reported financial statements could not be finally determined and
that it was possible that further adjustments, which might be material, would
be required. Based on information provided by, and the recommendation of,
corporate management and on an analysis of the preliminary findings of the
investigation to date and the related accounting impact, the Company's Audit
Committee has now concluded that the adjustments to the indicated periods are
likely to be materially different than the Preliminary Estimated Adjustments.
The Company had also noted in its October 27, 2004, announcement that it
was possible that additional adjustments to financial statements for periods
other than 2003 and 2004 may be identified through the Company's
investigation. The investigation has determined that certain issues that
triggered the need to adjust 2003 and 2004 also impacted 2001 and 2002. Based
on information provided by, and the recommendation of, corporate management
and on an analysis of the preliminary findings of the investigation to date
and the related accounting impact, the Company's Audit Committee, on
January 17, 2005, concluded that the Company's previously issued financial
statements and related independent auditors' reports for the years ended
December 31, 2001 and 2002, should also no longer be relied upon. The factors
resulting in this determination relate to the operating subsidiary that is the
subject of this investigation and include revenue recognition issues related
to certain contracts, required expense adjustments and a requirement to
expense a portion of the goodwill associated with payments related to the
Company's acquisition of such subsidiary.
As material adjustments to the Company's financial statements will be
required, investors should not rely on the financial information contained in
the Company's Annual Report on Form 10-K for the years ended
December 31, 2001, December 31, 2002 and December 31, 2003 or in the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004 and
June 30, 2004, or any other financial information previously furnished by the
Company regarding such periods. The Company's Audit Committee and management
have discussed these issues with the Company's independent auditors.
Based on the Company's current assessment of the information available to
it at this time, the Company has preliminarily identified the following
potential adjustments to revenue, operating expenses, goodwill and fully
diluted earnings per share from continuing operations for the periods
indicated (the adjustments for 2003 and 2004 shown below replace the
adjustments disclosed in the Company's October 27, 2004 announcement).
Range of Adjustments to As Reported
6 Months Ended Year-Ended
June 30, 2004 December 31,
Results 2003 Results
In 000's except for EPS Low High Low High
(Decrease) In Revenue (A) $(1,500) $(6,000) $(6,000) $(7,500)
Increase in Operating Expense (B) --- --- $100 $150
(Decrease) To Fully
Diluted Earnings Per
Share from Continuing
Operations - Excluding
Goodwill Write-Down $(0.06) $(0.22) $(0.22) $(0.28)
Increase in Expense
Related to Goodwill
Write-Down (C) $10,000 $10,500 $6,500 $7,000
(Decrease) To Fully
Diluted Earnings Per
Share from Continuing
Operations - Including
Goodwill Write-Down $(0.42) $(0.61) $(0.46) $(0.53)
Range of Adjustments to As Reported
Year-Ended Year-Ended
December 31, December 31,
2002 Results 2001 Results
In 000's except for EPS Low High Low High
(Decrease) In Revenue (A) $(2,100) $(3,800) $(2,500) $(4,000)
Increase in Operating Expense (B) $450 $500 $450 $500
(Decrease) To Fully Diluted
Earnings Per Share from
Continuing Operations -
Excluding Goodwill Write-Down $(0.09) $(0.15) $(0.12) $(0.18)
Increase in Expense Related
to Goodwill Write-Down (C) $6,500 $11,500 --- ---
(Decrease) To Fully Diluted
Earnings Per Share from
Continuing Operations -
Including Goodwill Write-Down $(0.31) $(0.54) $(0.12) $(0.18)
(A) For revenue to be properly recognized in accordance with the
Securities and Exchange Commission's Staff Accounting Bulletin
No. 104 "Revenue Recognition," each of the following conditions must
be met: persuasive evidence of an arrangement must exist, the price
must be fixed or determinable, delivery must occur or services must
be rendered and collection must be reasonably assured. The Company
has identified certain instances where one or more of the
aforementioned revenue recognition conditions, as applied to certain
customer contracts, were not met during the noted time periods at
the operating subsidiary that is the subject of the Company's
investigation. As such, some or all of the revenue previously
recognized for these customer contracts shall be reversed. If and
when such revenue recognition conditions are met, some portion of
such reversed revenue will be recognized in the appropriate future
period or periods. Based on the Company's preliminary conclusions
relating to the Company's ongoing internal investigation, the
Company believes that the adjustments the Company would make to its
previously reported financial statements will result in recognition
of incremental revenue during 2005 and subsequent periods. It is
not possible, however, to predict with certainty on the basis of
currently available information the amount of such revenue that will
be deferred and recognized during 2005 and subsequent periods. It
will depend in part on the results of the remediation with the
subsidiary's customers. The amount could be from $0 to
$17.9 million.
(B) The Company believes that certain operating expenses of the
operating subsidiary that is the subject of the Company's
investigation were not properly recognized and included in the
operating subsidiary's financial results during the noted time
periods. The Company's estimate of such expenses is indicated by
the adjustment amount for each period.
(C) As a result of the structure of the acquisition of the operating
subsidiary that is the subject of this investigation, the former
owners of such subsidiary had the opportunity to earn additional
sale proceeds for the twelve-month periods ended February 28, 2002,
February 28, 2003 and February 29, 2004 based on earnings before
interest and taxes of such operating subsidiary (in excess of
designated thresholds) calculated in accordance with Generally
Accepted Accounting Principals ("GAAP") for each respective period.
Based on the preliminary findings of the Company's investigation,
earnings before interest and taxes attributable to such subsidiary
were overstated during the earn-out periods resulting in payments
made by the Company under the provisions of the earn-out that
otherwise would not have been made. The Company's current
assessment is that the goodwill resulting from such payments should
be written down. The Company may record a gain in future periods to
the extent, if any, that such erroneous earn-out payments are
ultimately recovered by the Company.
Based on the Company's current assessment of the information available to
it at this time, the Company has preliminarily quantified the cumulative
overall anticipated adjustment to reported revenue during the periods 2001,
2002, 2003 and the first six months of 2004. In addition, the potential
impacts to periods beyond 2004 have also been estimated and summarized as
follows:
Periods 2005 and
2001-2004 Beyond
Low High Low High
Estimated (Decrease)
Increase in Revenue (A) $(12,100) $(21,300) --- $17,900
% (Decrease) from Previously
Reported Company Revenue (0.8%) (1.2%)
(A) For revenue to be properly recognized in accordance with the
Securities and Exchange Commission's Staff Accounting Bulletin
No. 104 "Revenue Recognition," each of the following conditions must
be met: persuasive evidence of an arrangement must exist, the price
must be fixed or determinable, delivery must occur or services must
be rendered and collection must be reasonably assured. The Company
has identified certain instances where one or more of the
aforementioned revenue recognition conditions, as applied to certain
customer contracts, were not met during the noted time periods at
the operating subsidiary that is the subject of the Company's
investigation. As such, some or all of the revenue previously
recognized for these customer contracts shall be reversed. If and
when such revenue recognition conditions are met, some portion of
such reversed revenue will be recognized in the appropriate future
period or periods. Based on the Company's preliminary conclusions
relating to the Company's ongoing internal investigation, the
Company believes that the adjustments the Company would make to its
previously reported financial statements will result in recognition
of incremental revenue during 2005 and subsequent periods. It is
not possible, however, to predict with certainty on the basis of
currently available information the amount of such revenue that will
be deferred and recognized during 2005 and subsequent periods. It
will depend in part on the results of the remediation with the
subsidiary's customers. The amount could be from $0 to
$17.9 million.
The above adjustments are based on currently available information. The
Company intends to review and assess any potential additional impacts that the
aforementioned adjustments may have on the Company's Balance Sheet and
Statement of Cash Flow.
The Company's investigation is not complete. Until the Company's
investigation is complete, the impact on previously reported financial
statements cannot be finally determined. It is possible that further
adjustments, which may be material, may be required for the above noted
periods. Because the subsidiary that is the subject of the investigation was
acquired during 2001, the Company does not expect that results prior to year
2001 will be affected.
On January 18, 2005, the Company announced that the NASDAQ Listing
Qualification Panel had granted the Company a listing requirements exception
through February 15, 2005, subject to certain conditions. The Company intends
to request a modification to such exception that would contemplate the Company
filing its third quarter 2004 Quarterly Report or Form 10-Q and certain prior
period financial information by February 15, 2005 and the filing of its 2004
Annual Report on Form 10-K by March 15, 2005, which the Company believes would
be the last filing to complete its restatement.
About SOURCECORP(R)
SOURCECORP, Incorporated provides business process outsourcing solutions
and specialized high value consulting services to clients throughout the
U.S. SOURCECORP focuses on business processes in information-intensive
industries including healthcare, legal, financial services, government and
transportation & logistics. Headquartered in Dallas, the Company serves
clients throughout the United States through a network of locations in the
U.S., Mexico and India. SOURCECORP is a component of both the S&P SmallCap
600 Index and the Russell 2000 Index.
For more information about SOURCECORP's solutions visit the SOURCECORP
website at http://www.srcp.com .
The statements in this press release that are not historical fact are
forward-looking statements that involve risks and uncertainties, which could
cause actual results to differ materially from such forward-looking
statements. These forward-looking statements include, but are not limited to,
the statements relating to the anticipated impact of adjustments to our
restated financial statements and our ongoing investigation, any financial
estimates, projections, and estimates of future contract values included in
this press release. The aforementioned risks and uncertainties include,
without limitation, the uncertainty of completing our investigation in a
timely manner and the actual costs and results of such investigation, the
effect of our investigation and financial statement restatement on the trading
price of our stock, the risks of integrating our operating companies, of the
timing and magnitude of technological advances, of the occurrences of a
diminution in our existing customers' needs for our services, of a change in
the amount companies outsource business processes, of the impact to margins
resulting from a change in revenue mix as well as the risks detailed
in SOURCECORP's filings with the Securities and Exchange Commission, including
without limitation, those detailed under the heading "Risk Factors" in the
Company's most recent annual report on Form 10-K. SOURCECORP disclaims any
intention or obligation to revise any forward-looking statements, including
financial estimates, whether as a result of new information, future events, or
otherwise, except as required by law.
SOURCE SOURCECORP
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Related links:
http://www.srcp.com
CONTACT:
Barry Edwards, EVP & Chief Financial Officer
of SOURCECORP, +1-214-740-6690
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