DALLAS, March 23 /PRNewswire-FirstCall/ -- SOURCECORP, Incorporated
(NASDAQ: SRCPE) (the "Company") today is pleased to announce the completion of
its restatement of certain financial information on an unaudited basis for the
years ended December 31, 2001, 2002, 2003, and the six months ended June 30,
2004 (collectively, the "Restatement Period"). In addition, the Company is
providing a NASDAQ listing exception update, providing a Credit Agreement
update, and reporting for the first time its results for the quarter ended
September 30, 2004.
NASDAQ Update
As previously announced, the NASDAQ Listing Qualification Panel previously
granted the Company a listing requirements exception that contemplated among
other things that the Company would file its third quarter 2004 Quarterly
Report on Form 10-Q and certain prior period financial information by
March 16, 2005. The Company requested a further modification to its NASDAQ
exception to contemplate the filing of its third quarter 2004 Quarterly Report
on Form 10-Q, and certain unaudited prior period financial information, by
March 23, 2005 (which the Company believes it will have complied with by the
end of today), and the filing of its 2004 Annual Report on Form 10-K by
March 31, 2005. By letter dated March 22, 2005, the NASDAQ Listing
Qualification Panel granted this modified exception with the additional
requirement that the Company by March 31, 2005, provide the Panel with a brief
written summary of the status and focus of the Company's previously disclosed
SEC investigation, which the Company intends to provide. If the Company is
unable to satisfy all of the requirements of the modified exception, the
Company's Common Stock would be delisted from trading on the NASDAQ Stock
Market unless an additional exception is considered and granted.
Restatement
As previously announced, the Company, with the oversight and approval of
the Audit Committee of its Board of Directors, conducted an investigation of
the financial results of one of its operating subsidiaries in the Information
Management and Distribution reportable segment. The findings of the
investigation concluded that the operating subsidiary had incorrectly
recognized revenue for certain customer arrangements and omitted certain
expenses from its financial results reported to the Company. Collectively,
the incorrect revenue recognition and expense omission issues resulted in
overpayments and over accruals by the Company to the former owners of the
operating subsidiary of earn-out amounts payable under the earn-out provisions
of the acquisition agreement for the operating subsidiary. The earn-out
overpayments and over accruals were originally recognized as additional
goodwill of the acquired business by the Company in its financial statements.
As a result of the restatement, the Company has expensed the earn-out
overpayments during the period of payment. The following table identifies (1)
the cumulative adjustments for the Restatement Period to be reflected in the
Company's restated financial statements, (2) the percentage of the Company's
previously publicly reported results represented by the restatement
adjustments and (3) the ranges of possible adjustments the Company has
previously disclosed:
Cumulative Restatement Adjustments
For Years Ended December 31, 2001, 2002 and 2003,
and the Six Months Ended June 30, 2004
(In millions)
(Amounts are from
continuing operations) Previously
Cumulative Disclosed
Change to % of Ranges of
Previously Amounts Adjustments
Reported Previously
Results Reported Low End High End
Decrease in revenue $16.6 1.2% $12.1 $21.3
Increase in SG&A $1.5 0.4% $1.0 $1.2
Decrease in income from
continuing operations
before taxes and earn-out
over payments (1) $18.1 20.3% $13.1 $22.5
Earn-out over payments (2) $15.8 N/A $12.8 $18.8
Decrease in income from
continuing operations
before taxes $33.9 38.1% $25.9 $41.3
(1) Income from continuing operations before taxes and earn-out
overpayments is a Non GAAP measure. Management believes that
this Non GAAP presentation is meaningful in analyzing the
restatement impact on previously publicly reported financial
statements.
(2) During the 3rd quarter of 2004, subsequent to the Restatement
Period, the Company expensed an additional $10.2 million of excess
earn-out payments related to the restatement adjustments. The
January 21, 2005 guidance range included the $10.2 million
earn-out overpayment an adjustment to be made during the
Restatement Period. The above presentation has removed the
$10.2 million charge from the guidance range.
Today the Company is filing with the Securities and Exchange Commission on
Form 10-Q/A an amendment of previously issued condensed consolidated financial
statements for the three months ended March 31, 2004 and the three and six
months ended June 30, 2004. Included in the Form 10-Q/A filing for the first
quarter of 2004 is a detailed description of the issues giving rise to the
restated financial information and a detailed presentation of the financial
statement information affected by the restatement on an unaudited basis. The
following table provides certain restated financial information for the
Restatement Period:
Restated Financial Results
(In millions, except earnings per share)
Full Full Full
Year Year Year Year-to-Date
2001 2002 2003 June 30, 2004
Revenue $396.9 $378.5 $378.2 $194.8
Income from continuing
operations before
taxes $(25.3) $31.8 $33.2 $15.4
Add: Earn-out
overpayment --- 8.6 7.2 ---
Pro forma income from
continuing operations
before taxes (1) $(25.3) $40.4 $40.4 $15.4
Diluted earnings per
share from continuing
operations $(1.44) $1.13 $1.20 $0.56
Add: EPS effect of
earn-out overpayment --- 0.31 0.26 ---
Pro forma diluted
earnings per share
from continuing
operations (1) $(1.44) $1.44 $1.46 $0.56
(1) Pro forma income from continuing operations before tax and pro forma
diluted earnings per share from continuing operations are calculated
as GAAP reported amounts plus the effect of earn-out overpayments.
Management believes that the pro forma presentation is meaningful in
analyzing year-over-year operating trends.
Credit Facility Update
Pursuant to the terms of the Company's 2001 Credit Agreement, Earnings
Before Interest, Depreciation and Amortization is used in calculating certain
leverage and fixed cost coverage ratios. The Company exceeded the allowable
leverage ratio of 2.5 times for the quarters ended June 30, 2004 and
September 30, 2004 as a result of the earn-out overpayments, previously
discussed. This has resulted in a default under the 2001 Credit Agreement.
As a result, the Company has classified the debt under such Credit Agreement
as a Current Maturity included in the current liability section of its balance
sheet, until such time as an appropriate amendment is in place. The Company
is currently working with its lenders to secure such an amendment and it is
anticipated that this amendment will soon become effective. In any event, as
the maturity date of the debt under the 2001 Credit Agreement is April 1,
2006, unless the maturity date of such debt is subsequently modified, such
debt will be classified as a Current Maturity on and after April 1, 2005.
Third Quarter 2004 Operating Results
The Company today reported $97.7 million of revenue for the third quarter
of 2004 compared to $91.7 million for the same quarter of the prior year, an
increase of 6.5%.
The Company's 2004 revenue increase is largely driven by stronger volumes
in the Information Management and Distribution operating segment, particularly
with clients in the healthcare and financial services vertical markets.
Additionally, the Company experienced higher project revenue from its Legal
offerings, including $2.0 million from the KeyPoint acquisition, which closed
in the second quarter of 2004.
The Company reported a pre-tax loss from continuing operations of
$2.2 million during the third quarter, which is largely due to the requirement
to expense earn-out payments improperly paid during the quarter to the former
owners of the investigated operating subsidiary. The amount of such expense
was $10.2 million. This expense had the effect of reducing our EPS from
continuing operations by $0.38 per share. As a result, diluted earnings per
share from continuing operations was $(0.02) which included a tax benefit of
$0.06 per share. On a pro-forma basis, excluding the effect of the
$10.2 million earn-out overpayment, the Company earned pre-tax income from
continuing operations of approximately $8.0 million or diluted earnings per
share from continuing operations of $0.36. The following table summarizes the
Company's reported earnings for the third quarter of 2003 (restated) and 2004,
respectively:
Third Quarter Income From Continuing Operation Before Taxes
and Diluted Earning Per Share From Continuing Operations
(In millions, except earnings per share)
Quarters Ended
September 30,
2003 2004 % Change
Revenue $91.7 $97.7 6.5%
Income (loss) from continuing
operations before tax $4.1 $(2.2) -153.7%
Add: Earn-out overpayment 7.2 10.2
Pro forma income from continuing
operations before tax (1) $11.3 $8.0 -29.2%
Diluted earnings (loss) per share
from continuing operations $0.15 $(0.02) -111.8%
Add: EPS effect of earn-out overpayment 0.26 0.38
Pro forma earnings per share (1) $0.41 $0.36 -12.2%
(1) Pro forma income from continuing operations before tax and pro forma
diluted earnings per share from continuing operations are calculated
as GAAP reported amounts plus the effect of earn-out overpayments.
Management believes that the pro forma presentation is meaningful in
analyzing year-over-year operating trends.
Third Quarter 2004 Cash Flows
The Company reported third quarter operating cash flows of $10.6 million.
On a pro-forma basis, the third quarter cash flows would have been
$20.8 million, excluding the effect of expensing the earn-out overpayment of
$10.2 million. The following table summarizes the Company's operating cash
flows for the first half of 2004 and for the three and nine months ended
September 30, 2004:
2004 Operating Cash Flows
(In millions)
First Half Q3 Q3 Y-T-D
Operating cash flow $5.1 $10.6 $15.7
Add: Earn-out overpayment --- 10.2 10.2
Pro forma operating cash flow (1) $5.1 $20.8 $25.9
(1) Pro forma operating cash flows are calculated as GAAP reported
operating cash flows plus the effect of earn-out overpayments.
Management believes that the pro forma presentation is meaningful in
analyzing year-over-year operating trends.
New Business Wins
The Company closed or renewed contracts during the third and fourth
quarters of 2004 anticipated to produce total contract value of approximately
$53 million and $72 million, respectively. "We are pleased with our continued
progress in sales and the fourth quarter of 2004 represents our fourth
consecutive quarter of new business wins in excess of $50.0 million. We
believe our strong business wins are a direct result of the actions we have
taken over the last two years in strengthening our national sales presence, an
intense focus on customer satisfaction, and the investments made in our
technology infrastructure and operating platforms," stated Mr. Ed H. Bowman,
Jr., President and CEO. Total contract value closed during 2004 was a record
$233 million, 94% above 2003's total of approximately $120 million.
Total Contract Value Closed (1)
(in millions)
2002 Quarterly 2003 Quarterly 2004 Quarterly
Average Average Average
$32.8 $30.1 $58.2
(1) Includes new business from new customers, new business from
existing customers and renewal of existing customer contracts.
2005 Financial Guidance
The Company previously provided 2005 financial guidance for revenue of
approximately $400 to $425 million and earnings per share from continuing
operations in the range of $1.35 to $1.55 per share. The earnings per share
guidance included legal and investigation costs (approximately $0.09) that are
expected to principally occur during the first quarter of 2005. In addition,
based on current trends evidenced during early 2005, in order to meet or
exceed the low end of the previously provided guidance, the Company must
experience stronger revenue volumes and profitability within its Legal and
HealthSERVE service offerings. Other factors that may cause actual results to
deviate from previously provided revenue and per share guidance include, but
are not limited to, variance from expected implementation costs associated
with new contracts, variance from expected revenues or costs associated with
existing contracts, the timing of commencement of new projects and sales
results.
The guidance provided above specifically excludes any direct or indirect
effects or impact on the Company's financial results from the Company's
internal investigation, including, but not limited to, any associated
penalties or potential customer remediation action and positive effects, if
any, prior period restatements adjustments may have on 2005 financial results.
In addition, the Company completed the planned divestiture of a small
operating subsidiary that provides application solutions to state and local
governments during the first quarter of 2005. Preliminarily, the Company
expects that the sale will result in approximately a $0.01 loss per share from
discontinued operations.
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
any financial estimates, projections, and estimates of future contract values
included in this press release. The aforementioned risks and uncertainties
include, without limitation, the actual final costs of our internal
investigation, the company's ongoing SEC investigation, the potential
impairment of our ability to enter into government contracts as a result of
the conduct that was the subject of our investigation, remediation costs
relating to our investigation, the potential customer impact of the results of
our investigation, the effect of our investigation and financial statement
restatement on the trading price of our stock, the outcome of our currently
pending putative securities class action matters, 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.
SOURCECORP(TM)
Condensed Consolidated Statements of Operations
In Thousands (Except Earnings Per Share)
(Unaudited)
Three Months Ended
September 30,
2004 2003
(As restated)
Total Revenue $97,674 $91,728
Cost of services exclusive of depreciation 59,960 52,542
Depreciation 3,262 3,192
Gross Profit 34,452 35,994
SG&A Expenses 25,171 24,058
Earn-out Overpayment 10,165 7,223
Amortization 313 89
Operating Income (1,197) 4,624
Interest and other (income) expense, net 1,024 580
Income (loss) from continuing operations
before income taxes (2,221) 4,044
Provision for income taxes (1,805) 1,619
Income (loss) from continuing operations (416) 2,425
Income (loss) from discontinued operations
net of tax (261) (118)
Net income (loss) $(677) $2,307
Net income (loss) per share
Basic
Continuing Operations $(0.02) $0.15
Discontinued Operations (0.02) (0.01)
Total Operations $(0.04) $0.14
Diluted
Continuing Operations $(0.02) $0.15
Discontinued Operations (0.02) (0.01)
Total Operations $(0.04) $0.14
Weighted Average Common Shares Outstanding
Basic 15,781 16,188
Diluted 15,781 16,355
SOURCECORP(TM)
Condensed Consolidated Statements of Operations
In Thousands (Except Earnings Per Share)
(Unaudited)
Nine Months Ended
September 30,
2004 2003
(As restated)
Total Revenue $292,497 $280,341
Cost of services 175,295 163,783
Depreciation 9,466 9,324
Gross Profit 107,736 107,234
SG&A Expenses 80,982 71,882
Earn-out Overpayment 10,165 7,223
Amortization 714 266
Operating Income 15,875 27,863
Interest and other (income) expense, net 2,745 2,587
Income (loss) from continuing operations
before income taxes 13,130 25,276
Provision for income taxes 4,335 10,115
Income (loss) from continuing operations 8,795 15,161
Income (loss) from discontinued operations
net of tax (2,561) (281)
Net income (loss) $6,234 $14,880
Net income (loss) per share
Basic
Continuing Operations $0.55 $0.92
Discontinued Operations (0.16) (0.02)
Total Operations $0.39 $0.90
Diluted
Continuing Operations $0.54 $0.91
Discontinued Operations (0.16) (0.02)
Total Operations $0.38 $0.89
Weighted Average Common Shares Outstanding
Basic 15,964 16,571
Diluted 16,300 16,654
SOURCECORP(TM)
CONDENSED CONSOLIDATED BALANCE SHEETS
In Thousands
(Unaudited)
ASSETS September 30, December 31,
2004 2003
(As restated)
CURRENT ASSETS
Cash $1,905 $2,097
Accounts receivable (net) 66,358 63,522
Income tax receivable 1,011 3,000
Other current assets 13,351 11,323
Assets of discontinued operations --- 14,658
Total current assets 82,625 94,600
Property, plant & equipment (net) 39,101 35,902
Goodwill and other intangibles (net) 325,986 311,644
Other non-current assets 10,190 10,384
Total Assets $457,902 $452,530
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $40,305 $52,375
Current maturities of long-term obligations 90,611 209
Liabilities of discontinued operations --- 5,423
Total current liabilities 130,916 58,007
Long-term debt 1,766 73,390
Deferred taxes and other long-term liabilities 33,490 28,056
Total Liabilities 166,172 159,453
STOCKHOLDERS' EQUITY
Common Stock 158 162
Additional paid-in capital 194,949 194,999
Treasury stock (501) (982)
Deferred compensation (4,928) (2,327)
Retained earnings 102,052 101,225
Total Stockholders' Equity 291,730 293,077
Total Liabilities and Stockholders' Equity $457,902 $452,530
SOURCECORP(TM)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands
(Unaudited)
Nine Months Ended
September 30,
2004 2003
(As restated)
Net income from continuing operations $8,795 $15,161
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation and amortization 10,180 9,591
Deferred tax provision 168 3,288
Compensation expense on restrict
stock grants 1,751 339
Loss (gain) on sale of property,
plant & equipment 265 (344)
Changes in working capital (5,443) 16,012
Net cash provided by operating activities
from continuing operations $15,716 $44,047
Cash flows from investing activities
Purchase of property, plant & equipment (12,596) (9,751)
Proceeds from disposition of property,
plant & equipment 37 369
Proceeds from divestiture 6,812 ---
Cash paid for acquisitions,
net of cash acquired (17,495) (2,757)
Net cash used for investing activities
from continuing operations $(23,242) $(12,139)
Cash flow from financing activities
Proceeds from exercise of common stock options 481 173
Cash paid for common stock repurchased (10,071) (18,557)
Proceeds from long-term obligations 246,956 167,617
Principal payments on long-term obligations (228,436) (185,748)
Cash paid for debt issuance costs --- (305)
Net cash provided by (used for) financing
activities from continuing operations $8,930 $(36,820)
Net cash provided by (used in) operating
activities from discontinued operations (1,596) 2,313
Net increase (decrease) in cash and
cash equivalents $(192) $(2,599)
Cash and cash equivalents, beginning of period 2,097 3,217
Cash and cash equivalents, end of period $1,905 $618
SOURCE SOURCECORP
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Related links:
http://www.srcp.com
CONTACT:
Barry Edwards, EVP & Chief Financial Officer,
+1-214-740-6690, or Bryan Hill, VP & Chief Accounting Officer,
+1-214-740-6695, both of SOURCECORP
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