-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QkmNuDCA9lA0vdniraTG66P1zU/2G653yi/tejT4ydZxTZJCIJ8V/FgXYaHsVURD qCp60ElEsx5eOoxaiwzb3g== 0000356226-98-000006.txt : 19980812 0000356226-98-000006.hdr.sgml : 19980812 ACCESSION NUMBER: 0000356226-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980811 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLICY MANAGEMENT SYSTEMS CORP CENTRAL INDEX KEY: 0000356226 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 570723125 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10557 FILM NUMBER: 98681772 BUSINESS ADDRESS: STREET 1: ONE PMSC CTR STREET 2: PO BOX TEN CITY: COLUMBIA STATE: SC ZIP: 29202 BUSINESS PHONE: 8037354000 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 1998 Commission file number 1-10557 POLICY MANAGEMENT SYSTEMS CORPORATION (Exact name of registrant as specified in its charter) SOUTH CAROLINA 57-0723125 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) ONE PMSC CENTER (PO BOX TEN) BLYTHEWOOD, SC (COLUMBIA, SC) 29016 (29202) (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (803) 333-4000 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. 36,735,065 Common shares, $.01 par value, as of August 7, 1998. 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, 1997.
POLICY MANAGEMENT SYSTEMS CORPORATION INDEX PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Statements of Income for the Three and Six Months Ended June 30, 1998 and 1997 . . . . . . 3 Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997 . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income for the Six Months Ended June 30, 1998 and 1997. . . . . . . . . . . . 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997 . . . . . . 6 Notes to Consolidated Financial Statements. . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . 24 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . 24 Item 5. Other Information . . . . . . . . . . . . . 24 Item 6. Exhibits and Reports on Form 8-K. . . . . . 24 Signatures. . . . . . . . . . . . . . . . . . . . . 25
PART I FINANCIAL INFORMATION POLICY MANAGEMENT SYSTEMS CORPORATION CONSOLIDATED STATEMENTS OF INCOME Three Months Six Months Ended June 30, Ended June 30, 1998 1997 1998 1997 (Unaudited) ------------------------------------------ (In Thousands, Except Per Share Data) REVENUES Licensing . . . . . . . . . . . . . . . . . . . $ 29,503 $ 32,322 $ 58,240 $ 58,552 Services. . . . . . . . . . . . . . . . . . . . 115,386 91,506 227,070 180,359 --------- --------- --------- --------- 144,889 123,828 285,310 238,911 --------- --------- --------- --------- OPERATING EXPENSES Cost of revenues Employee compensation & benefits. . . . . . . 64,781 51,131 128,089 98,460 Computer and communications expenses. . . . . 7,932 8,240 15,745 16,074 Depreciation and amortization of property, equipment and capitalized software costs . . 15,889 14,309 31,553 28,225 Other costs & expenses. . . . . . . . . . . . 6,572 9,326 12,809 14,995 Selling, general and administrative expenses. . 24,851 21,742 48,979 43,831 Amortization of goodwill and other intangibles. 2,489 2,437 4,912 4,909 --------- --------- --------- --------- 122,514 107,185 242,087 206,494 --------- --------- --------- --------- OPERATING INCOME . . . . . . . . . . . . . . . . 22,375 16,643 43,223 32,417 Equity in earnings of unconsolidated affiliates. 233 320 438 690 Minority interest. . . . . . . . . . . . . . . . (30) - (30) - Other Income and Expenses Investment income. . . . . . . . . . . . . . . 184 344 686 771 Interest expense and other charges . . . . . . (554) (1,356) (1,481) (2,573) --------- --------- --------- --------- (370) (1,012) (795) (1,802) --------- --------- --------- --------- Income from continuing operations before income taxes. . . . . . . . . . . . . . 22,208 15,951 42,836 31,305 Income taxes . . . . . . . . . . . . . . . . . . 8,226 5,951 15,987 11,681 --------- --------- --------- --------- INCOME FROM CONTINUING OPERATIONS. . . . . . . . 13,982 10,000 26,849 19,624 DISCONTINUED OPERATIONS: Income from operations of discontinued operations less applicable income taxes of $37, $481, $252 and $820, respectively. . 67 694 389 1,162 Loss on disposal of discontinued operations less applicable income taxes of $2,439 . . . (453) - (453) - --------- --------- --------- --------- (386) 694 (64) 1,162 --------- --------- --------- --------- NET INCOME . . . . . . . . . . . . . . . . . . . $ 13,596 $ 10,694 $ 26,785 $ 20,786 ========= ========= ========= ========= BASIC EARNINGS PER SHARE: Income from continuing operations. . . . . . . $ 0.38 $ 0.27 $ 0.73 $ 0.54 Income (loss) from discontinued operations . . (0.01) 0.02 - 0.03 --------- --------- --------- --------- $ 0.37 $ 0.29 $ 0.73 $ 0.57 ========= ========= ========= ========= DILUTED EARNINGS PER SHARE: Income from continuing operations. . . . . . . $ 0.35 $ 0.27 $ 0.68 $ 0.53 Income (loss) from discontinued operations . . (0.01) 0.02 - 0.03 --------- --------- --------- --------- $ 0.34 $ 0.29 $ 0.68 $ 0.56 ========= ========= ========= ========= Weighted average common shares . . . . . . . . . 36,763 36,373 36,726 36,366 Weighted average common shares assuming dilution 39,675 37,068 39,434 36,934 See accompanying notes
POLICY MANAGEMENT SYSTEMS CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) (Audited) June 30, December 31, 1998 1997 -------- -------- (In Thousands, Except Share Data) Assets Current assets Cash and equivalents. . . . . . . . . . . . . . . . . . . . $ 25,001 $ 32,179 Marketable securities . . . . . . . . . . . . . . . . . . . 20 3,280 Receivables, net of allowance for uncollectible amounts of $2,141 ($2,628 at 1997) . . . . . . . . . . . . 113,791 128,789 Income tax receivable . . . . . . . . . . . . . . . . . . . 670 1,098 Deferred income taxes . . . . . . . . . . . . . . . . . . . 9,438 3,628 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,054 16,835 --------- --------- Total current assets. . . . . . . . . . . . . . . . . . . 171,974 185,809 Property and equipment, at cost less accumulated depreciation and amortization of $140,001 ($139,522 at 1997). . . . . . . . . . . . . . . . . . . . . 123,872 116,433 Receivables. . . . . . . . . . . . . . . . . . . . . . . . . 2,320 3,271 Income tax receivable. . . . . . . . . . . . . . . . . . . . 4,041 4,041 Goodwill and other intangibles, net. . . . . . . . . . . . . 61,525 69,125 Capitalized software costs, net. . . . . . . . . . . . . . . 212,566 204,118 Deferred income taxes. . . . . . . . . . . . . . . . . . . . 21,773 21,996 Investments. . . . . . . . . . . . . . . . . . . . . . . . . 8,612 11,066 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,632 2,547 --------- --------- Total assets. . . . . . . . . . . . . . . . . . . . . . $614,315 $618,406 ========= ========= Liabilities Current liabilities Accounts payable and accrued expenses . . . . . . . . . . . $ 49,510 $ 57,345 Accrued restructuring charges . . . . . . . . . . . . . . . 303 145 Accrued contract termination costs. . . . . . . . . . . . . 472 830 Current portion of long-term debt . . . . . . . . . . . . . 9,191 1,191 Income taxes payable. . . . . . . . . . . . . . . . . . . . 17,492 7,499 Unearned revenues . . . . . . . . . . . . . . . . . . . . . 13,964 18,806 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 396 397 --------- --------- Total current liabilities . . . . . . . . . . . . . . . . 91,328 86,213 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 443 37,714 Deferred income taxes. . . . . . . . . . . . . . . . . . . . 88,292 80,496 Accrued restructuring charges. . . . . . . . . . . . . . . . 1,236 1,366 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,894 2,121 --------- --------- Total liabilities. . . . . . . . . . . . . . . . . . . . 186,193 207,910 --------- --------- Minority interest. . . . . . . . . . . . . . . . . . . . . . 455 - Commitments and contingencies (Note 2) Stockholders' Equity Special stock, $.01 par value, 5,000,000 shares authorized . - - Common stock, $.01 par value, 75,000,000 shares authorized, 36,768,534 shares issued and outstanding (18,339,304 at December 31, 1997) . . . . . . . . . . . . . 368 183 Additional paid-in capital . . . . . . . . . . . . . . . . . 104,276 112,090 Retained earnings. . . . . . . . . . . . . . . . . . . . . . 332,968 306,367 Accumulated other comprehensive income . . . . . . . . . . . (9,945) (8,144) --------- --------- Total stockholders' equity . . . . . . . . . . . . . . . 427,667 410,496 --------- --------- Total liabilities and stockholders' equity. . . . . . . $614,315 $618,406 ========= ========= See accompanying notes
POLICY MANAGEMENT SYSTEMS CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (Unaudited) Accumulated Additional Other Common Paid-In Retained Comprehensive Stock Capital Earnings Income(1) Total ----- ------- -------- --------- ------- (Dollars In Thousands) BALANCE, DECEMBER 31, 1997. . $183 $112,090 $306,367 $(8,144) $410,496 Comprehensive income Net income . . . . . . . . . - - 26,785 - 26,785 Other comprehensive income, net of tax: Foreign currency translation adjustments . - - - (1,793) (1,793) Unrealized loss on marketable securities . . - - - (8) (8) --------- Total comprehensive income 24,984 --------- Stock dividend. . . . . . . . 184 - (184) - - Stock options exercised (344,239 shares). . . . . . 4 18,220 - - 18,224 Repurchase of 341,700 shares of common stock . . . . . . (3) (26,034) - - (26,037) ----- --------- --------- -------- --------- BALANCE, JUNE 30, 1998. . . . $368 $104,276 $332,968 $(9,945) $427,667 ===== ========= ========= ======== ========= See accompanying notes (1) Comprehensive income for the three months ended June 30, 1998 and 1997 was $12,103 and $8,726, respectively. Comprehensive income for the six months ended June 30, 1997 was $16,092.
POLICY MANAGEMENT SYSTEMS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 1998 1997 ------- ------- (In Thousands) Operating Activities Net income . . . . . . . . . . . . . . . . . . . $ 26,785 $ 20,786 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . 39,595 35,063 Deferred income taxes. . . . . . . . . . . . . 1,542 4,999 Provision for uncollectible accounts . . . . . 15 1,516 Minority interest. . . . . . . . . . . . . . . 30 - Gain on disposal of discontinued operations. . (1,986) - Impairment charges . . . . . . . . . . . . . . - 444 Changes in assets and liabilities: Accrued restructuring and lease termination costs . . . . . . . . . . . . . . 29 (2,207) Receivables. . . . . . . . . . . . . . . . . . 9,178 (16,236) Income taxes receivable. . . . . . . . . . . . 428 18 Accounts payable and accrued expenses. . . . . (9,589) (9,358) Income taxes payable . . . . . . . . . . . . . 9,993 1,981 Other, net . . . . . . . . . . . . . . . . . . . (17,389) 17 --------- --------- Cash provided by operations . . . . . . . . 58,631 37,023 --------- --------- Investing Activities Proceeds from sales/maturities of available-for- sale securities . . . . . . . . . . . . . . . . 3,257 250 Proceeds from sales of held-to- maturity securities . . . . . . . . . . . . . . 2,969 - Proceeds from sale of business segment . . . . . 23,826 - Acquisition of property and equipment. . . . . . (27,893) (16,428) Capitalized internal software development costs . . . . . . . . . . . . . . . . . . . . . (28,431) (29,623) Business acquisition . . . . . . . . . . . . . . (2,688) - Investment by minority interest. . . . . . . . . 425 - Proceeds from disposal of property and equipment . . . . . . . . . . . . . . . . . . . 1,735 805 --------- --------- Cash used by investing activities . . . . . (26,800) (44,996) --------- --------- Financing Activities Payments on long-term debt . . . . . . . . . . . (41,771) (77,427) Proceeds from borrowing under credit facility. . 12,500 72,138 Issuance of common stock under stock option plans. . . . . . . . . . . . . . . . . . 18,224 691 Repurchase of common stock . . . . . . . . . . . (26,037) - --------- --------- Cash used by financing activities . . . . . (37,084) (4,598) --------- --------- Effect of exchange rate changes on cash . . . . . (1,925) 76 Net decrease in cash and equivalents. . . . . . . (7,178) (12,495) Cash and equivalents at beginning of period . . . 32,179 22,121 --------- --------- Cash and equivalents at end of period . . . . . . $ 25,001 $ 9,626 ========= ========= Supplemental Information Interest paid. . . . . . . . . . . . . . . . . . $ 1,533 $ 2,212 Income taxes paid. . . . . . . . . . . . . . . . 2,725 3,790 See accompanying notes
POLICY MANAGEMENT SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements of Policy Management Systems Corporation (the "Company") have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the "SEC"). These consolidated financial statements include estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the amounts of revenues and expenses. Actual results could differ from those estimated. In the opinion of management, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. All adjustments are of a normal recurring nature unless otherwise disclosed. Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles have been either condensed or omitted pursuant to SEC rules and regulations. However, management believes that the disclosures made are adequate for a fair presentation of results of operations, financial position and cash flows. These consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's latest annual report on Form 10-K. BASIC AND DILUTED EARNINGS PER SHARE Basic and diluted earnings per share ("EPS") are calculated according to the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share". For the Company, the numerator is the same for the calculation of both basic and diluted EPS. The following is a reconciliation of the denominator used in the EPS calculations (in thousands):
Three Months Six Months Ended June 30, Ended June 30, -------------- -------------- 1998 1997 1998 1997 ----- ------ ----- ------ Weighted Average Shares - ----------------------- Basic EPS. . . . . . . . . . . 36,763 36,373 36,726 36,366 Effect of common stock options 2,912 695 2,708 568 ------ ------ ------ ------ Diluted EPS. . . . . . . . . . 39,675 37,068 39,434 36,934 ====== ====== ====== ======
Options to purchase 750,000 shares of common stock at $40.95 per share were outstanding but were not included in the computation of diluted EPS for 1998 because the options' exercise price was greater than the average market price of the Company's common stock for the period ending June 30, 1998. NEW ACCOUNTING STANDARDS In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") was issued. SFAS 130 establishes standards for reporting and display of comprehensive income and its components, and is effective for fiscal years beginning after December 15, 1997. The Company adopted SFAS 130 at January 1, 1998 and has included the appropriate disclosures in the Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income. In October 1997, the American Institute of Certified Public Accountants issued Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"). SOP 97-2 provides guidance on applying generally accepted accounting principles in recognizing revenue on software transactions, and is effective for transactions entered into in fiscal years beginning after December 31, 1997. The Company adopted SOP 97-2 at January 1, 1998. The adoption did not have a material impact on the Company's financial statements. In February 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use, and is effective for fiscal years beginning after December 31, 1998, with earlier adoption encouraged. The Company adopted SOP 98-1 at January 1, 1998. The adoption did not have a material effect on the Company's financial statements. In June 1998, Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued, effective for fiscal years beginning after June 15, 1999, with earlier adoption encouraged. SFAS 133 requires companies to record derivative instruments on the balance sheet as assets and liabilities, measured at fair value. Gain or losses resulting from changes in the values of those derivatives are accounted for depending on the use of the derivative. The Company does not enter into derivative instruments except occasionally to hedge the foreign currency exchange and interest rate risk of specific projected transactions. The Company was not holding any derivative instruments at any of the balance sheet periods presented. OTHER MATTERS Certain prior period amounts have been reclassified to conform to current period presentation. NOTE 2. CONTINGENCIES The Company is presently involved in litigation which commenced in January of 1996 in the Circuit Court in Greenville County, South Carolina, with Liberty Life Insurance Company and certain of its affiliates ("Liberty") arising out of the parties' prior contractual relationship related to the development and licensing of Series III life insurance systems and the subsequent licensing of the Company's CYBERTEK life insurance systems. Liberty's complaint alleges breach of contract, breach of express and implied warranties, fraudulent inducement, breach of contract accompanied by a fraudulent act, and recission. Liberty has alleged actual and consequential damages in excess of $160 million and also seeks treble and punitive damages. The Company has asserted various affirmative defenses and is pursuing counterclaims against Liberty for breach of contract, recoupment, breach of good faith and fair dealing, and breach of contract accompanied by a fraudulent act. The Company is seeking equitable relief, including injunctive relief, and currently unspecified actual, compensatory and consequential damages. In addition to the litigation described above, there are also various other litigation proceedings and claims arising in the ordinary course of business. The Company believes it has meritorious defenses and is vigorously defending these matters. While the resolution of any of the above matters could have a material adverse effect on the results of operations in future periods, the Company does not expect these matters to have a material adverse effect on its consolidated financial position. The Company, however, is unable to predict the ultimate outcome or the potential financial impact of these matters. NOTE 3. SEGMENT INFORMATION The Company's operating segments are the five revenue-producing components of the Company for which separate financial information is produced for internal decision making and planning purposes. The segments are as follows: 1. Property and casualty enterprise software and services (generally referred to as the "domestic property and casualty business"). This segment provides software products, product support, professional services and outsourcing primarily to the US property and casualty insurance market. 2. Life and financial solutions enterprise software and services (generally referred to as the "domestic life and financial solutions business"). This segment provides software products, product support, professional services and outsourcing primarily to the US life insurance and related financial services markets. 3. International. This segment provides software products, product support, professional services, outsourcing and information services to the property and casualty and life insurance markets primarily in Canada, Europe, Asia and Australia. 4. Property and casualty information services. This segment provided information services, principally motor vehicle records and claims histories, to US property and casualty insurers. This segment was sold in August 1997 and is presented as a discontinued operation. 5. Life information services. This segment provided information services, principally physician reports and medical histories, to US life insurers. This segment was sold in May 1998 and is presented as a discontinued operation. Information about the Company's operations for the three and six months ended June 30, 1998 and 1997 is as follows:
Three Months Six Months Ended June 30, Ended June 30, ---------------- ---------------- 1998 1997 1998 1997 ------ ------ ------ ------ (In thousands) REVENUES FROM EXTERNAL CUSTOMERS Enterprise software and services Property and casualty . . . . . . . . . . $ 66,618 $ 55,559 $134,569 $111,833 Life and financial solutions. . . . . . . 33,336 26,369 63,761 46,524 --------- --------- --------- --------- Total US revenues . . . . . . . . . . . 99,954 81,928 198,330 158,357 International . . . . . . . . . . . . . . 44,935 41,900 86,980 80,554 --------- --------- --------- --------- Total revenues from continuing operations. . . . . . . . $144,889 $123,828 $285,310 $238,911 ========= ========= ========= ========= Discontinued Operations Information Services Property and casualty. . . . . . . . . . $ - $ 24,172 $ - $ 48,241 Life . . . . . . . . . . . . . . . . . . 4,843 16,800 11,968 32,904 INCOME (EXPENSE) FROM CONTINUING OPERATIONS Enterprise software and services Property and casualty . . . . . . . . . . $ 16,974 $ 13,277 $ 34,434 $ 28,794 Life and financial solutions. . . . . . . 7,612 7,259 14,491 11,209 Corporate and US administrative . . . . . (7,187) (7,207) (13,678) (11,938) --------- --------- --------- --------- Total US operating income . . . . . . . 17,399 13,329 35,247 28,065 --------- --------- --------- --------- International . . . . . . . . . . . . . . 7,074 5,003 12,036 7,537 International administrative. . . . . . . (2,098) (1,689) (4,060) (3,185) --------- --------- --------- --------- Total international . . . . . . . . . . 4,976 3,314 7,976 4,352 --------- --------- --------- --------- Operating income. . . . . . . . . . . 22,375 16,643 43,223 32,417 Equity in earnings of unconsolidated affiliates . . . . . . . . 233 320 438 690 Minority interest . . . . . . . . . . . . . (30) - (30) - Other income and expenses . . . . . . . . . (370) (1,012) (795) (1,802) Income taxes. . . . . . . . . . . . . . . . 8,226 5,951 15,987 11,681 --------- --------- --------- --------- Income from continuing operations . . . . $ 13,982 $ 10,000 $ 26,849 $ 19,624 ========= ========= ========= ========= DISCONTINUED OPERATIONS Information Services Property and casualty . . . . . . . . . . $ (1,018) $ 152 $ (1,018) $ 426 Life. . . . . . . . . . . . . . . . . . . 3,112 1,023 3,672 1,556 Other income and expenses . . . . . . . . (4) - (27) - Income taxes. . . . . . . . . . . . . . . 2,476 481 2,691 820 --------- --------- --------- --------- Discontinued operations, net . . . . . . $ (386) $ 694 $ (64) $ 1,162 ========= ========= ========= =========
NOTE 4. DISCONTINUED OPERATIONS The Company sold its life information services segment in May 1998, net of selling expenses, for $23.8 million, resulting in a pretax gain of $3.0 million and an after-tax gain of $0.1 million. The difference in gain for tax purposes primarily results from the inability to deduct goodwill related to the sale for tax purposes. The operations of this segment are presented as discontinued operations in the accompanying Consolidated Statements of Income. See Note 3 for income from operations of the discontinued segment. The Company also recognized an additional loss of $0.6 million, net of tax, on the sale of its property & casualty information services segment. This loss is included in discontinued operations in the accompanying Consolidated Statements of Income. NOTE 5. STOCK SPLIT In May 1998, the Company's Board of Directors approved a two-for-one stock split effected in the form of a stock dividend, whereby each shareholder of record as of June 1, 1998, received on June 15, 1998, one additional share of common stock for each share owned as of the record date. As a result of the split, 18,426,691 shares were issued and $0.2 million was transferred from Retained Earnings to Common Stock. Weighted average common shares outstanding and per share amounts for all periods presented have been restated to reflect the stock split. Share amounts reflected on the Consolidated Balance Sheet and Consolidated Statements of Changes in Stockholder's Equity and Comprehensive Income reflect the actual share amounts for each period presented. POLICY MANAGEMENT SYSTEMS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto contained in Part I of this report on Form 10-Q and with the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 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:
1998 vs. 1997 Percent Percentage of Revenues Increase (Decrease) --------------------------- ------------------- Three Six Three Six Months Ended Months Ended Months Months June 30, June 30, Ended Ended ------------ ------------ 1998 1997 1998 1997 June 30 ----- ----- ----- ----- ----------------- Revenues Licensing . . . . . . . . . . . . . 20.4% 26.1% 20.4% 24.5% (8.7)% (0.5)% Services. . . . . . . . . . . . . . 79.6 73.9 79.6 75.5 26.1 25.9 ------ ------ ------ ------ 100.0 100.0 100.0 100.0 17.0 19.4 ------ ------ ------ ------ Operating expenses Cost of revenues Employee compensation and benefits 44.7 41.2 44.9 41.2 26.7 30.1 Computer & communication expenses. 5.5 6.7 5.5 6.7 (3.7) (2.0) Depreciation & amortization of property, equipment & capitalized software costs. . . . 11.0 11.6 11.1 11.8 11.0 11.8 Other costs & expenses . . . . . . 4.5 7.5 4.5 6.3 (29.5) (14.6) Selling, general & administrative expenses . . . . . 17.2 17.6 17.2 18.3 14.3 11.7 Amortization of goodwill and other intangibles . . . . . . . . 1.7 2.0 1.7 2.1 2.1 0.1 ------ ------ ------ ------ 84.6 86.6 84.9 86.4 14.3 17.2 ------ ------ ------ ------ Operating income . . . . . . . . . . 15.4 13.4 15.1 13.6 34.4 33.3 Equity in earnings of unconsolidated affiliates. . . . . . . . . . . . 0.2 0.3 0.2 0.3 (27.2) (36.5) Other income and expenses. . . . . . (0.2) (0.8) (0.3) (0.8) (63.4) (55.9) ------ ------ ------ ------ Income from continuing operations before income taxes. . . . . . . . 15.4 12.9 15.0 13.1 39.2 36.8 Income taxes . . . . . . . . . . . . 5.7 5.0 5.6 5.0 38.2 36.9 ------ ------ ------ ------ Income from continuing operations. . 9.7 7.9 9.4 8.1 39.8 36.8 Discontinued operations, net . . . . (0.3) 0.7 - 0.6 (155.6) (105.5) ------ ------ ------ ------ Net income . . . . . . . . . . . . . 9.4% 8.6% 9.4% 8.7% 27.1% 28.9% ====== ====== ====== ======
THREE MONTH COMPARISON REVENUES
Three Months Ended June 30, -------------- Licensing 1998 1997 Change ----- ----- ------ (Dollars in Millions) Initial charges. . . . . . . $13.0 $16.6 (21.6)% Monthly charges. . . . . . . 16.5 15.7 4.8 ------ ------ $29.5 $32.3 (8.7)% ====== ====== Percentage of total revenues 20.4% 26.1% ------ ------
Initial license revenues decreased $3.6 million for the second quarter of 1998 compared to the second quarter of 1997, with the following increases or decreases by business segment: domestic property and casualty down 6.0% ($0.2 million); life insurance and financial solutions down 48.8% ($3.6 million); and international up 3.7% ($0.2 million). Initial license charges for the second quarter of 1998 include right-to-use licenses of $2.1 million. The right-to-use licenses represent acquisitions by certain customers of perpetual rights. This compares to $0.9 million in right-to-use licenses for the second quarter of 1997. Initial license charges also include license agreements of $2.2 million for the second quarter of 1998 with the purchaser of the discontinued life information services segment and $1.8 million for the second quarter of 1997 with the purchaser of the discontinued property & casualty information services segment. Monthly license charges increased $0.8 million for the second quarter of 1998 compared to the second quarter of 1997 with the following increases or decreases by business segment: domestic property and casualty down 2.5% ($0.2 million); life insurance and financial solutions up 21.5% ($0.6 million); and international up 10.9% ($0.4 million). Because a significant portion of initial licensing revenues are recorded at the time new systems are licensed and such licensing activity can vary dramatically from quarter to quarter, there can be significant fluctuations in revenue from quarter to quarter. Set forth below is a comparison of initial license revenues for the last eight quarters expressed as a percentage of total revenues for each of the periods presented: 1998 1997 1996 ------------ ------------------------- ------------ 2nd 1st 4th 3rd 2nd 1st 4th 3rd ------------ ------------------------- ------------ (Dollars in Millions) Initial license revenues $13.0 $12.6 $25.1 $16.9 $16.6 $11.3 $19.4 $10.0 % of total revenues 9.0% 9.0% 17.0% 12.8% 13.4% 9.8% 15.5% 9.3%
Three Months Ended June 30, -------------- Services 1998 1997 Change ----- ----- ------ (Dollars In Millions) Professional and outsourcing $114.1 $90.2 26.5% Information. . . . . . . . . 0.2 0.2 16.5 Other. . . . . . . . . . . . 1.1 1.1 (3.2) ------- ------ $115.4 $91.5 26.1% ======= ====== Percentage of total revenues 79.6% 73.9% ------- ------
Professional and outsourcing services revenues increased $23.9 million for the second quarter of 1998 compared to the second quarter of 1997, with the following increases by business segment: domestic property and casualty up 28.4% ($11.9 million); life insurance and financial solutions up 61.3% ($9.9 million); and international up 6.5% ($2.1 million). The increases are principally due to increases in both implementation services and in the processing volumes of services provided to new and existing customers. OPERATING EXPENSES COST OF REVENUES Employee compensation and benefits increased 26.7% for the second quarter of 1998 compared to the second quarter of 1997, principally the result of increased salaries and related costs associated with the growth in professional services staffing. Compensation and benefits increased 22.4% ($3.5 million) internationally, while domestic increased 28.6% ($10.2 million). Computer and communications expenses remained relatively unchanged. Depreciation and amortization of property, equipment and capitalized software costs increased 11.0% for the second quarter of 1998 compared to the second quarter of 1997, principally due to higher amortization expense resulting from the recent release of the Company's S3+ property and casualty insurance client/server software systems. In addition, depreciation expense increased due to the Company's increased investment in its information technology equipment. Other operating costs and expenses decreased 29.5% for the second quarter of 1998 compared to the second quarter of 1997, principally due to lower consultant, contract loss and bad debt expenses, partially offset by decreased amounts of software development costs capitalized. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased 14.3% for the second quarter of 1998 compared to the second quarter of 1997, principally due to increased bonus, commission, and other salary costs, partially offset by a decrease in third party commissions. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES Amortization of goodwill and other intangibles remained relatively unchanged. OPERATING INCOME 1998 second quarter operating income increased 34.4% compared to 1997 second quarter operating income. Property and casualty insurance operating income increased 27.8%, domestic life insurance operating income increased 4.9% and international operating income increased 41.4%. The increase in operating income is primarily related to increases in professional services and outsourcing revenues while operating costs increased at a slower rate than the respective revenue. OTHER INCOME AND EXPENSE Interest expense decreased 59.1% for the second quarter of 1998 compared to the second quarter of 1997, principally due to lower levels of borrowed funds under the Company's credit facility and capitalization of interest on construction in progress. The average nominal interest rate applicable to borrowings under the Company's credit facility during the second quarter of 1998 was 5.9%. INCOME TAXES The effective income tax rate (income taxes expressed as a percentage of pre-tax income) was 37.0% and 37.3% for the second quarters of 1998 and 1997, respectively. The effective rate for the second quarter of 1998 is higher than the federal statutory rate principally due to the effect of state and local income taxes. DISCONTINUED OPERATIONS Loss from discontinued operations increased for the second quarter of 1998 compared to the second quarter of 1997, principally due to (i) an additional loss of $0.6 million recognized during the second quarter of 1998 on the sale of the property & casualty information services segment; (ii) partial quarter operating results in the second quarter of 1998 compared to full quarter operating results in the second quarter of 1997 for the life information services segment; and (iii) no operating results in the second quarter of 1998 compared to full quarter operating results in the second quarter of 1997 for the property & casualty information services segment. SIX MONTH COMPARISON REVENUES
Six Months Ended June 30, -------------- Licensing 1998 1997 Change ----- ----- ------ (Dollars in Millions) Initial charges. . . . . . . $25.6 $27.9 (8.1)% Monthly charges. . . . . . . 32.6 30.7 6.4 ------ ------ $58.2 $58.6 (0.5)% ====== ====== Percentage of total revenues 20.4% 24.5% ------ ------
Initial license revenues decreased $2.3 million for the first six months of 1998 compared to the same period in 1997, with the following increases or decreases by business segment: domestic property and casualty up 32.3% ($2.1 million); life insurance and financial solutions down 39.2% ($4.5 million); and international up 1.2% ($0.1 million). Initial license charges for the first six months of 1998 include right-to-use licenses of $7.0 million. The right-to-use licenses represent acquisitions by certain customers of perpetual rights. This compares to $1.9 million in right-to-use licenses for the same period of 1997. Initial license charges also include license agreements of $2.2 million for the second quarter of 1998 with the purchaser of the discontinued life information services segment and $1.8 million for the second quarter of 1997 with the purchaser of the discontinued property & casualty information services segment. Monthly license charges increased $1.9 million for the first six months of 1998 compared to the same period in 1997, with the following increases or decreases by business segment: domestic property and casualty down 0.3% ($0.1 million); life insurance and financial solutions up 22.6% ($1.2 million); and international up 11.0% ($0.8 million).
Six Months Ended June 30, -------------- Services 1998 1997 Change ----- ----- ------ (Dollars In Millions) Professional and outsourcing $224.9 $177.4 26.8% Information. . . . . . . . . 0.3 0.3 (5.3) Other. . . . . . . . . . . . 1.9 2.7 (29.6) ------- ------- $227.1 $180.4 25.9% ======= ======= Percentage of total revenues 79.6% 75.5% ------- -------
Professional and outsourcing services revenues increased $47.5 million for the first six months of 1998 compared to the same period in 1997, with the following increases by business segment: domestic property and casualty up 25.5% ($21.7 million); life insurance and financial solutions up 68.9% ($20.4 million); and international up 8.6% ($5.4 million). The increases are principally due to increases in both implementation services and in the processing volumes of services provided to new and existing customers. OPERATING EXPENSES COST OF REVENUES Employee compensation and benefits increased 30.1% for the first six months of 1998 compared to the same period in 1997, principally the result of increased salaries and related costs associated with the growth in professional services staffing. Compensation and benefits increased 22.6% ($6.9 million) internationally, while domestic increased 33.5% ($22.7 million). Computer and communications expenses remained relatively unchanged. Depreciation and amortization of property, equipment and capitalized software costs increased 11.8% for the first six months of 1998 compared to the same period in 1997, principally due to higher amortization expense resulting from the recent release of the Company's S3+ property and casualty insurance client/server software systems. In addition, depreciation expense increased due to the Company's increased investment in its information technology equipment. Other operating costs and expenses decreased 14.6% for the first six months of 1998 compared to the same period in 1997, principally due to lower consultant, contract loss and bad debt expenses, partially offset by increased facility costs and decreased amounts of software development costs capitalized. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased 11.7% for the first six months of 1998 compared to the same period in 1997, principally due to increased bonus, commission, and advertising costs, partially offset by decreased third party commissions. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES Amortization of goodwill and other intangibles remained relatively unchanged. OPERATING INCOME 1998 six month operating income increased 33.3% compared with 1997 six month operating income. Property and casualty insurance operating income increased 19.6%, domestic life insurance operating income increased 29.3% and international operating income increased 59.7%. The increase in operating income is primarily related to increases in professional services and outsourcing revenues while operating costs increased at a slower rate than the respective revenue. OTHER INCOME AND EXPENSE Interest expense decreased 42.4% for the first six months of 1998 compared to the same period in 1997, principally due to lower levels of borrowed funds under the Company's credit facility and capitalization of interest on construction in progress. The average nominal interest rate applicable to borrowings under the Company's credit facility during the first six months of 1998 was 5.9%. INCOME TAXES The effective income tax rate (income taxes expressed as a percentage of pre-tax income) was 37.3% and 37.3% for the six months ended June 30, 1998 and 1997, respectively. The effective rate for the first six months of 1998 is higher than the federal statutory rate principally due to the effect of state and local income taxes. DISCONTINUED OPERATIONS Loss from operations of the discontinued operations increased for the first six months of 1998 compared to the same period in 1997, principally due to (i) an additional loss of $0.6 million recognized during the second quarter of 1998 on the sale of the property & casualty information services segment; (ii) partial quarter operating results in the second quarter of 1998 compared to full quarter operating results in the second quarter of 1997 for the life information services segment; and (iii) no operating results in the second quarter of 1998 compared to full quarter operating results in the second quarter of 1997 for the property & casualty information services segment. STRATEGIC ALLIANCES Microsoft. In April 1998, the Company announced a new strategic business alliance with Microsoft Corporation. Under this strategic alliance, the Company and Microsoft will engage in joint development, sales and marketing activities geared toward the insurance and related financial services industries. This alliance is not exclusive. Lockheed Martin. In March 1998, the Company announced an agreement in principle to form a strategic alliance for systems outsourcing with Integrated Business Solutions, a unit of Lockheed Martin Corporation ("Lockheed Martin"). A Data Processing Services Agreement was completed in June 1998 and under its terms, the Company turned over operation of its Blythewood, South Carolina, data center to Lockheed Martin on July 1, 1998. As part of the transaction, the Company transferred to Lockheed Martin substantially all of the data processing equipment used in the data center operations, at net book value of approximately $10 million, to be paid in January 1999. LIQUIDITY AND CAPITAL RESOURCES
June 30, December 31, 1998 1997 - --------------------------------------------------- (Dollars in Millions) Cash and equivalents, marketable securities, and investments. . $ 33.6 $ 46.5 Current assets . . . . . . . . . 172.0 185.8 Current liabilities. . . . . . . 91.3 86.2 Working capital. . . . . . . . . 80.7 99.6 Long-term debt . . . . . . . . . 0.4 37.7
Six Months Ended June 30, 1998 1997 - ----------------------------------------------------- (Dollars in Millions) Cash provided by operations. . . . $ 58.6 $ 37.0 Cash used for investing activities (26.8) (45.0) Cash used for financing activities (37.1) (4.6)
The Company's current ratio (current assets divided by current liabilities) stood at 1.9 at June 30, 1998, which management believes is sufficient when combined with the available credit facility to provide for day-to-day operating needs and the flexibility to take advantage of investment opportunities. The Company has available, at June 30, 1998, all of its $200 million credit facility. Also, the Company has available (net of amounts outstanding at June 30, 1998) $7 million under its $15 million uncommitted operating line of credit with which it may choose to fund temporary operating cash needs. During the six months ended June 30, 1998 the Company capitalized software development costs of $28.4 million, principally related to the development of its S3+ client/server property and casualty software, CyberLife object-oriented client/server life insurance software, and I+ international property and casualty solution as well as other ongoing projects for other domestic as well as international products. Significant expenditures anticipated for the remainder of 1998, excluding any possible business acquisitions or common stock repurchases, are as follows: acquisition of data processing and communications equipment, support software, buildings, building improvements and office furniture, fixtures and equipment and costs relating to the internal development of software systems. The Company has historically used the cash generated from operations for development and acquisition of new products, acquisition of businesses and repurchase of the Company's stock. The Company anticipates that, subject to market conditions, it will continue to use its cash for all of these purposes in the future and that projected cash from operations will be able to meet presently anticipated needs; however, the Company may also consider incurring debt, as discussed above, as needed to accomplish specific objectives in these areas and for other general corporate purposes. FACTORS THAT MAY AFFECT FUTURE RESULTS The Company's operating results and financial condition can be impacted by a number of factors, including, but not limited to, the following, any of which could cause actual results to vary materially from current and historical results or the Company's anticipated future results: - - Currently, the Company's business is focused principally within the global property and casualty and life insurance and related financial services industries; - - There is increasing competition for the Company's products and services; - - The market for the Company's products and services is characterized by rapid changes in technology; - - Contracts with governmental agencies involve a variety of special risks, including the risk of early contract termination by the governmental agency and changes associated with newly elected state administrations or newly appointed regulators; - - The timing and amount of the Company's revenues are subject to a number of factors, including, but not limited to, the timing of customers' decisions to enter into large license agreements with the Company; - - Unforeseen events or adverse economic or business trends may significantly increase cash demands beyond those currently anticipated or affect the Company's ability to generate/raise cash to satisfy financing needs; - - The Company's operations have not proven to be significantly seasonal, although quarterly revenues and net income can be expected to vary at times; - - Although the Company cannot accurately determine the amounts attributable thereto, the Company has been affected by inflation through increased costs of employee compensation and other operating expenses. - - Many of the Company's current and potential customers are or will spend significant amounts of money to make their existing information systems capable of handling the year 2000. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Changes in the status of certain matters or facts or circumstances underlying these estimates could result in material changes in these estimates, and actual results could differ from these estimates. Because of the foregoing factors, as well as other factors affecting the Company's operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. YEAR 2000 READINESS Many existing computer programs were designed to use only two digits to identify a year in date fields. If not corrected, these applications could fail or produce erroneous results when working with dates in the Year 2000 and beyond. This Year 2000 issue may potentially affect the Company in four areas: its product offerings, its services offerings, third-party products used internally, and its suppliers. The Company's various business units have been responsible for the assessment, remediation, validation and implementation of Year 2000 corrective actions. The application code of the Company's primary product offerings, S3+, Series II , INSURE/90, POINT , CyberLife and CYBERTEK CK/4 products, were either initially designed or have been updated in their currently available releases to be capable of processing and storing date data with dates in both the twentieth (1900's) and twenty-first (2000's) centuries. The Company is currently conducting an inventory and verifying the Year 2000 readiness of the third-party products with which these Company applications are designed to operate in order to validate that no unanticipated Year 2000 issues exist. In addition, the Company also is in the process of conducting an inventory and assessing other Company and third-party products previously licensed by the Company to customers to determine if any remediation efforts may be required in relation to these products. In its services offerings, the Company has assessed and commenced Year 2000 remediation of the applications used in processing the data of its Information Technology Outsourcing and Business Process Outsourcing services customers. Some of these remediation efforts are complete and some are still in various stages of coding, testing or implementation. The Company intends to complete these Year 2000 remediation efforts and required testing, in a Year 2000 test environment, prior to the need for these services to process data involving dates in the twenty-first century. The primary third-party products used by the Company for its internal operation include its data center hardware and software, internal financial systems, and network and PC hardware and software. The Company's Blythewood data center has completed its hardware and operating software inventory assessments and has substantially completed the remediation efforts of updating these hardware and software assets for the Year 2000 requirements. As of July 1, 1998, Lockheed Martin took over the data processing equipment and operational control of the Blythewood data center and remaining remediation efforts will be coordinated with them. The Company's Australian and European data centers also have completed their inventory assessment and are implementing the hardware and operating software enhancements required for Year 2000 remediation. In 1996, the Company commenced the process of identifying, selecting and implementing an enterprise wide financial and human resources system to replace its existing systems. The selected solution is currently being implemented, is designed to meet Year 2000 requirements, and is scheduled to be operational at the end of 1998. The Company is inventorying and assessing all of its network and PC hardware and software to determine if any Year 2000 remediation upgrades will be required. The Company is also assessing its readiness with respect to non-IT systems which relate primarily to the ordinary maintenance and operation of its physical facilities, such as elevators, heating and air conditioning. Finally, the primary suppliers upon whom the Company's services are dependent are electric utility and telephone companies who provide services to the Company's various offices and data centers. If these services are interrupted for a prolonged period due to the suppliers' Year 2000 problems, it will disrupt the Company's ability to provide its services to customers, notwithstanding the backup battery and diesel power supplies available for the data center locations. As discussed above, the Company has not yet fully completed its Year 2000 evaluations or its remediation efforts. If such remediation efforts are not completed on a timely basis, Year 2000 issues could have a material impact on the Company's operations and financial results. However, based upon the Company's experience to date, at this time, it is not anticipated that the completion of remaining Year 2000 remediation efforts will have an adverse material effect upon the Company's financial position or results of operations. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Statements in this report that are not descriptions of historical facts may be forward-looking statements that are subject to risks and uncertainties, including economic, competitive and technological factors affecting the Company's operations, markets, products, services and prices, as well as other specific factors discussed above and in the Company's filings with the Securities and Exchange Commission. These and other factors may cause actual results to differ materially from those anticipated. PART II OTHER INFORMATION POLICY MANAGEMENT SYSTEMS CORPORATION ITEM 1. LEGAL PROCEEDINGS See Note 2, Contingencies, of Notes to Consolidated Financial Statements, which is incorporated by reference in this Item. ITEMS 2, and 3 are not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Stockholders, held on May 12, 1998, the Company's stockholders approved: (i) the election of two directors, Joseph D. Sargent (15,847,241 votes for and 117,835 withheld) and G. Larry Wilson (15,847,155 votes for and 117,921 withheld) to serve a term of three years; and (ii) the ratification of the selection of Coopers & Lybrand, LLP as independent auditors (15,965,076 votes for, 1,949 votes against and 6,387 abstentions). The following directors' terms continued through the 1998 Annual Meeting of Stockholders: Alfred R. Berkeley, III, Donald W. Feddersen, Dr. John M. Palms, John P. Seibels and Richard G. Trub. ITEM 5. OTHER INFORMATION The Securities and Exchange Commission (the "SEC") recently amended Rule 14a-4, which governs the use by the Company of discretionary voting authority with respect to shareholder proposals. SEC Rule 14a-4c(1) provides that, if the proponent of a shareholder proposal fails to notify the Company at least 45 days prior to the month and day of mailing the prior year's proxy statement, the proxies of the Company's management would be permitted to use their discretionary authority at the Company's next annual meeting of shareholders if the proposal were raised at the meeting without any discussion of the matter in the proxy statement. For purposes of the Company's 1999 Annual Meeting of Shareholders, this deadline is February 10, 1999. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. Exhibits Exhibits required to be filed with this Quarterly Report on Form 10-Q are listed in the following Exhibit Index. Reports on Form 8-K The Company filed a report under Item 5 on Form 8-K on May 12, 1998, disclosing the stock split described in Note 5 of Notes to Consolidated Financial Statements. No financial statements were filed with this 8-K. 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: August 11, 1998 Timothy V. Williams Executive Vice President (Chief Financial Officer) POLICY MANAGEMENT SYSTEMS CORPORATION EXHIBIT INDEX Exhibit Number 3. ARTICLES OF INCORPORATION AND BY-LAWS A. Bylaws of the Company, as amended through July 19, 1994, incorporating all amendments thereto subsequent to December 31, 1993 (filed as an Exhibit to Form 10-K for the year ended December 31, 1994, and is incorporated herein by reference) B. Articles of Incorporation of the Company, as amended through October 13, 1994, incorporating all amendments thereto subsequent to December 31, 1993 (filed as an Exhibit to Form 10-K for the year ended December 31, 1994, and is incorporated herein by reference) 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES A. Specimen forms of certificates for Common Stock of the Company (filed as an Exhibit to Registration Statement No. 2-74821, dated December 16, 1981, and is incorporated herein by reference) B. Articles of Incorporation of the Company, as amended through October 13, 1994, incorporating all amendments thereto subsequent to December 31, 1993 (filed as an Exhibit to Form 10-K for the year ended December 31, 1994, and is incorporated herein by reference) 10. MATERIAL CONTRACTS A. Policy Management Systems Corporation 1986 Stock Option Plan (filed as an Exhibit to Form 10-K for the year ended December 31, 1986, and is incorporated herein by reference) B. Conformed copy of Development and Marketing Agreement between International Business Machines Corporation and Policy Management Systems Corporation, dated July 26, 1989 (File No. 0-10175 - filed under cover of Form SE filed on September 29, 1989, and is incorporated herein by reference) C. Policy Management Systems Corporation 1989 Stock Option Plan (File No. 0-10175 - filed under cover of Form SE on March 22, 1991, and is incorporated herein by reference) D. Deferred Compensation Agreement with G. Larry Wilson (filed as an Exhibit to Form 10-K for the year ended December 31, 1993, and is incorporated herein by reference) E. Employment Agreement with Stephen G. Morrison (filed as an Exhibit to Form 10-Q for the quarter ended March 31, 1994, and is incorporated herein by reference) F. Stock Option/Non-Compete Agreement with Stephen G. Morrison (filed as an Exhibit to Form 10-Q for the quarter ended March 31, 1994, and is incorporated herein by reference) G. Shareholders' Agreement, dated April 26, 1994, among Policy Management Systems Corporation, General Atlantic Partners 14, L.P. and GAP Coinvestment Partners (filed as an Exhibit to Form 10-Q for the quarter ended September 30, 1994, and is incorporated herein by reference) H. Registration Rights Agreement, dated April 26, 1994, among Policy Management Systems Corporation, General Atlantic Partners 14, L.P. and GAP Coinvestment Partners (filed as an Exhibit to Form 10-Q for the quarter ended September 30, 1994, and is incorporated herein by reference) I. Employment Agreement with Timothy V. Williams (filed as an Exhibit to Form 10-K for the year ended December 31, 1994, and is incorporated herein by reference) J. Stock Option/Non-Compete Form Agreement for named executive officers together with a schedule identifying particulars for each named executive officer (filed as an Exhibit to Form 10-Q for the quarter ended September 30, 1992, and is incorporated herein by reference) K. Stock Option/Non-Compete Form Agreement for named executive officers together with a schedule identifying particulars for each named executive officer (filed as an Exhibit to Form 10-Q for the quarter ended September 30, 1994, and is incorporated herein by reference) L. Stock Option Non-Compete Form Agreement for named executive officers together with a schedule identifying particulars for each named executive officer (filed as an Exhibit to Form 10-K for the year ended December 31, 1994, and is incorporated herein by reference) M. Policy Management Systems Corporation 1993 Long-Term Incentive Plan for Executives (filed as an Exhibit to Form 10-K for the year ended December 31, 1994, and is incorporated herein by reference) N. First Amendment to the Policy Management Systems Corporation 1989 Stock Option Plan (filed as an Exhibit to Form 10-K for the year ended December 31, 1994, and is incorporated herein by reference) O. Fourth Amendment to the Policy Management Systems Corporation 1989 Stock Option Plan (filed as an Exhibit to Form 10-Q for the quarter ending March 31, 1995, and is incorporated herein by reference) P. Second and Third Amendments to the Policy Management Systems Corporation 1989 Stock Option Plan (filed as Exhibits to Form 10-Q for the quarter ended June 30, 1995, and is incorporated herein by reference) Q. Stock Option/Non-Compete Form Agreement for named executive officers together with a schedule identifying particulars for each named executive officer (filed as an Exhibit to Form 10-Q for the quarter ended June 30, 1995, and is incorporated herein by reference) R. Stock Option/Non-Compete Form Agreement for named executive officers together with a schedule identifying particulars for each named executive officer (filed as an Exhibit to Form 10-K for year ended December 31, 1995, and is incorporated herein by reference) S. Stock Option/Non-Compete Form Agreement for named executive officers together with a schedule identifying particulars for each named executive officer (filed as an Exhibit to Form 10-K for year ended December 31, 1995, and is incorporated herein by reference) T. Stock Option/Non-Compete Agreement Amendment No. 1 dated November 8, 1995, to Stock Option/Non-Compete Agreement dated July 20, 1995, with Paul R. Butare (filed as an Exhibit to Form 10-K for year ended December 31, 1995, and is incorporated herein by reference) U. Stock Option/Non-Compete Agreement with Timothy V. Williams dated February 1, 1994 (filed as an Exhibit to Form 10-K for year ended December 31, 1995, and is incorporated herein by reference) V. Stock Option/Non-Compete Agreement with Timothy V. Williams dated May 10, 1995 (filed as an Exhibit to Form 10-K for year ended December 31, 1995, and is incorporated herein by reference) W. Registration Rights Agreement, dated March 8, 1996, between Policy Management Systems Corporation and Continental Casualty Company (filed as an Exhibit to Form 10-Q for the quarter ended March 31, 1996, and is incorporated herein by reference) X. Shareholders Agreement dated March 8, 1996, between Policy Management Systems Corporation and Continental Casualty Company (filed as an Exhibit to Form 10-Q for the quarter ended March 31, 1996, and is incorporated herein by reference) Y. Stock Option/Non-Compete Form Agreement for named executive officers together with a schedule identifying particulars for each named executive officer (filed as an Exhibit to Form 10-Q for the quarter ended June 30, 1996, and is incorporated herein by reference) Z. Employment Agreement Form dated November 7, 1996, for Messrs. Butare, Morrison and Williams together with a schedule identifying particulars for each executive officer (filed as an Exhibit to Form 10-K for year ended December 31, 1996, and is incorporated herein by reference) AA. Stock Option/Non-Compete Agreement with Stephen G. Morrison dated October 22, 1996 (filed as an Exhibit to Form 10-K for year ended December 31, 1996, and is incorporated herein by reference) BB. Stock Option/Non-Compete Form Agreement dated January 8, 1997 for named executive officers together with a schedule identifying particulars for each executive officer (filed as an Exhibit to Form 10-Q for the quarter ended March 31, 1997, and is incorporated herein by reference) CC. Annual Bonus Program for Executive Officers (filed as an Exhibit to Form 10-Q for the quarter ended March 31, 1997, and is incorporated herein by reference) DD. Form of Amendment No. 1 to the Employment Agreements with Messrs. Butare, Morrison and Williams, together with a schedule identifying particulars for each executive officer (filed as an Exhibit to Form 10-Q for the quarter ended June 30, 1997, and is incorporated herein by reference) EE. Form of Employment Agreements with Messrs. Wilson, Bailey and Coggiola together with schedule identifying particulars for each executive officer (filed as an Exhibit to Form 10-Q for the quarter ended September 30, 1997, and is incorporated herein by reference) FF. Credit Agreement dated as of August 8, 1997, among Policy Management Systems Corporation, the Guarantors Party hereto, Bank of America National Trust and Savings Association and the Other Financial Institution Party Hereto (filed as an exhibit to Form 10-Q for the quarter ended September 30, 1997, and is incorporated herein by reference) GG. Employment Agreement dated January 1, 1998, and Addendum No. 1 thereto dated January 26, 1998, with Donald A. Coggiola (filed as an exhibit to Form 10-K for the year ended December 31, 1997 and is incorporated herein by reference) HH. Stock Option/Non-Compete Form Agreement for named executive officers together with a schedule identifying particulars for each named executive officer (filed as an exhibit to Form 10-Q for the quarter ended March 31, 1998 and is incorporated herein by reference) 27. FINANCIAL DATA SCHEDULES A. Six Months Ended June 30, 1998 filed herewith (EDGAR version only) B. Six Months Ended June 30, 1997, as restated, filed herewith (EDGAR version only) EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS OF POLICY MANAGEMENT SYSTEMS CORPORATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JUN-30-1998 25001 20 115932 2141 0 171974 263873 140001 614315 91328 0 0 0 368 427299 614315 0 285310 0 237175 4912 0 1481 42836 15987 26849 (64) 0 0 26785 .73 .68 ON JUNE 15, 1998, POLICY MANAGEMENT SYSTEMS CORPORATION EFFECTED A TWO-FOR-ONE STOCK SPLIT. PRIOR FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED FOR THE STOCK SPLIT.
EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS OF POLICY MANAGEMENT SYSTEMS CORPORATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 6-MOS DEC-31-1997 JUN-30-1997 9626 2496 132824 764 0 178327 248857 132055 580037 98591 0 0 0 182 379853 580037 0 238911 0 201585 4909 0 2573 31305 11681 19624 1162 0 0 20786 .57 .56
-----END PRIVACY-ENHANCED MESSAGE-----