<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __to
Commission File Number 1-14379
--------------------------
CBIS RETIREMENT AND SAVINGS PLAN
--------------------------
CONVERGYS CORPORATION
201 East Fourth Street
Cincinnati, Ohio 45202
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants 1
Financial Statements:
Statements of Net Assets Available for Benefits as of
December 31, 1998 and 1997 2
Statement of Changes in Net Assets Available for
Benefits for the Year Ended December 31, 1998 3
Notes to Financial Statements 4-8
Schedules:
Line 27 (a)-Schedule of Assets Held for
Investment Purposes as of December 31, 1998 9
Line 27(d)-Schedule of Reportable Transactions for
the year ended December 31, 1998 10
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Benefits Committee of the
CBIS Retirement and Savings Plan
In our opinion, the accompanying statements of net assets available for
benefits, and the related statement of changes in net assets available for
benefits present fairly, in all material respects, the net assets available
for benefits of the CBIS Retirement and Savings Plan as of December 31, 1998
and 1997, and the changes in net assets available for benefits for the year
ended December 31, 1998 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Plan's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule of Assets
Held for Investment Purposes as of December 31, 1998 and the Schedule of
Reportable Transactions for the year ended December 31, 1998 are presented
for the purpose of additional analysis and are not a required part of the
basic financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure
under the Employee Retirement Income Security Act of 1974. These supplemental
schedules are the responsibility of the Plan's management. The fund
information in the statement of changes in net assets available for benefits
is presented for purposes of additional analysis rather than to present
changes in net assets available for plan benefits of each fund. The
supplemental schedules and fund information have been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, are fairly stated in all material respects in relation
to the basic financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
Cincinnati, Ohio
July 8, 1999
1
<PAGE>
CBIS RETIREMENT AND SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
as of December 31,
----------------------------
ASSETS 1998 1997
---- ----
<S> <C> <C>
Investments, at fair value:
Temporary cash investments $ 94,488,160 $ 42,556
Money market funds - 154,512
Cincinnati Bell Inc. Shares Fund 99,123,792 78,536,205
Mutual funds - 75,850,539
Loans to participants 4,168,195 4,212,824
----------- -----------
Total investments 197,780,147 158,796,636
Contributions receivable:
Employer - 175,072
Employee - 391,622
Dividends and interest receivable 101,737 25,450
----------- ------------
Total assets 197,881,884 159,388,780
LIABILITIES
Accrued expenses - 32,212
------------ ------------
Net assets available for benefits $197,881,884 $159,356,568
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
2
<PAGE>
CBIS
Retirement and Savings Plan
Statement of Changes in Net Assets Available for Benefits
for the year ended December 31, 1998
<TABLE>
<CAPTION>
Cincinnati Fidelity Sun Trust Sun Trust Sun Trust
Bell Inc. Growth Fixed Money Capital Short-Term Sun Trust
Shares Company Income Market Growth Bond Balanced
Fund Fund Fund Fund Fund Fund Fund
----------- ------------ ------------ --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net assets available for
benefits at beginning of year $78,711,277 $ 23,746,350 $ 9,943,929 $ 155,163 $ 12,418,882 $ 461,097 $ 8,707,734
Additions:
Participant contributions 916,357 2,261,660 776,320 61,682 1,100,656 131,708 884,092
Employer contributions 4,207,025 - - - - - -
Interest and dividend income 1,022,695 1,795,550 595 9,520 1,923,902 39,902 632,770
Net appreciation
(depreciation) in fair
value of investments 18,295,847 4,573,291 636,601 - 1,646,095 48,041 779,816
----------- ----------- ------------ --------- ----------- ----------- ------------
Total additions 24,441,924 8,630,501 1,413,516 71,202 4,670,653 219,651 2,296,678
Deductions:
Distributions to participants 4,197,417 1,722,099 536,472 12,159 799,125 26,490 593,235
Administrative expenses 27,584 8,592 41,559 120 4,380 379 3,548
----------- ----------- ------------ --------- ----------- ----------- ------------
Total deductions 4,225,001 1,730,691 578,031 12,279 803,505 26,869 596,783
Fund transfers 195,592 (1,657,465) 250,907 586,578 (249,996) 561,690 (391,731)
Net Increase (decrease) 20,412,515 5,242,345 1,086,392 645,501 3,617,152 754,472 1,308,164
----------- ----------- ------------ --------- ----------- ----------- ------------
Net assets available for
transfer at end of year 99,123,792 28,988,695 11,030,321 800,664 16,036,034 1,215,569 10,015,898
=========== =========== ============ ========== =========== =========== ============
Conversion of plan assets
to cash (see Note 5.) - (28,988,695) (11,030,321) (800,664) (16,036,034) (1,215,569) (10,015,898)
Accrued Interest Income - - - - - - -
----------- ----------- ------------ --------- ----------- ----------- ------------
Net assets available for
benefits at end of year $99,123,792 $ - $ - $ - $ - $ - $ -
=========== =========== ============ ========== =========== =========== ============
<CAPTION>
Vanguard
Sun Trust Sun Trust Index Trust
Sunbelt Value Baron 500 Templeton
Equity Income Asset Portfolio Foreign Participant
Fund Fund Fund Fund Fund Loans Unallocated
----------- ----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net assets available for
benefits at beginning of year $ 3,282,837 $ 5,415,917 $ 3,175,998 $ 4,133,494 $4,588,589 $4,212,824 $ 402,477
Additions:
Participant contributions 502,679 830,433 899,394 1,096,210 685,696 - -
Employer contributions - - - - - - -
Interest and dividend income 208,541 1,004,776 4,286 104,769 125,467 - -
Net appreciation
(depreciation) in fair
value of investments (534,357) (433,690) 221,310 1,446,426 (226,102) - -
----------- ----------- ----------- ----------- ---------- ---------- -------------
Total additions 176,863 1,401,519 1,124,990 2,647,405 585,061 - -
Deductions:
Distributions to participants 165,216 198,701 176,989 289,320 259,164 184,104 -
Administrative expenses 1,296 1,963 1,787 2,940 1,745 - -
----------- ----------- ----------- ----------- ---------- ---------- -------------
Total deductions 166,512 200,664 178,776 292,260 260,909 184,104 -
Fund transfers (353,971) (554,007) 787,704 1,298,539 (210,838) 139,475 (402,477)
Net Increase (decrease) (343,620) 646,848 1,733,918 3,653,684 113,314 (44,629) (402,477)
----------- ----------- ----------- ----------- ---------- ---------- -------------
Net assets available for
transfer at end of year 2,939,217 6,062,765 4,909,916 7,787,178 4,701,903 4,168,195 -
=========== =========== =========== =========== ========== ========== =============
Conversion of plan assets
to cash (see Note 5.) (2,939,217) (6,062,765) (4,909,916) (7,787,178) 4,701,903) - 94,488,160
Accrued Interest Income - - - - - - 101,737
----------- ----------- ----------- ----------- ---------- ---------- -------------
Net assets available for
benefits at end of year $ - $ - $ - $ - $ - $4,168,195 $94,589,897
=========== =========== =========== =========== ========== ========== =============
<CAPTION>
Total
------------
<S> <C>
Net assets available for
benefits at beginning of year $159,356,568
Additions:
Participant contributions 10,146,887
Employer contributions 4,207,025
Interest and dividend income 6,872,773
Net appreciation
(depreciation) in fair
value of investments 26,453,278
------------
Total additions 47,679,963
Deductions:
Distributions to participants 9,160,491
Administrative expenses 95,893
------------
Total deductions 9,256,384
Fund transfers -
Net Increase (decrease) 38,423,579
------------
Net assets available for
transfer at end of year 197,780,147
============
Conversion of plan assets
to cash (see Note 5.) -
Accrued Interest Income 101,737
------------
Net assets available for
benefits at end of year $197,881,884
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE>
CBIS RETIREMENT AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
1. PLAN DESCRIPTION AND ACCOUNTING POLICIES:
a. GENERAL: The CBIS Retirement and Savings Plan (the Plan) is available
to eligible employees of Convergys Information Management Group Inc.
(the Company), formerly Cincinnati Bell Information Systems Inc., and
its subsidiaries. The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA). The
contributions and earnings are taxable to the participants, subject to
certain exceptions, upon withdrawal from the Plan. The defined
contribution plan is administered by a committee (the Plan Committee)
appointed in accordance with the provisions of the Plan. The Trustee
to the Plan during 1998 was Sun Trust Banks, Inc. Participants should
refer to the Plan document for a complete description of the Plan.
b. EMPLOYEE CONTRIBUTIONS: Participants in the Plan may contribute up to
16% of their compensation to the Plan in before-tax dollars subject to
annual Internal Revenue Service limitations. Participants may
contribute to the Plan on an after-tax basis. Total before-tax and
after-tax contributions may not exceed 16% of a participant's
compensation. The participants specify the manner in which their own
contribution shall be invested in the available funds. Participants
may elect to change the manner in which contributions are allocated
and may also transfer contributions from one fund to another.
c. EMPLOYER CONTRIBUTIONS: The Company is required to make monthly
matching contributions of the lesser of 66 2/3% of the before-tax
contributions of the participants or 4% of the participant's covered
compensation. All employer contributions are allocated to the
Cincinnati Bell Inc. Shares Fund (Cincinnati Bell Inc was the parent
of the Company through December 31, 1998.) Participants vest in
employer contributions as follows:
<TABLE>
<CAPTION>
Vesting
Years of Service Percentage
<S> <C>
Less than 2 years 0%
2 30%
3 50%
4 75%
5 100%
</TABLE>
d. DISTRIBUTIONS TO PARTICIPANTS: Distributions are made to participants,
or their beneficiaries, upon termination of employment, attainment of
age 70-1/2, death, disability, or financial hardship.
4
<PAGE>
CBIS RETIREMENT AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. PLAN DESCRIPTION AND ACCOUNTING POLICIES, CONTINUED:
e. PARTICIPANT LOANS: Loans are available to participants from their
individual accounts. For each participant, the number of loans
outstanding is limited to two, and no more than two loans are allowed
to originate during a single Plan year. The minimum amount of any loan
is $1,000, while the maximum amount cannot exceed the lesser of 50% of
the vested value of the participant's Plan account or $50,000, reduced
by any outstanding loan balances. The interest rate charged, generally
the prime lending rate plus 1%, is determined by the Plan Committee.
For the years ended December 31, 1998 and 1997 the loan rate was 9.5%.
The minimum term of a loan is one year and the maximum term is five
years, unless the loan is used to acquire the participant's principal
residence, in which case the term of the loan may not exceed fifteen
years.
f. TEMPORARY CASH INVESTMENTS: Temporary cash investments include all
cash balances and highly liquid investments with maturity of three
months or less at the time of purchase. Temporary cash investments are
placed in short-term investment funds with the Trustee.
g. INVESTMENTS: For 1998, the Plan had the following investment options,
which could be selected by each participant: Cincinnati Bell Inc.
Shares Fund; Fidelity Growth Company Fund - which consists of common
stock in small and medium size companies; Fixed Income Fund - which
consists of mutual funds which invest principally in guaranteed
insurance contracts; SunTrust Money Market Fund - which consists of a
money market account; SunTrust Capital Growth Fund - which consists
mostly of common and preferred stock; SunTrust Short-Term Bond Fund -
which consists of short-term fixed-income securities; SunTrust
Balanced Fund - which consists of common and preferred stock and fixed
income securities; SunTrust Sun Belt Equity Fund - which consists
mostly of common stock in small and medium size companies located in
the southern region of the U.S.; SunTrust Value Income Fund - which
consists of common stock paying higher dividend yields; Baron Asset
Fund - which consists of common stock in medium size domestic
companies; Vanguard Index Trust 500 Portfolio Fund - which consists of
common stock of S&P 500 Index companies; Templeton Foreign Fund -
which consists mostly of stocks and debt securities of companies and
governments outside the U.S.. The unallocated funds in the statement
of net assets available for benefits represent amounts held in
temporary cash investments awaiting selection of investment options by
participants.
5
<PAGE>
CBIS RETIREMENT AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. PLAN DESCRIPTION AND ACCOUNTING POLICIES, CONTINUED:
g. INVESTMENTS, CONTINUED: Investment income is recorded as earned, on
the accrual basis. Plan investments, other than the Fixed Income Fund,
are valued at the fair market value, based upon quoted market prices
as of the last business day of the year.
The Fixed Income Fund is a pooled fund investing in guaranteed
insurance contracts. All investment contracts held by the Fixed Income
Fund are fully benefit responsive and, accordingly, are stated at
contract value plus accrued interest earnings which approximates their
fair market value. The fund consists of over 100 separate contracts.
The method and frequency of determining interest rate resets varies by
contract. The average yield for the fund for the plan years 1998 and
1997 was 6.52% and 6.4%, respectively. The interest rate at December
31, 1998 and 1997 was 6.58% and 6.56%, respectively.
At the close of business on December 31, 1998, Cincinnati Bell Inc.
(CBI) completed the spin-off of Convergys Corporation. At that time,
CBI common shareholders received Convergys common shares equal to the
number of CBI shares held at the record date for the spin-off. The
value reflected in the Statement of Net Assets for Benefits at December
31, 1998 for the Cincinnati Bell Inc. Shares Fund is based on the
closing market price for CBI shares on December 31, 1998. Effective
January 1, 1999, a Convergys Corporation Shares fund was established
and subsequently participants in the Plan could make no additional
investments in the Cincinnati Bell Inc. Shares Fund.
The Plan presents, in the statement of changes in net assets available
for plan benefits, the net appreciation (depreciation) in the fair
value of its investments, which consists of the realized gains or
losses and the unrealized appreciation (depreciation) on those
investments.
h. USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reporting
amounts of Net Assets Available for Benefits as of the date of the
Plan's financial statements and the reported Changes in Net Assets
Available for Benefits during the reporting period. Actual results
could differ from these estimates.
i. ADMINISTRATIVE EXPENSES: Administrative expenses are paid by the Plan.
j. FORFEITURES: Participants who terminate service prior to vesting in
100% of their employer contribution forfeit the non-vested portion of
their account balance. If the participant is rehired prior to a
five-year break in service, as defined by the Plan, the amount which
was to have been forfeited is restored to the participant's account.
Any additional amounts available after such restorals are allocated as
additional employer contributions.
6
<PAGE>
CBIS RETIREMENT AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. TAX STATUS:
The Internal Revenue Service has issued a determination that the Plan
meets the requirements of Section 401(a) of the Code and is exempt from
federal income tax under Section 501(a) of the Code. The Plan obtained
its latest determination letter on May 14, 1996, in which the Internal
Revenue Service stated that the Plan, as then designed, was in compliance
with the applicable requirements of the Internal Revenue Code. The Plan
has been amended since receiving the determination letter. However, the
Plan administrator and the Plan's counsel believe that the Plan is
currently designed and being operated in compliance with the applicable
requirements of the Internal Revenue Code.
3. TERMINATION:
While the Company has not expressed any intent to terminate the Plan, it
reserves the right to terminate the Plan at any time. In the event of
such termination, all participant's accounts would become 100% vested and
subject to distribution under the provisions of the Plan.
7
<PAGE>
CBIS RETIREMENT AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. INVESTMENTS:
The interest of all employees in each type of investment of the Plan on
December 31, 1998 and 1997 is represented by shares. The number and
value of shares were:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Number of Value per Number of Value per
Shares Share Shares Share
<S> <C> <C> <C> <C>
Cincinnati Bell Inc. Shares 2,590,317 $ 37.81 2,523,773 $ 31.00
Fidelity Growth Company Fund - - 548,161 43.32
Fixed Income Fund - - 404,061 24.61
SunTrust Money Market Fund - - 154,512 1.00
SunTrust Capital Growth Fund - - 850,608 14.60
SunTrust Short-Term Bond Fund - - 45,926 10.04
SunTrust Balanced Fund - - 723,835 12.03
SunTrust Sun Belt Equity Fund - - 231,023 14.21
SunTrust Value Income Fund - - 422,788 12.81
Baron Asset Fund - - 65,471 48.51
Vanguard Index Trust 500 Portfolio Fund - - 45,622 90.07
Templeton Foreign Fund - - 461,165 9.95
</TABLE>
5. SUBSEQUENT EVENT:
Effective January 1, 1999, the name of the Plan was changed to the
Convergys Corporation Retirement and Savings Plan and the Plan became
available to substantially all employees of Convergys Corporation. At
the same time the assets of the Plan, along with certain assets of other
plans previously sponsored by CBI and its subsidiaries, were transferred
to Fidelity Investments (Fidelity) and Fidelity Management Trust Company
became Trustee of the Plan. Net assets of the Plan, except for the
Cincinnati Bell Inc. Shares Fund, at December 31, 1998 have been
presented as cash in transit between Sun Trust and Fidelity. The
December 31, 1998 net assets of the Plan were invested in the
following participant directed funds when received by Fidelity in
January 1999:
<TABLE>
<S> <C>
FIDELITY FUNDS
PIMCO Total Return $ 1,220,487
Baron Asset 7,849,132
Puritan 10,065,138
Equity Income 6,091,435
Diversified International 4,701,903
Dividend Growth 45,033,665
Managed Income Portfolio 11,840,958
Spartan US Equity Index 7,787,178
-------------
Total Fidelity Funds 94,589,896
OTHER INVESTMENTS
Cincinnati Bell Inc. Shares Fund 99,123,792
Participants Loans 4,168,195
-------------
Total Assets Transferred $ 197,881,883
=============
</TABLE>
8
<PAGE>
CBIS RETIREMENT AND SAVINGS PLAN
LINE 27(a) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Number of
Shares or
Principal Market
Name of Issuer and Type of Issue Amount Cost Value
<S> <C> <C> <C>
Cincinnati Bell Inc. Shares Fund 2,590,317 $ 40,163,606 $ 99,123,792
-- -- 4,168,195
Loan Fund *
</TABLE>
* The interest rates on these loans range from 7% to 10.25% at
December 31, 1998.
9
<PAGE>
CBIS RETIREMENT AND SAVINGS PLAN
LINE 27(d) - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Description of Assets Purchase Price Selling Price Net Gain
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Income Fund $ 13,522,931 $ 24,103,557 $ 1,609,390
Cincinnati Bell Inc. Common Shares Fund 10,120,832 9,503,953 5,965,294
Fidelity Growth Company Fund 6,184,565 36,219,697 8,614,225
Baron Asset Fund 2,348,234 5,722,988 752,933
Sun Trust Balanced Fund 2,936,867 12,832,592 1,676,768
Sun Trust Value Income Fund 2,500,487 8,379,938 446,345
Sun Trust Capital Growth Fund 3,977,387 19,886,095 4,696,145
Templeton Foreign Fund 1,864,354 6,190,678 (384,166)
Vanguard Index Trust 500 Portfolio Fund 3,494,489 9,077,024 1,894,676
</TABLE>
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the members
of the CBIS Retirement and Savings Plan Committee have duly caused this annual
report to be signed on its behalf by the undersigned hereunto duly authorized.
CBIS RETIREMENT AND SAVINGS PLAN
By: /s/ Thomas P. Mehnert
---------------------
Thomas P. Mehnert
July 8, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Convergys Corporation on Form S-8 (File No. 333-69633) of our report dated July
8, 1999, on our audits of the financial statements of the CBIS Retirement and
Savings Plan as of December 31, 1998 and 1997, and for the year ended December
31, 1998, which report is included in this Form 11-K.
/s/ PricewaterhouseCoopers LLP
Cincinnati, Ohio
July 12, 1999
