<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
--------------------------
MATRIXX Marketing Inc. Profit Sharing/401(k) Plan
-------------------------
CONVERGYS CORPORATION
201 East Fourth Street
Cincinnati, Ohio 45202
<PAGE>
MATRIXX MARKETING INC.
PROFIT SHARING /401(k) PLAN
REPORT ON AUDIT OF FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES AS OF
DECEMBER 31, 1998 AND 1997
<PAGE>
<TABLE>
<CAPTION>
PAGES
<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:
Item 27(a) - Schedule of Assets Held for Investment Purposes as of
December 31, 1998 9
Item 27(d) - Schedule of Reportable Transactions for the Year Ended
December 31, 1998 10
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Plan Committee of the
MATRIXX Marketing, Inc. Profit Sharing/401(k) 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 MATRIXX Marketing Inc. Profit Sharing/401(k) 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
June 18, 1999
1
<PAGE>
MATRIXX MARKETING INC.
PROFIT SHARING/401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
Cash $19,520,289 --
Investments, at fair value
Cincinnati Bell Inc. Shares Fund 15,377,172 $12,046,002
Mutual funds -- 13,544,911
Participant loans receivable 1,160,126 1,129,649
------------ --------------
16,537,298 26,720,562
------------ -------------
Investments, at contract value -- 1,725,749
------------ -------------
Total investments 16,537,298 28,446,311
Net assets available for benefits $36,057,587 $28,446,311
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
MATRIXX MARKETING INC.
PROFIT SHARING/401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
for the year ended December 31, 1998
<TABLE>
<CAPTION>
INTER- U.S. CAPITAL
CINCINNATI STABLE NATIONAL TREASURY EQUITY APPRE-
BELL INC. VALUE STOCK MONEY INCOME CIATION
SHARES FUND FUND FUND FUND FUND FUND
------------ ----------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net assets available for
benefits at beginning
of year $ 12,046,002 $ 1,725,749 $ 651,038 $ 983,519 $ 5,700,502 $ 638,956
ADDITIONS:
Employer contributions 711,024 - - - - -
Participant contributions 723,605 340,495 296,645 197,736 1,663,858 476,957
Dividend and other
income 153,628 105,113 32,623 49,004 570,293 147,381
Net appreciation
(depreciation) in fair
value of investments 2,799,415 - 108,637 - 31,330 (105,828)
------------ ----------- ---------- ----------- ------------ ----------
Total additions 4,387,672 445,608 437,905 246,740 2,265,481 518,510
DEDUCTIONS:
Distributions to
participants 1,737,544 328,085 83,106 87,850 729,900 126,486
------------ ----------- ---------- ----------- ------------ ----------
Total deductions 1,737,544 328,085 83,106 87,850 729,900 126,486
------------ ----------- ---------- ----------- ------------ ----------
Fund transfers 681,042 (29,668) (96,450) (509,393) (719,736) (42,576)
Net increase (decrease) 3,331,170 87,855 258,349 (350,503) 815,845 349,448
------------ ----------- ---------- ----------- ------------ ----------
Net assets available for
transfer at end of year 15,377,172 1,813,604 909,387 633,016 6,516,347 988,404
------------ ----------- ---------- ----------- ------------ ----------
------------ ----------- ---------- ----------- ------------ ----------
Conversion of plan assets
to cash (see Note 5.) - (1,813,604) (909,387) (633,016) (6,516,347) (988,404)
Net assets available for
benefits at end of year $ 15,377,172 $ - $ - $ - $ - $ -
------------ ----------- ---------- ----------- ------------ ----------
------------ ----------- ---------- ----------- ------------ ----------
<CAPTION>
SPECTRUM SPECTRUM PARTICI-
INCOME GROWTH PANT OTHER
FUND FUND LOANS FUNDS CASH TOTAL
----------- ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net assets available for
benefits at beginning
of year $ 1,219,577 $ 2,339,911 $ 1,129,649 $ 2,011,408 $ - $ 28,446,311
ADDITIONS:
Employer contributions - - - - - 711,024
Participant contributions 423,661 867,212 1,141,956 - 6,132,125
Dividend and other
income 123,495 267,506 83,933 80,520 - 1,613,496
Net appreciation
(depreciation) in fair
value of investments (19,417) 122,410 - 477,972 - 3,414,519
----------- ----------- ------------ ------------ ----------- ------------
Total additions 527,739 1,257,128 83,933 1,700,448 - 11,871,164
DEDUCTIONS:
Distributions to
participants 229,420 449,899 112,972 374,626 - 4,259,888
----------- ----------- ------------ ------------ ----------- ------------
Total deductions 229,420 449,899 112,972 374,626 - 4,259,888
----------- ----------- ------------ ------------ ----------- ------------
Fund transfers (43,456) 644,623 59,516 56,098 -
Net increase (decrease) 254,863 1,451,852 30,477 1,381,920 - 7,611,276
----------- ----------- ------------ ------------ ----------- ------------
Net assets available for
transfer at end of year 1,474,440 3,791,763 1,160,126 3,393,328 - 36,057,587
----------- ----------- ------------ ------------ ----------- ------------
----------- ----------- ------------ ------------ ----------- ------------
Conversion of plan assets
to cash (see Note 5.) (1,474,440) (3,791,763) - (3,393,328) 19,520,289 -
Net assets available for
benefits at end of year $ - $ - $ 1,160,126 $ - $19,520,289 $ 36,057,587
----------- ----------- ------------ ------------ ----------- ------------
----------- ----------- ------------ ------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
MATRIXX MARKETING INC.
PROFIT SHARING/401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. PLAN DESCRIPTION
The following is a description of the MATRIXX Marketing Inc. Profit
Sharing/401(k) Plan (the Plan). The Plan is subject to the provisions of
the Employee Retirement Income Security Act of 1974. Reference is made to
the plan document and the related Trust Agreement for complete information.
A. GENERAL: The Plan is a defined contribution plan covering substantially
all domestic employees of Convergys Customer Management Group Inc. (the
Company), formerly MATRIXX Marketing Inc., a wholly-owned subsidiary of
Convergys Corporation. The 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 T. Rowe Price Trust Company (T. Rowe
Price.) Administrative expenses are paid by the Company.
B. CONTRIBUTIONS AND PARTICIPANT LOANS: Participating employees may defer,
pursuant to Section 401(k) of the Internal Revenue Code of 1986 (the Code),
a percentage of pre-tax compensation, subject to certain limitations.
Contributions made by participants in excess of allowable percentages are
refunded to participants. The contributions are invested by the Trustee,
as directed by each participant, in one or more investment funds.
Periodically, participants may change their investment option.
Participants are permitted to borrow against their pre-tax contribution
accounts. The maximum loan amount available is fifty percent of the
vested account balance; provided, however, that the total amount borrowed
at any time may not exceed $50,000. Participant loans bear interest at
the prime lending rate at the time the loan is made and generally must
be repaid within five years.
The Company makes discretionary "profit sharing" contributions which
are allocated among participant accounts based on each participant's
compensation relative to all participants' compensation. The Company
also makes monthly "matching" contributions of the lesser of 40% of the
before-tax contributions of the participants or 2.4% 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 Convergys Corporation through December 31, 1998
- see note 5.) Participants vest in employer contributions as follows:
<TABLE>
<CAPTION>
YEARS OF VESTING
SERVICE PERCENTAGE
- ------------------ ---------------
<S> <C>
Less than 5 years 0%
5 or more years 100%
</TABLE>
4
<PAGE>
MATRIXX MARKETING INC.
PROFIT SHARING/401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
C. ELIGIBILITY: Generally all domestic employees who have completed at
least one year of service and who have attained the age of twenty-one
are eligible to participate in the Plan.
D. DISTRIBUTIONS AND TERMINATIONS: Distribution of a participant's vested
account balance is made in one lump sum payment to the participant, or
their beneficiary, upon termination of employment, permanent disability or
death. Participant accounts that are in excess of $5,000 and vested will
not be distributed to the participant before they attain age 65 without the
written consent of the participant. Participants may apply for hardship
withdrawals, subject to approval by the Plan Committee. The contributions
and earnings are taxable to the participants, subject to certain
exceptions, upon withdrawal from the Plan. Forfeited amounts related to
terminated employees who were not fully vested when they left the Company
serve to reduce employer contributions to the Plan.
While the Company has not expressed any intent to do so, it reserves
the right to suspend or eliminate contributions to the Plan or
terminate the Plan without the consent of any participant. Should the
Plan be terminated, the interests of all participants would become 100%
vested and subject to distribution under the provisions of the Plan.
2. SIGNIFICANT ACCOUNTING POLICIES:
A. BASIS OF ACCOUNTING: The Plan uses the accrual method of accounting.
Purchases and sales of securities are reflected as of the trade date.
Dividend income is recorded on the ex-dividend date.
B. INVESTMENTS AND INVESTMENT VALUATION: Participants are permitted to direct
the investment of their pre-tax salary deferral into the investment
programs approved by the Plan Committee. For 1998, the following investment
funds were available: CBI Shares Fund, various T. Rowe Price mutual funds
(the Stable Value Fund, International Stock Fund, U.S. Treasury Money Fund,
Equity Income Fund, Capital Appreciation Fund, Spectrum Growth Fund,
Spectrum Income Fund, Government National Mortgage Association (G.N.M.A.)
Fund, New Income Fund, New Horizon Fund, Science and Technology Fund) and
funds investing directly in common stock. Investments in the New Income
Fund, New Horizon Fund, Science and Technology Fund, G.N.M.A Fund and funds
investing directly in common stock other than CBI's shares are included in
Other Funds in the accompanying financial statements as they individually
represent less than 5% of net assets available for benefits.
5
<PAGE>
MATRIXX MARKETING INC.
PROFIT SHARING/401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Plan investments, other than the Stable Value Fund, are valued at the
fair market value, based upon quoted market prices as of the last
business day of the year. The Stable Value Fund is a pooled fund
investing in guaranteed insurance contracts. All investment contracts
held by the Stable Value Fund were fully benefit responsive and,
accordingly, were stated at their contract value.
The Stable Value fund consists of over 60 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 6.45% and 6.21%, respectively. The interest rate at December
31, 1998 and 1997 was 6.16% and 6.26%, 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 plans sponsored by
Convergys Corporation (see note 5) could make no additional
investments in the Cincinnati Bell Inc. Shares Fund.
The Plan presents in the statement of changes in net assets the net
appreciation (depreciation) in the fair value of the investments which
consists of realized gains and losses and unrealized appreciation
(depreciation) related to those investments.
C. 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 Plan Benefits as of the date of the Plan's
financial statements and the reported changes in Net Assets Available
for Plan Benefits during the reporting period. Actual results could
differ from these estimates.
3. 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 June 12, 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.
6
<PAGE>
MATRIXX MARKETING INC.
PROFIT SHARING/401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENTS:
At the close of business day on December 31, 1998, all investments with the
exception of the Cincinnati Bell Inc. Shares Fund were liquidated in
preparation for the transfer of all Plan assets to a new investment manager
(see Note 5.) The $15,377,172 investment in the Cincinnati Bell Inc. Shares
Fund consists of 406,669 shares at $37.81 per share.
The interest of all employees in each type of investment of the Plan on
December 31, 1997, is represented by shares. The number and value of shares
were:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------
VALUE
NUMBER OF PER
SHARES SHARE
-------------- -------------
<S> <C> <C>
Cincinnati Bell Inc. Shares Fund 388,578 $ 31.00
T. Rowe Price Stable Value Fund 1,725,749 1.00
T. Rowe Price International Stock Fund 48,512 13.42
T. Rowe Price U.S. Treasury Money Fund 983,519 1.00
T. Rowe Price Equity Income Fund 218,661 26.07
T. Rowe Price Capital Appreciation Fund 43,437 14.71
T. Rowe Price Spectrum Income Fund 146,887 15.93
T. Rowe Price Spectrum Growth Fund 104,595 11.66
</TABLE>
7
<PAGE>
MATRIXX MARKETING INC.
PROFIT SHARING/401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. SUBSEQUENT EVENT:
Effective January 1, 1999, the name of the Plan was changed to the
Convergys CMG Retirement Savings Plan and, with the exception of certain
employees at certain locations, participant account balances were
transferred to the Convergys Corporation Retirement and Savings Plan.
Fidelity Management Trust Company (Fidelity) serves as the Trustee of the
Convergys Corporation Retirement and Savings Plan. Net assets of the Plan
at December 31, 1998 have been presented as cash in transit between T. Rowe
Price and Fidelity. The net assets of the Plan were invested in the
following participant directed funds when received by Fidelity in January
1999:
<TABLE>
<CAPTION>
FIDELITY FUNDS
<S> <C>
PIMCO Total Return $ 2,465,655
Baron Asset 581,112
Puritan 988,404
Equity Income 6,516,347
Diversified International 909,387
Dividend Growth 4,946,399
Managed Income Portfolio 1,813,604
-----------------
Total Fidelity Funds 18,220,908
OTHER INVESTMENTS
Cincinnati Bell Inc. Shares Fund 15,377,172
Participant Loans 1,160,126
Other 1,299,381
-----------------
Total Assets Transferred $ 36,057,587
-----------------
-----------------
</TABLE>
8
<PAGE>
MATRIXX MARKETING INC.
PROFIT SHARING/401(k) PLAN
ITEM 27 (A) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
As of December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME OF ISSUER AND TYPE OF ISSUE NUMBER OF COST MARKET VALUE
SHARES
<S> <C> <C> <C>
Cincinnati Bell Inc. Shares Fund 406,669 12,580,646 $ 15,377,172
Participant Loans * -- -- 1,160,126
---------
$ 16,537,298
</TABLE>
* AT DECEMBER 31, 1998 THE INTEREST RATE CHARGED ON OUTSTANDING LOANS
RANGED FROM 6.00% TO 9.00%.
9
<PAGE>
MATRIXX MARKETING INC.
PROFIT SHARING/401(k) PLAN
ITEM 27 (D) - SCHEDULE OF REPORTABLE TRANSACTIONS
for the year ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PURCHASE SELLING NET
DESCRIPTION OF ASSET PRICE PRICE GAIN
- ---------------------------- ------------ -------------- ------------
<S> <C> <C> <C>
Cincinnati Bell Inc.
Shares Fund $ 9,717,186 $ 16,940,024 $ 7,222,838
Stable Value Fund $ 2,303,094 $ 2,303,094 $ -
International Stock Fund $ 1,026,435 $ 1,113,592 $ 87,158
U. S. Treasury Money Fund $ 1,541,468 $ 1,541,468 $ -
Science and Technology Fund $ 1,016,555 $ 1,238,440 $ 221,885
Equity Income Fund $ 6,990,238 $ 8,019,791 $ 1,029,553
Capital Appreciation Fund $ 1,277,791 $ 1,180,671 $ (97,121)
Spectrum Income Fund $ 1,718,798 $ 1,784,560 $ 65,762
Spectrum Growth Fund $ 3,891,191 $ 4,324,890 $ 433,699
</TABLE>
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the MATRIXX
Marketing Inc. Profit Sharing/401(k) Plan Committee has duly caused this annual
report to be signed on its behalf by the undersigned hereunto duly authorized.
MATRIXX MARKETING INC.
PROFIT SHARING/401(k) PLAN
/s/ Thomas A. Cruz, Jr.
By _________________________________
Thomas A. Cruz, Jr.
June 25, 1999
<PAGE>
EXHIBIT 23
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
June 18, 1999, on our audits of the financial statements of the MATRIXX
Marketing Inc. Profit Sharing / 401(k) 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
June 25, 1999
