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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993 Commission file number 0-10175
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 PMS Center (P.O. Box Ten)
Blythewood, S.C. (Columbia, S.C.) 29016 (29202)
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (803)735-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $797,531,112 at March 11, 1994 based on the closing market
price of the Common Stock on such date, as reported by the New York Stock
Exchange.
The total number of shares of the registrant's Common Stock, $.01 per
share par value, outstanding at March 11, 1994 was 22,637,021.
DOCUMENTS INCORPORATED BY REFERENCE
Item 4 of Registrant's Report on Form 8-K, dated August 17, 1993, is
incorporated by reference in Part II.
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PART I
ITEM 1. BUSINESS
THE COMPANY
ORGANIZATION AND GENERAL DEVELOPMENT
Policy Management Systems Corporation ("Company"), a leading
provider of standardized insurance software systems and automation,
administration and information services to the insurance industry,
is a South Carolina corporation incorporated in 1980. At December
31, 1993, the Company had 4,350 full-time employees and 4,786 total
employees located in offices in North America, Europe and
Australia.
Prior to 1985, the Company operated primarily as a provider of
insurance software systems and related automation support services
to property and casualty insurance companies. Since that time the
Company has broadened its software product and services offerings
through the introduction of new internally developed products and
services and business and software product acquisitions.
During 1985, the Company initiated an expansion into the
property and casualty information services business to assist
underwriters and claims professionals in the property and casualty
insurance marketplace. The Company began to acquire regional
providers of information services to provide the capability of
gathering and electronically communicating information from all
states and regions. By the end of 1986, the Company had completed
acquisitions, which provided for national coverage for Motor
Vehicle Reports and Personal Lines inspections. By November 1988,
the Company had completed acquisitions, which provided for national
coverage for Premium Audits and Commercial Line Inspections.
Through its nationwide information gathering network, the
Company provides the property and casualty insurance industry with
the information to assist insurers in making more informed
decisions on risk selection, pricing and claims adjusting. Most of
these services are provided on an automated basis to allow the
consistent application of underwriting standards and rules.
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From 1990 through 1993, the Company acquired businesses which
provide information services related to hospital medical records,
attending physician statements and personal history interviews
primarily for the life and health insurance industry. Since then,
the Company has expanded its operations and information services
offerings to the point that it now offers a wide range of
information services and related data base products to the property
and casualty, life and health insurance markets.
Between 1986 and 1989, the Company, through business
acquisitions, took its initial steps toward becoming a major
supplier of automation solutions for the life and health insurance
markets. Since then, the Company has continued to expand its
products and services offerings and in August 1993, acquired
CYBERTEK Corporation ("CYBERTEK") of Dallas, Texas. CYBERTEK is a
leading provider of information management systems and processing
solutions designed to meet the needs of the life insurance and
financial services industries. The Company is currently enhancing
and integrating the business functions of CYBERTEK products with
certain of the Company's Series III industry applications and its
Integrated Application Platform architecture. The Company expects
this effort to continue through 1996 with the anticipated initial
release of the integrated applications being made generally
available in late 1994 or early 1995 with subsequent releases to
follow. CYBERTEK has a customer base of over 100 companies.
In 1987, the Company began to place more emphasis on the
processing services market for both the private and public sectors,
and today provides a full range of outsourcing services. These
services can range from processing a single line of business to
assuming responsibility for complete systems maintenance,
facilities management and processing and administration support of
an insurance company's business. The Company provides outsourcing
services from data centers located in North America, Europe and
Australia.
During the early stages of the Company's development, a major
portion of the Company's revenues were derived from systems
licensing activities (43.7% in 1985). As the Company has continued
to enhance its position as a provider of a full range of business
solutions, based upon automation, administration support and
information, to the insurance industry, the portion of the
Company's revenues derived from systems licensing activities has
steadily declined, representing 16.5% of total revenues in 1993.
The remainder of the Company's revenues are derived primarily from
automation, administration and information services activities.
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The Company's strategy is to build a larger base of recurring
systems licensing and services revenues. As a result of this
emphasis, initial license charges, that portion of license charges
from systems licensing activities which is generally recognized as
revenue upon execution of a license obligation and delivery of the
product, have continually declined, representing 5.8% of total
revenues in 1993, compared to 16.4% in 1985.
RECENT DEVELOPMENTS
In February 1994, the Company's independent accountants
completed a special audit of the Company's financial statements as
of and for the six months ended June 30, 1993. As a result of that
audit, certain of the Company's financial statements were restated.
See Note 2 of Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations. Coopers & Lybrand has been engaged to
perform an audit of the Company's 1992 financial statements, and
Ernst & Young has agreed to perform procedures to determine whether
it can reissue its audit reports on the 1990 and 1991 financial
statements.
SEGMENT INFORMATION
The Company operates in one business segment, the providing of
computer software systems and automation and administration support
and information services to the insurance industry.
The majority of the Company's revenues are generated from
products and services provided in the United States and no one
customer accounted for more than 10% of revenues during the year
ended December 31, 1993. The following table illustrates the
relative percentages of total revenue represented by the Company's
products and services in the United States and foreign countries
for 1993.
Percent of
Revenue
Year ended
December 31,
1993
United States................. 87.1%
Canada........................ 4.3%
Europe........................ 5.5%
Asia.......................... 3.1%
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PRODUCTS AND SERVICES
The Company offers over 135 business solutions, which include
more than 90 application software systems and a wide range of
outsourcing, professional and information services, designed to
meet the needs of the property and casualty, life and health
insurance markets.
The Company's primary software systems currently run on mid-
range and large scale IBM computers or IBM compatible equipment
utilizing most IBM operating systems. In addition, a number of
systems run on intelligent workstations.
Most customers licensing the Company's software systems also
use the Company's professional services, which are normally
provided under separate agreements. Customers using the Company's
information services do not necessarily license the Company's
software products. Over 100 customers currently utilize the
Company's various outsourcing services, which are provided under
contracts having terms up to fifteen years.
The Company obtains from third parties licenses for a wide
range of software products and services which are used in varying
degrees in developing and enhancing the Company's products and in
performing services for its customers. Such products range from
mainframe operating systems to graphical user interfaces. Although
such products licensed from third parties are important to the
products and services offered by the Company, there is generally no
single product licensed from a third party without which the
Company's development of its products and performing of its
services could not continue.
SOFTWARE PRODUCTS
The Company's software products automate most insurance
processing functions, including various underwriting, claims
accounting, financial and regulatory reporting and cash management
functions. The systems have been designed with the intent to permit
ease of use and provide flexibility in adapting them to a
particular customer's requirements and modifying them as business
conditions change. The systems are modular in structure and
facilitate the application of updates and enhancements and
interfacing and integration of the different systems. Most of the
systems will operate on either a stand-alone basis or in
conjunction with each other.
Series III technologies serve as a platform for the Company's
systems for the property and casualty, life and health insurance
markets. A primary objective of Series III is the full
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integration of the information and data gathering, processing,
underwriting, claims handling and reporting processes for providers
of insurance to create a cooperative processing environment where
insurance professionals, using advanced intelligent workstations,
can process multiple tasks concurrently with minimal clerical
support and data entry. The foundation of Series III is the
Company's Integrated Application Platform ("IAP"), more fully
described below. Series III uses advanced and emerging
technologies such as relational data bases, graphical user
interfaces and imaging. Series III technologies allow system
upgrades, additions and interfaces to be implemented much quicker
and at reduced costs, with a minimum of disruption to ongoing
operations. Using relational data bases and cooperative
processing between hardware platforms and allowing access to data
from multiple sources through advanced networks, Series III is
intended to provide a seamless flow of information between
insurance agents, branch offices and the home office of insurance
companies.
The Company relies upon contract, intellectual property,
copyright and other bodies of law to protect its products as trade
secrets and confidential proprietary information. The Company's
agreements with its customers and prospective customers prohibit
disclosure of the Company's trade secret and proprietary
information to third parties without the consent of the Company and
generally restrict their use of the Company's products to only
their operations. The Company also informs its employees of the
proprietary nature of its products and obtains from them an
agreement not to disclose proprietary information. Notwithstanding
those restrictions, it may be possible for competitors of the
Company to obtain unauthorized access to the Company's proprietary
information. The Company also has registered service marks or
pending applications for registration for many of its software
products.
The following is a detailed description of current principal
software products:
POLICY MANAGEMENT SYSTEM ("PMS") - PMS, the Company's most
comprehensive and widely used mainframe system, performs the
functions essential to all phases of the management of property and
casualty insurance policies. This system, which supports business
written by property and casualty insurance companies, is designed
to reduce paper work dependency, facilitate rapid access to
information and improve service. Principal automated functions
performed by PMS are policy rating and premium calculation, policy
printing, renewal and endorsement generation and certain
reinsurance processing.
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POINT - An integrated midrange property and casualty
processing system designed to run on IBM's AS/400 computer,
providing the basic system functions (including policy, claims,
financial and reinsurance management and reporting) used by
property and casualty insurance companies with annual direct
written premiums of up to approximately $150 million.
BILLING AND COLLECTION MANAGEMENT SYSTEM ("BCMS") - An on-
line system that automates management of property and casualty
insurance billing and collections for single, consolidated, third
party, agency, and account current disciplines. Personal and
commercial lines are supported and may be collected and paid
through on-line cash entry, lockbox, optical character readers
(OCR), or electronic funds transfer (EFT) methods. The system
features user defined pay plans, finance and service charges and
delinquency plans and supports payroll deduction plans.
BILLING AND COLLECTION WORKSTATION ("BCWS") - Client/server
solution that automates the management of billing and collections
for property and casualty, individual life and health, and group
life and health lines of business. Multiple billing disciplines
(including single policy, account bill, third party, agency, and
account current) and collection methods (including cash entry,
lockbox, OCR, EFT, and credit card) are designed to offer enhanced
flexibility to the user.
INSURANCE MANAGEMENT INFORMATION SYSTEM ("IMIS") - A
management information and reporting system that provides premium,
loss experience, reinsurance and actuarial reporting to satisfy
insurance company management and statutory reporting requirements
for property and casualty insurance companies.
MANAGEMENT INFORMATION SYSTEMS ("MIS") - A client/server
system that provides data generation and manipulation capabilities
to fulfill the management, annual statement, actuarial, bureau, and
other reporting requirements of a broad range of insurance
companies.
MANAGEMENT WORKSTATION ("MWS") - An intelligent workstation
based system designed for use in conjunction with MIS to capture
and display management information.
MANAGEMENT DECISION SUPPORT ("MDS") - Workstation tool that
provides insurance professionals with the capability to design and
run queries against information contained in relational databases
and allows on-line access to current and historical versions of
various standard reports.
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MICRO MAINFRAME SYSTEM ("MMS") - An intelligent workstation
based system designed to meet the policy processing and rating
needs of property and casualty insurance companies. MMS emulates
mainframe functions on a workstation allowing the maintenance of
software rating applications that run in either a mainframe or
workstation environment.
UNDERWRITING WORKSTATION ("UWS") - Client/server solution that
stores and manages policy information in a central location to
improve the accuracy and consistency of underwriting decisions.
Automates rate, quote, and policy issuance, eliminating the need
for manual intervention.
UNDERWRITING MANAGEMENT SYSTEM ("UMS") - An integrated system
providing the capability to store and manage policy information in
a central location to facilitate the accuracy and consistency of
underwriting decisions.
CLAIMS HANDLING SYSTEM ("CHS") - An intelligent workstation
based system which automates most claims handling related functions
of property and casualty insurance companies, including claims
payments, and facilitates the uploading and downloading of claims
information between host and remote computers.
CLAIMS WORKSTATION ("CWS") - Client/server system that
automates the claims handling processes, as well as providing
access to the various claims functions and information in a
distributed environment.
PRODUCT DEVELOPMENT SUPPORT SYSTEM ("PDSS") - Client/server
system which facilitates and expedites the development of new and
modification of existing life and health insurance products by
centralizing product rules and information into a building block
format for easy, timely access and manipulation. Once product
rules and information are input, they can be used for a number of
different products.
HEALTH ENTERPRISE SOLUTION ("HES") - A comprehensive series
of systems designed for the administration and management of most
indemnity and managed care health products. Functions supported
include point of service, capitation and a full array of other
managed care requirements. HES includes the ADMIN, and CAPS as
sub-systems.
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CLAIMS ADMINISTRATION AND PAYMENT SYSTEM ("CAPS") - A claims
administration and payment system with advanced capabilities
supporting the cost management and extensive data collection needs
of most health insurers. CAPS is utilized primarily by large
health insurance companies and Blue Cross and Blue Shield
organizations.
CLAIMS ADMINISTRATION SYSTEM ("CAS II") - An on-line immediate
update claims system that supports cost management programs, such
as Preferred Provider Organizations, precertifications and second
surgical opinions for medium-sized insurance companies or self-
administered clients.
GROUP ADMINISTRATION AND BILLING SYSTEM ("ADMIN") - A group
health insurance billing and administration system which automates
and integrates membership, premium calculation, billing and
collection, receivables, arrears and information management. This
product is used primarily by large health insurance companies and
Blue Cross and Blue Shield organizations.
PROVIDER INFORMATION SYSTEMS ("PIMS") - A relational database
provider information solution that retains information on
demographics and pricing solutions in order to administer HMO and
managed care business requirements.
PMSO AUBEN-UND INNENDIENST WORKSTATION ("AIWS") - A single use
interface which allows users to support the sale of life, health,
accident, and property insurance in Europe. AIWS is an all lines
quote, offer and application system and provides agents with a
client system for acquisition data and detailed policy information.
Based on OS/2, AIWS can operate in stand-alone or local area
network environments and can communicate with administration
systems.
AGENCY WORKSTATION-THE BUNDLE ("AWS") - A micro-based agency
system that provides personal and commercial lines rating, flood
rating, marketing functions and access to Motor Vehicle Reports.
ADVANCED COMMUNICATIONS ACCESS ("ACA") - A Series II genesis
bridge between application systems that interfaces IBM mainframe-
based company systems with mini- and micro-based systems. ACA
provides communications, data translation, and routing
capabilities, and supports ACORD and SCIO standards for several
lines of business.
PRIVATE LIFE INSURANCE SYSTEM ("PLIS") - European automatic
user-controlled computer system for processing of individual life
insurance policies which covers all functions in the production of
Individual Life Insurance and Pension Plans including: signing of
new policies, policy endorsements, reimbursements, premium
payments, simulation and statistics and case processing.
AUTOMATED INFORMATION SYSTEM ("AIS") - An integrated
information order, delivery, evaluation, and management platform
featuring a mainframe database that can be accessed by terminals or
intelligent workstations via cooperative processing. AIS allows
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users to access information designed to facilitate the insurance
underwriting and claims settlement process from multiple vendors.
CLIENT INFORMATION SYSTEM ("CIS") - DB/2-based mainframe
system which serves as a common repository of information relating
to an insurance company's clients and provides an index to other
corporate data. CIS bridges computer systems, regardless of the
software product and vendor, and displays various business
relationships that exist between the client and the insurance
company.
CLIENT INFORMATION WORKSTATION ("CIWS") - Client/server
solution that automates the management of information about a
person, company, prospect or provider who has a relationship with
an insurance company.
WORK IN PROCESS ("WIP") - WIP facilitates the management,
including tracking, assigning, reassigning and controlling, of
various tasks generated in an insurance company environment.
CORPORATE INVESTMENT MANAGEMENT SYSTEMS ("CIMS") - A series of
investment systems designed for managing complex investment
portfolios which handles most types of securities and includes
portfolio segmentation, asset valuation and complete accounting
control capabilities. These systems, which will operate on a
stand-alone basis or in conjunction with each other, may be used by
all types of insurance companies.
FINANCIAL MANAGEMENT SYSTEM ("FMS") - An integrated
accounting and financial reporting system which includes general
ledger and budgeting capabilities, distribution of income and
expense data by categories and the preparation of a variety of
financial and accounting reports.
INTEGRATED APPLICATION PLATFORM ("IAP") - A technical
platform which, using cooperative processing technologies, provides
the capability to develop applications and link software systems,
whether they be those of the Company or another party. Includes
data models, process models and other Series III architecture
foundations.
CK4/VS - An advanced administration system that provides
real-time processing for advanced or traditional life, annuity and
health insurance products. CK4/VS' exclusive Product Line
Architecture allows the user to define unique, competitive products
without costly modifications. CK4/VS offers fast product
introduction, increased productivity and strong agent and
policyholder service because of its real-time processing and
communication structure.
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CK4 WORKSTATION ADVISOR - Allows the Personal Computer (PC) to
be utilized to provide an intelligent administrative workstation
for mainframe and client/server based applications. CK4
Workstation Advisor acts as a PC-based "front-end" to mainframe-
based applications with pre-programmed transactions, on-line user
documentation and function help at the data element level. A
scripting facility allows business processes to be re-engineered to
improve productivity and enhance customer service.
CK4 PLAN ADVISOR - A PC-based system which utilizes expert
system technology to provide an efficient method of designing,
developing and introducing new products. CK4 Plan Advisor creates
reference files and related user table entries required to support
a new plan or to convert an existing plan to CK4/VS. CK4 Plan
Advisor eliminates the need for extensive insurance systems
knowledge normally required to establish the files and tables by
asking a series of easy to understand questions, leading the user
through a selection process of the required plan specifics, table
updates and premium rates.
SALESPRO - An integrated sales illustration system used by
agents, which produces advanced sales illustrations for products
like universal life, variable universal life, interest sensitive
life, whole life and annuities. Options for split dollar,
comparisons, executive bonus plans, and deferred compensation are
also available.
ELECTRONIC POLICY ISSUE - Takes data compiled in the SalesPro
proposal and transmits it to the home office. This system provides
the customer with the option of handling the entire issuing
process, including printing the application and policy form, or,
simply transmitting the policy to the home office mainframe for
review and approval.
FIELD LINK - Provides communications and data linkage to
connect their remote sales force with home office databases. Field
Link expedites policy issue and delivery by making up-to-the-minute
information available to both the agent and the home office via the
agent's PC. Policy data may be held solely at the mainframe, or
may be down-loaded to a database at the PC that contains selected
policy data. Queries may then be directed to either the PC
database or the mainframe, as needed.
CK4 DOCUMENT MANAGER - Is designed to utilize PCs with a Local
Area Network (LAN) within a company to provide efficient document
management software for incoming and outgoing faxes and scanned
documents within a company. Instead of information arriving on a
fax machine, a PC-based fax server accepts incoming faxes
electronically and routes or distributes the documents to users
both internally or externally. Additionally, CK4 Document Manager
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accommodates the integration of electronic mail and scanned
documents to provide a comprehensive document management system.
CYBERSCRIBE V - An automated correspondence system for the PC
that can draw policy or client information from databases. The
clients' existing word processing package is then used to create
letter text which CYBERSCRIBE V merges with the database
information.
MICRO TO MAINFRAME COMMUNICATION ARCHITECTURE (MMCA) -
Provides the telecommunications framework that allows connectivity
from PCs to host mainframe computers, with no changes to
applications programs, in a variety of environments. MMCA is a
connectivity tool that gives a system the flexibility to adapt to
new data communications hardware and software.
NEW BUSINESS EXPEDITOR - Integrates several existing systems
to automate the processing of a new policy application, including
the initial sales proposal, policy submission, underwriting,
information gathering, and final policy issuance. New Business
Expeditor integrates with CK4/VS and other individual life
insurance administrative systems.
CK4 UNDERWRITING ADVISOR - Uses the COGENSYS Judgment
Processor combined with Auto/Issue and an application entry
component to automate the underwriting process. The Judgment
Processor uses case-based reasoning to make decisions according to
the parameters taught to the system by an experienced life
insurance underwriter.
CK4 INFORMATION EXPEDITOR - Uses electronic data interchange
to manage the information coming into the home office from third
party information providers. Reports from information providers
such as blood test results and inspection reports are receipted and
matched with the application file electronically.
COGENSYS SOFTWARE:
THE JUDGMENT PROCESSOR - A software system designed to emulate
the decision-making logic of an effective human expert within
a specific area of intellectual activity. The Judgment
Processor "learns" the logic of its mentor by observing real
examples of the mentor's decision making process as the mentor
continues to work at day-to-day tasks.
THE INFORMATION MANAGER - A front-end system with the ability
to create and manipulate electronic versions of forms which
are used in conjunction with the Judgment Processor. It lets
the expert (mentor) define data entry forms, calculations,
report generation functions and data communications with
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minimal assistance from a programmer. It includes a flexible
text analysis and evaluation system that allows the
translation of free-form textual data into a computer-
recognizable, pre-defined format. The system is flexible and
multilingual. It provides an automatic interface between
spreadsheets and existing microcomputer and mainframe
databases within a customer's institution.
THE APPLICATION MANAGER - A scheduling and tracking system
that manages the activities of the Judgment Processor and
Information Manager. It integrates the entire COGENSYS
Judgment Software line of products and provides query and
management reports of the entire process.
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SERVICES
The following is a description of the Company's principal
services offerings:
OUTSOURCING SERVICES - The Company offers comprehensive
outsourcing services from its data centers located in North
America, Europe and Australia. These services range from providing
processing capabilities for unique, highly regulated lines of
business such as Massachusetts automobile, Texas personal lines and
automobile assigned risk plans; to providing complete processing
capabilities for all or most of a customer's business by making
available software systems licensed from the Company on a remote
basis; to assuming complete systems management, processing and
administration support responsibilities for a customer, including
complete policyholder services and claims support.
INFORMATION SERVICES - The Company offers a wide range of
information services which are packaged to facilitate efficient
review and use and may be ordered and received on an automated
basis through the Company's nationwide telecommunications network
using the Company's database products. These information services,
which are designed to assist insurance professionals in making
better decisions about risk selection, pricing and claims
settlement, currently include motor vehicle reports (driving
record), undisclosed driver information, driver mileage
verification, claims histories, credit reports and histories,
property inspection and valuation reports, property claims
estimating, premium audits, physician reports and medical
histories.
PROFESSIONAL SERVICES - In addition to the services described
above, the Company offers a full range of professional services to
assist customers in attaining the most effective use of their
systems. These services include systems implementation and
integration assistance, consulting, education and project planning.
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MARKETING AND CUSTOMERS
The Company markets its products and services to several
thousand property and casualty insurance companies, life insurance
companies and health insurance organizations and independent agents
and adjusters. In addition, the Company offers its software
products and automation and administration support services in 24
foreign countries. At December 31, 1993, the Company was
providing its information services to more than 9,000 insurance
companies, agents and adjusters and had a total of over 3,000
software systems licenses in force.
The Company markets its products and services through a staff
of approximately 200 employees, including salesmen and marketing
support personnel, most of whom are specialists in the insurance
industry and data processing. The Company's marketing force works
extensively with each prospective customer, analyzing its specific
requirements. Consequently, this process may extend over several
months for a prospective customer looking for a major automation,
administration support or information solution.
In addition to its own software products, the Company markets
certain software products of other parties to its customers.
Typically, these products are designed to perform noninsurance
functions or to improve the control and productivity of computer
resources.
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LICENSING
The Company's revenues are generated primarily by licensing to
customers standardized insurance software systems and providing
automation, administrative and information services to the
insurance industry.
Software systems are licensed under the terms of substantially
standard nonexclusive and nontransferable license agreements, which
generally have a noncancelable minimum term of six years and
provide for an initial license charge and a monthly license charge.
The initial license charge grants a right to use the software
system available at the time the license is signed. The monthly
license charge provides access to Maintenance, Enhancements and
Services Availability ("MESA"). Under the maintenance provisions
of MESA, the Company provides telephone support and error
correction to current versions of licensed systems. Under the
enhancement provisions of MESA, the Company will provide any
additions or modifications to the licensed systems, which the
Company may deliver from time to time to licensees of those systems
if and when they become generally available. Services availability
allows customers access to professional services, other than
maintenance and enhancements, which are provided under separate
arrangements during the MESA term.
The Company provides professional support services, including
systems implementation and integration assistance and consulting
and educational services, which are available under services
agreements and charged for separately. These services are
generally provided under time and material contracts and in some
circumstances under fixed price arrangements.
The Company also offers information and outsourcing services
ranging from making available software licensed from the Company on
a remote processing basis from the Company's data centers, to
automated information services through the Company's North America
telecommunications network using the Company's database products.
Outsourcing services are typically provided under contracts having
terms from three to ten years.
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COMPETITION
The computer software and services industry is highly
competitive. Based upon its knowledge of the industry, the Company
believes it is a leading provider of comprehensive insurance
software systems and automation and administration support and
information services to the insurance industry. Insurers which
internally develop systems similar to those of the Company, along
with their affiliates, are not likely to become major customers of
the Company for software. There are also a number of independent
companies who offer software systems which perform certain, but not
all of the functions performed by the Company's systems.
There are a number of larger companies, including computer
manufacturers, computer service and software companies and
insurance companies, that have greater financial resources than the
Company and the technological ability to develop software products
similar to those offered by the Company. There are also a number
of companies that provide information services similar to those
provided by the Company to the insurance industry. These
companies, especially the larger ones, present a significant
competitive challenge to the Company's information services
business.
The Company competes on the basis of its service, price,
system functionality and technological advances. However, the
Company believes that the most important considerations for
potential consumers of its products and services are product
capability, ease of installation and use, reliability and quality
of technical support, documentation and training, integration of
the products and services capabilities and the experience and
financial resources of the Company.
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PRODUCT DEVELOPMENT
The history of the computer software and services industry has
seen rapid changes in hardware and software technology. These
changes require the Company periodically to modify and enhance its
product offerings in an effort to accommodate changes to, and to
insure compatibility with, the latest hardware and software used by
its customers. The Company continues to upgrade its products and
add new features to meet the changing needs of its customers.
An example of the Company's continuing product development
efforts to ensure that it is in a position to meet the growing
automation needs of the insurance industry is the Company's new
generation of systems, Series III (see Products and Services,
Software Products). The Company's efforts on Series III development
have been further enhanced by IBM, pursuant to the Development and
Marketing Agreement between the Company and IBM, providing the
Company with certain machines, programs and services to assist in
the continuance of the Company's conversion of its major insurance
industry applications software to client/server/host architecture
and the development of other insurance industry applications
software.
Although development efforts for the full release of Series
III for the property and casualty insurance industry will continue,
major components of Series III have been delivered since
development began in 1987.
While the Company intends to continue to develop applications
for IBM architecture platforms, it also intends to support open
systems. The first agreement to support open systems development
is with NCR Corporation ("NCR"), an AT&T subsidiary. NCR, now
known as AT&T Global Information Solutions ("AT&T Global") and the
Company will jointly market the Company's Series III systems
worldwide to insurance companies implementing AT&T's UNIX-based
solutions. AT&T Global has provided a full range of scalable
platforms to the Company. In addition, AT&T Global has made a
commitment to support the marketing of the Series III software and
to participate in the funding of the conversion of the Series III
host-associated software to AT&T Global's UNIX-based platforms.
AT&T has played a major role in the communications segment of the
insurance industry and has a long-standing relationship with the
Company. AT&T's acquisition of NCR, a leader in open systems
computing, allows the Company to respond to these trends and meet
the broader needs of the insurance industry. The agreement is
initially focused on the property and casualty sector of the
insurance industry.
In an effort to maintain and strengthen its competitive
position, the Company expends substantial amounts on internal
product development. Expenditures for internal product development,
18
<PAGE> 19
which were capitalized, were $24.7 million in 1993, representing
5.5% of total revenues. In addition to its continuing development
efforts, the Company has, in the past several years, expended
significant amounts on business and software product acquisitions
in an effort to expand its product and services offerings and its
presence in the marketplace. In 1993, the Company acquired
software products with a cost basis of $25.1 million, representing
5.5% of total revenues. The Company intends to continue to expand
its product and services offerings through internal development and
acquisitions.
ITEM 2. PROPERTIES
The Company owns its Columbia, South Carolina, headquarters
complex and 145 acres of land on which the facility is located. In
early 1993, the Company completed construction of a 176,000 square
foot addition to its corporate headquarters costing $16,200,000.
The Company leases space for its regional and branch offices under
various leases.
The Company, through its data centers located in North
America, Europe and Australia, utilizes 12 mainframe computers. All
computers are owned or held under long-term leases. In total, these
computers have 5,232 megabytes of memory and are capable of
processing approximately 621.6 million instructions per second.
The Company is currently utilizing 75% to 80% of this capacity.
ITEM 3. LEGAL PROCEEDINGS
In April 1993, litigation was commenced against the Company
and certain of its present and former officers and directors in the
United States District Court for the District of South Carolina,
Columbia Division. In the litigation, which purports to be a class
action on behalf of purchasers of the Company's common stock
between March 18, 1992 and July 8, 1993, the plaintiffs allege that
the Company failed to prepare its financial statements in
accordance with generally accepted accounting principles and
omitted to disclose certain information regarding, among other
things, its business and prospects in violation of the Federal
securities laws, the South Carolina Code and common law. The
Company believes it has meritorious defenses to the claims and is
vigorously defending the litigation. The Company is unable to
predict the outcome or the potential financial impact of this
litigation.
In June 1993, the Securities and Exchange Commission ("SEC")
commenced a formal investigation into possible violations of the
19
<PAGE> 20
Federal securities laws in connection with the Company's public
reports and financial statements, as well as trading in the
Company's securities. The Company is cooperating with the SEC in
connection with the investigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
20
<PAGE> 21
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock
Exchange, symbol PMS. The Company has never paid or declared a
cash dividend on its common stock. The following table sets forth
for the calendar periods indicated the high and low market prices
for the Company's common stock.
1993
High Low
First Quarter............................. $87 1/4 $74 1/2
Second Quarter............................ 86 1/4 32 7/8
Third Quarter............................. 36 3/4 21 5/8
Fourth Quarter............................ 31 3/8 22 1/4
1992
High Low
First Quarter............................. $73 $63
Second Quarter............................ 70 5/8 59 3/4
Third Quarter............................. 76 1/2 62 5/8
Fourth Quarter............................ 83 1/2 71 1/2
Title of Class
Common Stock, $.01 par value
Number of Record Holders as of March 11, 1994
1,584
21
<PAGE> 22
ITEM 6. SELECTED FINANCIAL DATA
Results of Operations 1993
(In Thousands
Except Per Share Data)
Revenues............................ $453,099
Operating loss...................... (77,053)
Investment income, net.............. 10,656
Loss before income tax (benefit).... (66,397)
Net loss............................ $(56,134)
Net loss per share.................. $ (2.46)
(Restated)
Financial Condition 1993 1992
(In Thousands)
Cash and equivalents and
marketable securities....... $156,772 $238,521
Working capital............... 206,756 285,980
Total assets.................. 659,803 708,867
Long-term debt................ 5,655 6,001
Total liabilities............. 182,831 129,791
Stockholders' equity.......... 476,972 579,076
22
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
DUE TO THE UNAVAILABILITY OF FINANCIAL INFORMATION FOR THE
YEARS ENDED DECEMBER 31, 1992 and 1991, THE COMPANY IS CURRENTLY
UNABLE TO COMPARE THE RESULTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1993 WITH THE PRIOR PERIODS (See Notes to Consolidated
Financial Statements).
Liquidity and Capital Resources
During the year ended December 31, 1993, the Company generated
cash flow from operations of $80,823,000, $38,876,000 used for
investing activities and $49,801,000 used for financing activities.
Cash and equivalents and marketable securities aggregated
$156,772,000 at December 31, 1993 as compared to $238,521,000 at
December 31, 1992, a net decrease of $81,749,000. The principal
factors affecting such net decrease was the acquisition of CYBERTEK
Corporation in August 1993 for a total consideration of $59,727,000
and the repurchase in April 1993 of 970,668 shares of the Company's
common stock for total consideration of $48,660,000. Other
significant expenditures during the period included: acquisition
of data processing and communications equipment, support software
and office furniture and equipment ($35,832,000); software product
acquisitions and debt and contingency payments relating to past
business acquisitions ($13,629,000); and completion of construction
of additional office and dining facilities at the Company's
corporate headquarters ($2,077,000).
Significant expenditures anticipated for 1994, excluding
business acquisitions, are as follows: acquisition of data
processing and communications equipment, support software and
office furniture, fixtures and equipment ($13,400,000); payments
relating to past business acquisitions ($4,600,000).
In August 1993, the Company completed its previously announced
acquisition of CYBERTEK Corporation for total cash consideration of
$59,727,000. As a result of acquiring CYBERTEK's broad based life
insurance software systems, the Company changed certain development
plans and, accordingly, $1,368,000 of related deferred life
insurance systems' costs were written-off for the year ended
December 31, 1993. The Company is currently enhancing and
integrating the business functions of CYBERTEK products with the
Company's Series III life insurance applications and its Integrated
Application Platform architecture. The Company expects this effort
to continue through 1996 with the anticipated initial release of
the integrated applications being made generally available in late
1994 or early 1995 with subsequent releases to follow. Total
expenditures related to this effort are expected to approximate
$34,000,000, of which $1,300,000 was expended in 1993 and
23
<PAGE> 24
$8,500,000 is anticipated for all of 1994. The Company expects to
generate savings through the closing of CYBERTEK's data center
operations and other cost reductions.
As described more fully below, the Company decided to
restructure its health insurance services business and take a
restructuring charge of $25,189,000 at June 30, 1993. Cash outlays
with respect to the restructuring charges approximated $1,490,000
during the year ended December 31, 1993 and approximately
$15,241,000 and $7,458,000, are anticipated in 1994 and 1995,
respectively. The Company completed the 1993 expenditures,
including the repurchase of its shares and the acquisition for cash
of CYBERTEK Corporation, without incurring any indebtedness.
The Company has historically used the cash generated from
operations for the following: development and acquisition of new
products, acquisition of businesses and repurchase of the Company's
stock. The Company anticipates that 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
needed to accomplish specific objectives in these areas and for
other general corporate purposes.
Results of Operations
Consolidated revenues for the twelve months ended December 31,
1993 were adversely affected by lower than planned revenues from
the Company's health and life insurance services businesses. For
the year, the Company recognized revenues of $33,185,000 and an
operating loss of $16,643,000 from its health insurance services
business, before the effects of certain special charges described
below.
Near the end of the second quarter of 1993, the Company
projected that its annual health insurance services business
revenues would drop by approximately 50% from the revenue recorded
in 1992 to approximately $33,000,000 for all of 1993. The
Company's original forecast for 1993 health insurance systems
annual revenues was approximately $78,000,000. To better
understand both the cause and the anticipated duration of this
decline, the Company then undertook an assessment of the potential
impact on its health insurance services business of proposed health
care legislation, rapidly evolving and significant changes in the
relationship between health care providers and insurers and the
resultant changes in health insurers' software and service needs.
24
<PAGE> 25
As a result of its evaluation, the Company determined that
there was no market demand for many of its health insurance systems
and automation support services, principally those designed for and
suited to traditional health indemnity insurance plans. Near the
end of the second quarter of 1993, it was becoming clear that
significant restructuring of the country's health care system would
occur, whether by government action or economic circumstances, and
consequently, insurers would be unwilling to make commitments for
any significant new systems until the uncertainty regarding the
ultimate outcome of reform was resolved. Furthermore, it seemed
most likely that traditional indemnity plans would not meet the
future needs of most employers and their insurers after such
changes.
After meetings in the second quarter and early third quarter
with its financial advisors, health care professionals and
customers, the Company determined that it did not have some of the
systems to respond to the most likely future initiatives in the
health care insurance industry and that many of the Company's
existing health insurance products, primarily those acquired in
business acquisitions, would require substantial modification or
complete reformation. This determination and the continuing
adverse impact of operating losses in its health insurance services
business led the Company to the conclusion that the current
carrying value of certain assets of the health insurance services
business unit, principally intangibles associated with traditional
health indemnity insurance plan services, was not fully recoverable
through sale or continuing operations.
As a consequence of these factors, the Company recorded, at
June 30, 1993, special impairment and restructuring charges to
reduce the carrying value of certain long-lived identifiable
intangible assets and goodwill and to recognize as a loss the
planned future abandonment of certain facilities and employee
severance and outplacement costs (See Note 13 of Notes to
Consolidated Financial Statements). As part of the Company's non-
cash impairment charges, acquired software amounting to $9,150,000
was written-off. Principal products that supported traditional
health indemnity insurance plans that were written-off included:
(1) a claims administration and payment system; (2) an
administrative system for membership, billing, collections and
receivables; and (3) a provider administration and reimbursement
system. The reduction in annual amortization related to these
software systems is approximately $2,551,000. Additionally, the
Company recorded other non-cash impairment charges to write-off the
carrying value of certain other identifiable intangibles
($6,320,000) and goodwill ($39,420,000) which will result in future
amortization reductions of approximately $3,796,000 on an annual
basis.
25
<PAGE> 26
The Company, as part of its restructuring charges, decided to
downsize its health staff from 437 at June 30, 1993 to
approximately 388 at the end of 1993, with additional reductions in
staff scheduled to take place during 1994. These scheduled
reductions are estimated to reduce compensation and other benefits
cost by approximately $17,500,000 on an annual basis.
The Company, however, will continue to market and invest in
the internal development of its systems for managed care
applications. The Company believes these systems are suited for
larger, managed care plans and other health care payers.
The Company completed its acquisition of CYBERTEK Corporation
on August 24, 1993. CYBERTEK's revenues and net income for the
last full year prior to acquisition were $30,720,000 and
$3,059,000, respectively. For 1993, the Company recognized revenues
of $84,790,000 and an operating loss of $12,941,000 from its life
insurance software, professional and information services business,
which included the results of CYBERTEK since August 24, 1993. Of
the loss, $1,749,000 was attributable to amortization of intangible
assets arising from the CYBERTEK acquisition. Also, the Company's
decision to develop new releases of certain of its life systems
based on the business functions of CYBERTEK software and the
process of integrating CYBERTEK functionality into certain existing
Series III applications, had the effect of significantly reducing
revenues and increasing the operating loss from the life insurance
services business in the short term.
The information services business produced lower than expected
operating profits. The Company is attempting to direct more of its
information services business into database products and life and
health information services, where margins are generally higher.
The Company typically realizes a lower gross margin from
information services than from software products and related
services.
Revenues from total policy management outsourcing services
were adversely affected by the previously announced wind-down of
the New Jersey Market Transition Facility (MTF) project. Prior to
the wind-down of the MTF, annual MTF revenues in 1992 were
approximately $68,380,000. Revenues were $19,730,000 for 1993 as
the project came to an end. The Company was not able to reduce its
operating expenses as quickly as the reduction in revenue occurred
because of ongoing contractual obligations. As a result of an
increased role in servicing additional new contracts with insurance
companies and residual markets, the Company should start to replace
revenues, lost from the New Jersey MTF project, during the first
half of 1994. Margins, however, will be reduced during the early
phases of these contracts due to start-up costs.
26
<PAGE> 27
The Company has identified several states where it can
potentially offer similar total policy management services. After
evaluating the potential operating and economic risks of each
opportunity, the Company will decide whether these services should
be marketed to the appropriate governmental agency. 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 Company, in December 1993, signed one of the largest
outsourcing agreements in its history. The Company contracted to
provide data processing services for Vital Forsikring A.S., a life
insurance company in Bergen, Norway; this contract together with
other outsourcing contract opportunities in Scandinavia, could
generate revenues of up to approximately $150 million over the
seven-year term of the agreement based on expected services
utilization. Additionally, the Company, during the last half of
1993, entered into several significant contracts with property and
casualty and life insurance companies for software licensing and
related implementation and consulting services.
The property and casualty insurance software and services
business achieved increased levels of revenue and operating income,
primarily from licensing activities. This operating income more
than offset the losses in the health and life insurance services
businesses. The commitments by customers for new products was
greater than the Company's anticipation for this business, although
lower in the second half of 1993. Outsourcing services for
property and casualty insurers did not meet expectations due to
several contracts not closing or ramping up as fast as anticipated.
The Company believes that this and the slow down in second half
licensing was largely due to the Company's delay in releasing the
results of its special audit and having available audited financial
statements. The operating profit margin maintained a level similar
to that experienced historically for property and casualty systems
and services.
The Company recorded charges related to early project
terminations, the deductible under the Company's Directors' and
Officers' liability insurance policy in response to shareholder
litigation, cost overruns on certain projects and other charges
arising from the Company's previously disclosed internal
investigation of its accounting practices. These charges totaled
$18,100,000 (after tax $11,200,000).
Effective January 1, 1993, the Company revised its estimate of
the period of future benefit for goodwill and certain other
acquired intangible assets. The effect of this change in
accounting estimate was to increase amortization expense by
$2,626,000 ($.09 per share) during the twelve months ended December
31, 1993. Commencing January 1, 1993, the Company revised the
27
<PAGE> 28
period over which it will amortize its internally developed
software. The effect of this change in estimated life was to
decrease amortization expense by $1,839,000 ($.05 per share) during
the twelve months ended December 31, 1993 . (See Note 1 of Notes
to Consolidated Financial Statements.)
Investment income, net of investment expense and other charges
for the year ended December 31, 1993 was $10,656,000 which included
realized gains on the sale of marketable equity securities of
$3,388,000.
The effective income tax benefit rate (income taxes expressed
as a percentage of pre-tax income) was 15.5% for the year ended
December 31, 1993. The foregoing effective income tax benefit rate
includes the impact of the increase in the highest marginal
corporate tax rate resulting from the enactment of the Omnibus
Budget Reconciliation Act of 1993. The effective tax benefit rate
would have been significantly higher (38.6%) were it not for the
write off of goodwill ($39,420,000) related to the impairment of
the Company's health insurance systems business (See Note 13 of
Notes to Consolidated Financial Statements).
Seasonality and Inflation
The Company's operations have not proven to be significantly
seasonal, although quarterly revenues and net income could be
expected to vary at times. This is attributable principally to the
timing of customers entering into license agreements with the
Company and fluctuations in the amount of certain information
services used by customers, principally during holiday seasons and
periods of severe weather. The Company is unable to control the
timing of these decisions or fluctuations. In order to minimize
the impact of these decisions or fluctuations, the Company's long-
term business strategy is to build a larger base of recurring
systems licensing and services revenues.
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. To the extent permitted by the marketplace for
the Company's products and services, the Company attempts to
recover increases in costs by periodically increasing prices.
Additionally, most of the Company's license agreements and long-
term services agreements provide for annual increases in charges.
License agreements generally provide for increases in monthly
license charges based upon changes in the consumer price index and
customer premium volume. Long-term services agreements generally
provide for annual increases based on the percentage change in the
consumer price index.
28
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial
Statements and Supplementary Data
Page
Report of Independent Accountants........................ 30
Consolidated Financial Statements and Notes:
Consolidated Statement of Operations for the year
ended December 31, 1993............................. 31
Consolidated Balance Sheets as of
December 31, 1993 and 1992.......................... 32
Consolidated Statement of Changes in
Stockholders' Equity for the year ended
December 31, 1993................................... 33
Consolidated Statement of Cash Flows for the
year ended December 31, 1993........................ 34
Notes to Consolidated Financial Statements............. 35
Quarterly Consolidated Results of
Operations............................................. 52
Supplemental Schedules:
Schedule I - Marketable Securities..................... 53
Schedule V - Property and Equipment.................... 54
Schedule VI - Accumulated Depreciation and
Amortization of Property and Equipment.............. 55
Schedule VIII - Valuation and Qualifying Accounts...... 56
Schedule X - Supplementary Income
Statement Information............................... 57
Supplemental schedules other than those listed above are
omitted because of the absence of conditions under which they are
required or because the required information is included in the
consolidated financial statements or in the notes thereto.
29
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Policy Management Systems Corporation
We have audited the accompanying consolidated balance sheets of Policy
Management Systems Corporation and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statement of operations, changes in
stockholders' equity and cash flows for the year ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As further discussed in Note 2 to the consolidated financial statements,
management discovered certain errors in the Company's previously issued
financial statements. Accordingly, the balance sheet as of December 31, 1992
has been restated to reflect the correction of these errors.
In 1993 lawsuits were filed against the Company and certain of its present
and former officers and directors alleging violation of securities laws as well
as negligent misrepresentation. In addition, the Securities and Exchange
Commission is conducting an investigation into possible violations of Federal
securities laws. These issues are further discussed in Note 8 to the
consolidated financial statements. Management cannot predict the ultimate
impact of these actions on the consolidated financial statements. Accordingly,
no provisions have been made in the consolidated financial statements.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Policy
Management Systems Corporation and subsidiaries as of December 31, 1993 and
1992, and the results of their operations and their cash flows for the year
ended December 31, 1993 in conformity with generally accepted accounting
principles.
Atlanta, Georgia Coopers & Lybrand
April 5, 1994
30
<PAGE> 31
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended
December 31, 1993
(In Thousands,
Except Per Share Data)
Revenues:
Licensing..................................... $ 74,664
Services...................................... 378,435
453,099
Costs and Expenses:
Cost of services.............................. 351,411
Selling, general and administrative........... 50,792
Impairment and restructuring charges.......... 80,733
Other operating costs and expenses............ 47,216
530,152
Operating loss.................................. (77,053)
Investment income, net.......................... 10,656
Loss before income tax benefit.................. (66,397)
Income tax benefit.............................. 10,263
Net loss........................................ $(56,134)
Net loss per share.............................. $( 2.46)
Weighted average number of shares............... 22,858
See accompanying notes.
31
<PAGE 32>
<TABLE>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(As Restated)
<CAPTION>
December 31, December 31,
1993 1992
(In Thousands,
Except Share Data)
<S> <C> <C>
Assets
Current assets:
Cash and equivalents..................................................... $ 24,122 $ 31,959
Marketable securities.................................................... 132,650 206,562
Receivables, net of allowance for uncollectible amounts
of $1,817 ($1,630 at 1992)............................................ 92,975 86,684
Income tax receivable.................................................... 18,764 2,891
Deferred income taxes.................................................... 9,491 8,083
Other.................................................................... 9,735 9,659
Total current assets.................................................. 287,737 345,838
Property and equipment..................................................... 139,029 131,696
Receivables................................................................ 4,716 22,252
Goodwill and other intangible assets....................................... 85,969 100,792
Capitalized software costs................................................. 117,513 99,414
Deferred income taxes...................................................... 21,585 2,580
Other...................................................................... 3,254 6,295
Total assets.......................................................... $659,803 $708,867
Liabilities
Current liabilities:
Accounts payable and accrued expenses.................................... $ 42,256 $ 36,151
Accrued restructuring and lease termination costs........................ 9,521 -
Accrued contract termination costs....................................... 2,714 5,030
Current portion of long-term debt........................................ 6,986 3,670
Unearned revenues........................................................ 19,121 11,361
Other.................................................................... 383 3,646
Total current liabilities............................................. 80,981 59,858
Long-term debt............................................................. 5,655 6,001
Deferred income taxes...................................................... 74,151 56,112
Accrued restructuring and lease termination costs.......................... 19,735 -
Other...................................................................... 2,309 7,820
Total liabilities..................................................... 182,831 129,791
Commitments and contingencies (Note 8)
Stockholders' Equity
Special stock, $.01 par value, 5,000,000 shares authorized................. - -
Common stock, $.01 par value, 75,000,000 shares authorized,
22,637,021 shares issued and outstanding (23,524,197 at 1992)........... 226 235
Additional paid-in capital................................................. 262,167 307,906
Retained earnings.......................................................... 216,632 272,766
Foreign currency translation adjustment.................................... (2,053) (1,831)
Total stockholders' equity............................................ 476,972 579,076
Total liabilities and stockholders' equity......................... $659,803 $708,867
<FN>
See accompanying notes.
</TABLE>
32
<PAGE> 33
<TABLE>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Addi- Foreign
tional Currency
Common Paid-In Retained Translation
Stock Capital Earings Adjustment Total
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992
as previously reported.................... $235 $307,906 $267,709 $(1,831) $574,019
Effect of restatement
attributable to prior years............... - - 5,057 - 5,057
Balance, December 31, 1992,
as restated................................ 235 307,906 272,766 (1,831) 579,076
Net loss..................................... - - (56,134) - (56,076)
Stock options exercised (21,777 shares)...... - 1,062 - - 1,062
Repurchase of 970,668 shares of common stock. (10) (48,650) - - (48,660)
Issuance of stock to employee benefit
plan (61,715 shares)....................... 1 1,849 - - 1,850
Foreign currency translation adjustment...... - - - (222) (222)
Balance, December 31, 1993................... $226 $262,167 $216,632 $(2,053) $476,972
<FN>
See accompanying notes.
</TABLE>
33
<PAGE> 34
<TABLE>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Year Ended
December 31, 1993
(In Thousands)
<S> <C>
Operating Activities
Net loss.......................................... $(56,134)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization................... 63,157
Deferred income taxes........................... (2,997)
Gain on sale of marketable securities........... (3,388)
Provision for uncollectible accounts............ 1,768
Impairment charges.............................. 54,890
Changes in assets and liabilities:
Restructuring charges........................... 25,843
Receivables..................................... 19,748
Income tax receivable........................... (15,873)
Accounts payable and accrued expenses........... (1,460)
Income taxes payable........................... 1,327
Other, net........................................ (6,058)
Cash provided by operations.................. 80,823
Investing Activities
Proceeds from sales/maturities of marketable
securities, net.................................. 382,973
Purchases of marketable securities, net........... (296,344)
Acquisition of property and equipment............. (39,272)
Capitalized internal software development costs... (24,698)
Purchased software................................ (4,336)
Proceeds from disposal of property and equipment.. 9,062
Business acquisitions............................. (66,261)
Cash used for investing activities........... (38,876)
Financing Activities
Payments on long-term debt........................ (3,681)
Issuance of common stock under stock
option plans..................................... 690
Issuance of common stock to employee benefit plan. 1,850
Repurchase of outstanding common stock............ (48,660)
Cash used for financing activities........... (49,801)
Effect of exchange rate changes on cash............. 17
Net increase in cash and equivalents................ (7,837)
Cash and equivalents at beginning of period......... 31,959
Cash and equivalents at end of period............... $ 24,122
Noncash Activities
Long-term debt arising from and assumed in
connection with business acquisition............. $ 6,580
Supplemental Information
Interest paid..................................... 1,579
Income taxes paid................................. 13,431
<FN>
See accompanying notes.
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements are prepared on the
basis of generally accepted accounting principles and include the
accounts of the Company and its subsidiaries, all of which are
wholly-owned. All material intercompany balances and transactions
have been eliminated. Certain amounts previously presented in the
consolidated financial statements for prior periods have been
reclassified to conform to current classifications.
Revenue Recognition
The Company's revenues are generated primarily by licensing to
customers standardized insurance software systems and providing
automation and administrative support and information services to
the insurance industry.
Software systems are licensed under the terms of substantially
standard nonexclusive and nontransferable license agreements, which
generally have a noncancelable minimum term of six years and
provide for an initial license charge and a monthly license charge.
The initial license charge, which grants a right to use the
software system currently available at the time the license is
signed, is recognized as revenue upon delivery of the product and
receipt of a signed contractual obligation. The monthly license
charge provides access to Maintenance, Enhancements and Services
Availability ("MESA"). Under the maintenance provisions of MESA,
the Company provides telephone support and error correction to
current versions of licensed systems. Under the enhancement
provisions of MESA, the Company will provide any additions or
modifications to the licensed systems, which the Company may
deliver from time to time to licensees of those systems if and when
they become generally available. The monthly license charge is
recognized as revenue on a monthly basis throughout the term of the
MESA provision of the license agreement. Services availability
allows customers access to professional services, other than
maintenance and enhancements, which are provided under separate
arrangements during the MESA term.
The Company provides professional support services, including
systems implementation and integration assistance and consulting
and educational services, which are available under services
agreements and charged for separately. These services are generally
provided under time and material contracts and in some
circumstances under fixed price arrangements. Under fixed price
contracts, revenue is recognized on the basis of the estimated
percentage of completion of service provided using the cost to cost
method. Changes in estimates to complete and losses, if any, are
recognized in the period in which they are determined.
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The Company also offers information and outsourcing services
ranging from making available software licensed from the Company on
a remote processing basis from the Company's data centers, to
complete systems management, processing, administrative support and
automated information services through the Company's nationwide
telecommunications network using the Company's database products.
Outsourcing services are typically provided under contracts having
terms from three to ten years. Revenues from substantially all
outsourcing and information services are recognized at the time the
service is performed.
Marketable Securities
Interest bearing marketable securities are stated at amortized
cost, which approximates market value. Current marketable equity
securities are stated at the aggregate of lower of cost or market
and a valuation allowance is provided for the excess, if any, of
cost over market. The fair values of marketable securities are
estimated based on quoted market prices for those or similar
investments. Gains or losses on marketable securities are
determined on the specific identification method.
Investment securities with maturities of three months or
less at the time of acquisition are considered cash equivalents.
Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities,"
(FAS 115) was issued in May 1993. FAS 115 addresses the accounting
and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt
securities. FAS 115 is effective for fiscal years beginning after
December 15, 1993; accordingly, the Company will adopt provisions
of FAS 115 on January 1, 1994. Adoption of FAS 115 is not
anticipated to have a material impact on the financial statements
taken as a whole.
Property and Equipment
Property and equipment, including certain equipment acquired
under capital leases and support software acquired for internal
use, are stated at cost less accumulated depreciation and
amortization. Property and equipment are depreciated on a
straight-line basis over their estimated useful lives. Assets
acquired under capital leases are amortized over the term of the
related lease.
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Goodwill and Other Acquired Intangible Assets
Since 1983, the Company has completed 34 business
acquisitions, all of which have been recorded using the purchase
method of accounting. As a result of purchase accounting,
specifically identifiable intangible assets and goodwill are
recorded and amortized over their estimated economic lives or
periods of future benefit. The lives established for these assets
are a composite of many factors which are subject to constant
change because of the nature of the Company's operations. This is
particularly true for goodwill which reflects value attributable to
the going concern nature of acquired businesses, the stability of
their operations, market presence and reputation. Accordingly, the
Company evaluates the continued appropriateness of these lives
based upon the latest available economic factors and circumstances.
Additionally, the Company evaluates the full recoverability of all
long-lived assets including specific intangible assets and goodwill
based upon a comparison of discounted estimated future cash flows
from the related operations with the then corresponding carrying
values of those assets. A rate considered to be commensurate with
the risk involved is used to discount the cash flows.
For all years through December 31, 1992, the Company had
amortized goodwill over an estimated useful life of 25 years. As
a result of its most recent evaluation, the Company has revised its
estimates of the period of future benefit for goodwill.
Consequently, effective January 1, 1993, the Company began to
amortize goodwill over an estimated life of 15 years for goodwill
related to information and computer services company acquisitions
and 10 years for goodwill related to software company acquisitions.
The Company believes these new lives more appropriately reflect the
current economic circumstances for such businesses and the related
period of future benefit. Longer lives will be used for future
business acquisitions only where independent third party studies
support such lives. The effect of this change in accounting
estimate was to increase amortization expense by $2,626,000 ($.09
per share) during the year ended December 31, 1993. Also as part
of this evaluation, the net book value of intangible assets related
to the Company's health insurance services business of $45,740,000,
most of which was goodwill, was written off during the twelve
months ended December 31, 1993 (See Note 13).
Other identifiable purchased intangible assets are being
amortized on a straight-line basis over their estimated period of
benefit ranging from 5 to 10 years.
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Computer Software
In accordance with Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased or Otherwise Marketed" (FAS 86), certain costs incurred in
the internal development of computer software which is to be
licensed to customers and costs of purchased computer software,
consisting primarily of software acquired through business
acquisitions, are capitalized and amortized at the greater of the
amount computed using (i) the ratio that current gross revenues for
a product bear to the total of current and anticipated future gross
revenues of that product or (ii) the straight-line method over the
remaining estimated economic life of the product including the
period being reported on. Costs which are capitalized as part of
internally developed software primarily include direct and indirect
costs associated with payroll, computer time and allocable
depreciation and other direct allocable costs, among others. All
costs incurred prior to the establishment of technological
feasibility have been expensed as research and development costs
during the periods in which they were incurred and amounted to
$2,735,000 during the year ended December 31, 1993.
As part of the Company's restatement of its prior years'
retained earnings (See Note 2), additional software costs amounting
to $30,487,000 ($18,863,000 net of tax) were capitalized as of
December 31, 1992. A detailed study of all software-related
expenditures dating back to December 15, 1988 indicated significant
misallocation and overexpensing of development costs. This error
relating to under-capitalization of software development costs was
due to certain weaknesses in the Company's then existing cost
accounting and accumulation system which did not capture all
appropriately capitalizable costs as defined in FAS 86. The
additional capitalized costs include both elements of direct and
indirect costs as described above as required by FAS 86. All of
the additional capitalized software costs are related to the
Company's property and casualty business software systems.
Additional development costs relating to the Company's internally
developed Series III life systems were not capitalized because all
the conditions of FAS 86 were not met. No significant software
development costs were capitalized for the Company's health
insurance business since any such costs would have been written off
as part of the impairment and restructuring charges (See Note 13).
The additional capitalized software costs are reflected in restated
balances (See Note 7).
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For all years through December 31, 1992, the Company amortized
internally developed software on a straight-line basis over an
estimated useful life of four years. The Company's recent
experience indicates that an estimated useful life of five years
would more appropriately reflect the actual useful life of such
software. Accordingly, commencing January 1, 1993, the Company
began to amortize such software on a straight-line basis over five
years. Amortization charged to expense was $22,391,000 for the
year ended December 31, 1993; as a result of the change in
estimated life described above, amortization expense was $1,839,000
($.05 per share) less than it would have been using the previous
four year life.
Income Taxes
The provision for income taxes and corresponding balance sheet
accounts are determined in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS
109). Under FAS 109, the deferred tax liabilities and assets are
determined based on temporary differences between the bases of
certain assets and liabilities for income tax and financial
reporting purposes. These differences are primarily attributable to
differences in the recognition of depreciation and amortization of
property, equipment and intangible assets and certain software
development costs and revenues.
Net Income Per Share
Net income per share is based upon the weighted average number
of common shares outstanding. Outstanding stock options are common
stock equivalents, but are excluded from the computation of net
income per share since their dilutive effect is not material.
Foreign Currency Translation
The local currencies of the Company's foreign subsidiaries
have been determined to be the functional currencies. Assets and
liabilities of foreign subsidiaries are translated into United
States dollars at current exchange rates and resulting translation
adjustments are included as a separate component of stockholders'
equity. Revenue and expense accounts of these operations are
translated at average exchange rates prevailing during the year.
Transaction gains and losses, which were not material, are included
in the results of operations of the period in which they occur.
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NOTE 2. RESTATEMENT OF PRIOR YEARS' RESULTS OF OPERATIONS
In August 1993, the Company engaged independent accountants to
conduct a special audit of the Company's consolidated financial
statements as of and for the six months ended June 30, 1993. As a
result of this audit, the Company determined that retained earnings
previously reported as of December 31, 1992 required adjustment.
These adjustments were due to errors in the application of
accounting principles and subsequent discovery of facts existing at
February 26, 1993, the date of the predecessor auditor's report.
The Company is in the process of determining the specific
prior period or periods affected by the adjustments. Once
determined, the Company intends to restate the financial statements
for such periods. The components, net of related tax effects, of
the cumulative adjustment to retained earnings as of December 31,
1992 are as follows:
Increase (Decrease)
to Retained Earnings
(In Thousands)
Elimination of revenue related to
a contingent contract that
was cancelled........................... $ (820)
Deferral of revenues due to changes
in timing of revenue recognition........ (8,408)
Reduction of expenses due to
capitalization of certain software
costs (See Note 1)...................... 18,863
Recognition of expenses due to changes
in timing of expense accrual............ (1,622)
Reserve for losses on certain
services contracts...................... (5,536)
Reduction of current income tax
liability due to previously
unrecorded tax credits.................. 2,580
Cumulative retained earnings
adjustment as of December 31, 1992...... $ 5,057
Deferral of revenues due to changes in timing of revenue
recognition includes situations where (i) there were errors in
accounting for contracts under the percentage of completion method;
(ii) there were delays in receiving signed contracts beyond
December 31, 1992; (iii) customers prepaid or were billed for
services performed in subsequent periods or where refunds or
provisions for credit were contractually required and (iv) the
Company had future delivery obligations under certain contracts.
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NOTE 3. ACQUISITION
On August 24, 1993, the Company consummated the acquisition of
all of the outstanding stock of CYBERTEK Corporation ("CYBERTEK")
for an aggregate consideration of $59,727,000 in cash. CYBERTEK
has over 20 years of experience in serving the data processing
needs of the life insurance industry by designing and delivering a
combination of data processing services, consulting services and
software to enable its customers to manage their business.
The acquisition has been recorded using the purchase method of
accounting. Accordingly, the consolidated statements of operations
of the Company for the year ended December 31, 1993 include the
results of operations of CYBERTEK only from the date of acquisition
through period end. The impact of the acquisition on the
consolidated results of operations for the year ended December 31,
1993 was not significant. The cost of acquisition was determined,
and assigned to assets acquired, as follows:
(In Thousands)
Total consideration paid............... $58,152
Direct costs of acquisition............ 1,575
Total cost to be assigned to net
assets acquired...................... 59,727
Add - Liabilities assumed.............. 13,876
Less - Cost assigned to tangible and
identifiable intangible assets
acquired (including $10,623
purchased software cost)............. 47,338
Cost assigned to goodwill.............. $26,265
NOTE 4. MARKETABLE SECURITIES
Marketable securities consist of the following:
December 31,
1993 1992
(In Thousands)
Municipal bonds and notes.............. $127,505 $197,115
U.S. Government and Agency securities.. 4,795 9,072
Equity securities...................... 350 375
Total.............................. $132,650 $206,562
Market value........................... $134,983 $208,334
Investment income is shown net of interest expense and other
charges of $2,641,000 and includes a realized gain on marketable
securities of $3,388,000 for the year ended December 31, 1993.
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NOTE 5. PROPERTY AND EQUIPMENT
<TABLE>
A summary of property and equipment is as follows:
<CAPTION>
Estimated December 31,
Useful Life 1993 1992
(Years) (In Thousands)
<S> <C> <C> <C>
Cost:
Land...................................... - $ 2,557 $ 2,557
Buildings and improvements................ 10-40 59,618 41,820
Construction in progress.................. - - 15,721
Leasehold improvements.................... 1-10 3,293 3,351
Office furniture, fixtures and equipment.. 5-15 37,630 30,370
Data processing and communications
equipment and support software......... 2-5 134,552 116,135
Other..................................... 3-5 4,002 5,472
241,652 215,426
Less: Accumulated depreciation
and amortization........................ (102,623) (83,730)
Property and equipment..................... $139,029 $131,696
</TABLE>
In mid-1991, the Company began construction of a 176,000
square foot addition to its corporate headquarters which was
completed in early 1993 at a total cost of $16,200,000.
Depreciation and amortization charged to expense was $27,184,000
for the year ended December 31, 1993.
NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS
A summary of goodwill and other intangible assets is as
follows:
December 31,
1993 1992
(In Thousands)
Goodwill.............................. $ 76,500 $ 90,468
Customer lists........................ 27,010 25,905
Covenants not to compete.............. 4,956 4,486
Other................................. 3,653 9,268
112,119 130,127
Less: Accumulated amortization....... (26,150) (29,335)
$ 85,969 $100,792
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Amortization charged to expense was $9,274,000 for the year
ended December 31, 1993. See Note 13 for a discussion of the
write-off of certain impaired goodwill and other intangible assets.
NOTE 7. CAPITALIZED SOFTWARE COSTS
A summary of capitalized software costs is as follows:
December 31,
1993 1992
(In Thousands)
Internally developed software......... $124,326 $ 99,628
Purchased software.................... 47,655 41,014
171,981 140,642
Less: Accumulated amortization....... (54,468) (41,228)
Capitalized software costs............ $117,513 $ 99,414
Purchased software in the amount of $9,150,000 (which was net
of $9,151,000 of related amortization) was written-off as part of
the Company's impairment and restructuring charges relating to its
health business (See Note 13). Also, $1,368,000 relating to the
nonrecoverability of certain deferred life insurance systems
development costs was written-off for the year ended December 31,
1993; this amount is also included in other operating costs and
expenses in the accompanying Consolidated Statement of Operations.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Commitments
The Company occupies leased facilities under various operating
leases expiring through 2014. The leases for certain facilities
contain options for renewal and provide for escalation of annual
rentals based upon increases in the lessors' operating costs. Rent
expense under leases for facilities was $7,745,000 for the year
ended December 31, 1993. Amounts of $7,751,000 for lease
termination costs and $12,227,000 for lease abandonment charges are
included in the impairment and restructuring charges in the
accompanying statement of operations (See Note 13).
The Company leases certain data processing and related
equipment primarily under operating leases expiring through 1995.
Rent expense under operating leases for such equipment was
$4,295,000 for the year ended December 31, 1993. Future minimum
lease obligations under noncancelable operating leases are stated
below and include a lease termination payment in 1994 amounting to
$7,751,000 and payments over 10 years aggregating $17,575,000
related to a leasehold planned for future abandonment (See Note
13):
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Facilities
Year Ending December 31, (In Thousands)
1994............................ $14,789
1995............................ 4,957
1996............................ 4,472
1997............................ 3,724
1998............................ 6,900
Thereafter...................... 11,672
Total............................. $46,514
Contingencies
In April 1993, litigation was commenced against the Company
and certain of its present and former officers and directors in the
United States District Court for the District of South Carolina,
Columbia Division. In the litigation, which purports to be a class
action on behalf of purchasers of the Company's common stock
between March 18, 1992 and July 8, 1993, the plaintiffs allege that
the Company failed to prepare its financial statements in
accordance with generally accepted accounting principles and
omitted to disclose certain information regarding, among other
things, its business and prospects in violation of the Federal
securities laws, the South Carolina Code and common law. The
Company believes it has meritorious defenses to the claims and is
vigorously defending the litigation. The plaintiffs seek
unspecified compensatory damages, legal fees and litigation costs.
The Company is unable to predict the outcome or the potential
financial impact of this litigation.
In June 1993, the Securities and Exchange Commission ("SEC")
commenced a formal investigation into possible violations of the
Federal securities laws in connection with the Company's public
reports and financial statements, as well as trading in the
Company's securities. The SEC has issued a formal order of
investigation which provides the SEC staff with the power to
subpoena documents and to compel testimony in connection with their
investigation. The Company is cooperating with the SEC in
connection with this investigation.
NOTE 9. LONG-TERM DEBT
Long-term debt is as follows:
December 31,
1993 1992
(In Thousands)
Notes payable, due through February 2015,
interest at 3.69% to 9.00%............. $12,641 $ 9,671
Less: Current portion.................... (6,986) (3,670)
Long-term debt........................... $ 5,655 $ 6,001
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NOTE 10. INCOME TAXES
A reconciliation of the difference between the actual income
tax benefit and the expected benefit for the year ended December
31, 1993, computed using the applicable statutory rate is as
follows (in thousands):
Statutory Rate 35%
Income tax benefit computed at
statutory rate............................. $(23,239)
Increase (decrease) in taxes due to:
Goodwill................................... 15,205
Nontaxable investment income. ............. (2,391)
State and local income taxes, net
of federal tax effect.................... (913)
Increase in statutory rate................. 1,080
Other...................................... (5)
Actual income tax benefit.................... $(10,263)
Effective income tax benefit rate............ 15.5%
An analysis of the income tax benefit for the year ended
December 31, 1993 is as follows (in thousands):
Current taxes.................................. $ (7,266)
Deferred income taxes relating to
temporary differences:
Depreciation and amortization of property,
equipment and intangibles................ 3,834
Capitalized internal software
development costs........................ 4,914
Restructuring of operations................ (12,855)
Other...................................... 1,110
(2,997)
Total income tax benefit................... $(10,263)
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<PAGE> 46
An analysis of the net deferred income tax liability is as
follows:
December 31,
1993 1992
(In Thousands)
Current deferred assets:
Net operating loss carryforward.......... 4,315 157
Other.................................... 5,176 7,926
Current deferred assets................ $9,491 $ 8,083
Long term deferred assets:
Restructuring of operations............. 12,855 -
State tax credits....................... 4,987 2,580
Other................................... 3,743 -
Long term deferred assets............... 21,585 2,580
Total deferred assets................. $31,076 $10,663
Long term deferred liabilities:
Depreciation and amortization of
property, equipment and intangibles... $28,272 $23,726
Capitalized internal software
development costs..................... 32,971 28,073
Other................................... 12,908 4,313
Total deferred liabilities............ $74,151 $56,112
The Company generated a $10,926,000 net operating loss for the
year ended December 31, 1993 for tax purposes. This loss, which is
anticipated to be carried forward, will expire in 2008.
Additionally, the Company has loss carryforwards of $1,483,000 at
December 31, 1993 related to a business acquisition in 1991. The
acquired loss carryforwards are subject to a $415,000 annual
limitation and will expire in 2002. The entire benefit related to
the Company's loss carryforwards has been recognized in the
financial statements.
On August 10, 1993 the Omnibus Budget Reconciliation Act of
1993 was signed into law. This Act increased the highest marginal
federal income tax rate from 34 percent to 35 percent. Under the
provisions of FAS 109, deferred tax liabilities and assets are
adjusted for the effect of a change in tax laws or rates.
Furthermore, the effect is included in the income tax provision for
the reporting period that includes the enactment date. As such,
the net loss for the period ended December 31, 1993 was increased
by $1,080,000 to reflect the increase in tax rates.
In 1992, the Internal Revenue Service completed an examination
of the Company's consolidated federal income tax returns for the
years 1985 through 1988 and has proposed certain adjustments to
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<PAGE> 47
income and credits that result in proposed tax deficiencies in the
amount of $17,785,000 for those years. The Company believes that
its judgment in the areas for which adjustments have been proposed
has been appropriate and is contesting the proposed adjustments.
The Company believes that adequate amounts of federal income taxes
are provided in the consolidated financial statements.
NOTE 11. EMPLOYEE BENEFIT PLANS
Profit Sharing Retirement Plan
Eligible employees of the Company are covered under the
Company's profit sharing retirement plan. The Company's
contribution to the plan is determined by the Board of Directors of
the Company. Employees make no contributions to this plan. The
Company made a contribution of $800,000 in early 1993 for the plan
year 1992.
Retirement Savings Plan
The Company offers a 401(k) retirement savings plan for
eligible employees. Participants can elect to have up to 6% of
their salary withheld for investment in the program and the Company
will make a matching contribution of $.50 for each $1.00 of
employee participation. Participants may also make limited
additional contributions which are not subject to matching
contributions by the Company. Participants have several options
as to how their contributions may be invested, but through
October 1993, all matching contributions had been invested in
common stock of the Company. Company contributions made after
October 1993 were, and continue to be, invested in a government
money market fund, except as participants may otherwise redirect
such Company contributions previously made. Except in certain
instances, participant contributions are made from pre-tax wages.
The Company's contribution on behalf of participating employees
was $1,914,000 for the year ended December 31, 1993.
Stock Option Plans
The Company has various plans under which options to purchase
shares of the Company's common stock have been granted to eligible
employees and members of the Board of Directors of the Company. In
1992, options were granted under the 1989 Stock Option Plan to
eligible employees and members of the Board of Directors, subject
to approval by the Company's stockholders of an amendment to
increase the number of shares available for grant under that plan.
In January 1993, options were also granted under the Company's 1993
Long-term Incentive Plan for eligible executives, subject to
approval by the Company's stockholders. At the annual meeting of
the Company's stockholders in April, 1993, the amendment to the
1989 Stock Option Plan and the 1993 Long-Term Incentive Plan for
Executives were approved.
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<PAGE> 48
Option activity under all of the stock option plans is
summarized as follows:
Year Ended
December 31, 1993
Shares under option at beginning of
year.............................. 1,202,856
Granted.............................. 592,500
Exercised............................ (21,777)
Forfeited............................ (48,460)
Shares under option at end of year... 1,725,119
Shares under option exercisable
at end of period.................. 766,805
Shares available for future grant.... 1,175,916
Shares under option exercisable at January 1, 1993 were
443,297. The exercise price of options exercised under plans other
than under the 1993 Long-Term Incentive Plan for Executives during
the year ended December 31, 1993 were $15.13 to $49.63 and the
exercise prices of shares under option at December 31, 1993,
other than under the 1993 Long-Term Incentive Plan for Executives,
were $15.13 to $69.38.
All options granted under plans other than under the 1993
Long-Term Incentive Plan for Executives have exercise prices at
100% of market value at date of grant and are exercisable at the
rate of 33 1/3% per year (cumulative) beginning one year from date
of grant.
Options granted in 1993 under the 1993 Long-Term Incentive
Plan for Executives have been granted at 105% of market value at
the date of grant; all these options have an exercise price of
$81.90. (For individuals who later may be selected to participate
in the 1993 Long-Term Incentive Plan for Executives, said
percentage is based on the year the individual is selected as
follows: 1993 - 105%; 1994 - 104%; 1995 - 103%; 1996 - 102%; 1997 -
101%; and 1998 - 100%.) Options granted under the plan in 1993
become exercisable as follows: 25% on January 1, 1995; 25% on
January 1, 1997; and 50% on January 1, 1999. For individuals who
later may be selected to participate in the plan, the number of
options granted and what percentage become exercisable on the above
dates are determined according to formulas described in the plan.
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<PAGE> 49
NOTE 12. CERTAIN TRANSACTIONS
In August 1989, International Business Machines Corporation
("IBM") acquired directly from the Company a 19.8% interest in the
Company's outstanding voting stock for $116,775,000 representing
3,797,561 shares. IBM is entitled to increase its ownership
interest up to a maximum of 30% by purchasing the Company's common
stock in the open market. IBM's ownership interest was 16.8% at
December 31, 1993, representing the original 3,797,561 shares
acquired.
Certain officers of the Company participated in the Company's
long-term incentive plan for executives, which began January 1,
1987 and ended December 31, 1992. The plan provided for the
payment of pre-established bonuses, payable either in cash, common
stock of the Company or a combination thereof, if certain earnings
per share performance goals were reached by the Company during the
six-year life of the plan. Bonuses earned under this plan for the
final two-year period ended December 31, 1992, were paid in 1993,
in a combination of $5,410,000 in cash and 45,348 shares of common
stock.
On April 7 and 8, 1993, the Company repurchased, on the open
market, all of the 970,668 shares of the Company's common stock
authorized under a previously approved stock repurchase program for
a total consideration of $48,660,000.
NOTE 13. IMPAIRMENT AND RESTRUCTURING CHARGES
During the first half of 1993, the Company experienced
markedly decreased revenues from its health insurance services
business unit. Near the end of the second quarter of 1993, the
Company projected that its annual health insurance services
business revenues would drop by approximately 50% from the revenue
recorded in 1992 to approximately $33,000,000 for all of 1993, and
that trend of decline would continue into 1994. To better
understand both the cause and the anticipated duration of this
decline, the Company then undertook an assessment of the potential
impact on its health insurance systems business of proposed health
care legislation, rapidly evolving and significant changes in the
relationship of health care providers and insurers and the
resultant changes in health insurers' software and service needs.
After meetings with its financial advisors, health care
professionals and customers, the Company determined that it did not
have some of the systems to respond to the most likely future
initiatives in the health care insurance industry and that many of
the Company's existing health insurance services products,
primarily those acquired in business acquisitions, would require
substantial modification or complete reformation. This
determination and the continuing adverse impact of operating losses
in its health business led the Company to the conclusion that the
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<PAGE> 50
current carrying value of certain assets of the health insurance
services business unit, principally intangibles, associated with
traditional indemnity insurance plan services, was not fully
recoverable through sale or continuing operations. Accordingly,
the Company recorded an impairment charge of $54,890,000 at June
30, 1993 to reduce the carrying value of certain long-lived
identifiable intangible assets ($6,320,000 - customer lists,
covenants not to compete and assembled workforce), acquired
software ($9,150,000) and goodwill ($39,420,000) related to its
health business.
The Company applied its methodology for determining impairment
of intangibles (see Note 1) by discounting the expected future cash
flows from this business. In this case, the present value of the
expected cash flows was determined using a discount rate of 17%
which the Company considers to be commensurate with the risk
involved. This rate was determined using the Capital Asset Pricing
Model which reflects the return the Company should achieve on its
investments. An additional risk premium was included in the rate
to recognize the uncertainty associated with the health insurance
services business.
Additionally, as a result of the impairment of its health
business, the Company decided to restructure this business and
recorded a restructuring charge of $25,189,000 at June 30, 1993.
Costs to restructure the health insurance services business are
composed of $5,211,000 associated with employee severance and
outplacement, and $19,978,000 related to an ongoing lease
obligation and/or termination for the planned future abandonment of
certain leased office facilities. The Company also recorded other
pre-tax restructuring charges of $655,000. It is anticipated that
these restructurings will be completed during 1994.
NOTE 14. SEGMENT INFORMATION
The Company operates in one business segment, providing
computer software systems and related automation and administration
support and information services to the insurance industry.
Approximately 90% of the Company's revenues are generated from
products and services provided in the United States and no one
customer accounted for more than 10% of revenues during the year
ended December 31, 1993.
50
<PAGE> 51
NOTE 15. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash
equivalents, marketable securities and trade receivables. The
Company places its cash and cash equivalents and marketable
securities with high credit quality entities and limits the amount
of credit exposure with any one entity. In addition, the Company
performs ongoing evaluations of the relative credit standing of
these entities, which are considered in the Company's investment
strategy.
Concentration of credit risk with respect to trade accounts
receivable are generally diversified due to the large number of
entities comprising the Company's customer base across the
insurance industry. The Company performs ongoing credit evaluations
on certain of its customers' financial condition, but generally
does not require collateral to support customer receivables. The
Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers,
historical trends and other information.
51
<PAGE> 52
POLICY MANAGEMENT SYSTEMS CORPORATION
QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS
Six
Months
Ended (Unaudited) (Unaudited)
June 30, Third Fourth
1993 Quarter Quarter
(In Thousands Except Per Share Data)
1993
Revenues................... $235,923 $108,885 $108,291
Operating income (loss).... (82,148) 752 4,343
Investment income, net..... 7,941 1,333 1,382
Income (loss) before
income taxes (benefit)... (74,207) 2,085 5,725
Net income (loss).......... $(60,423) $ 346 $ 3,943
Net income (loss) per
share.................... $ (2.62) $ .02 $ .17
As a result of a special audit of the Company's balance sheet as
of December 31, 1992 and its consolidated financial statements as of
and for the six months ended June 30, 1993, the Company determined
that retained earnings previously reported as of December 31, 1992
required adjustment. The Company is in the process of determining the
specific period affected by the adjustments. Once determined, the
Company intends to restate the financial statements for such periods
(See Note 2 of Notes to Consolidated Financial Statements).
The results of operation for the six months ended June 30, 1993
reflect special impairment and restructuring charges of $80.7 million
(after taxes, $65.0 million, or $2.81 per share). See Note 13 of
Notes to Consolidated Financial Statements. Additionally, the Company
recorded charges related to early project terminations, the deductible
under the Company's Directors' and Officers' liability insurance
policy in response to shareholder litigation, costs overruns on
certain projects and other charges arising from the Company's
previously disclosed internal investigation of its accounting
practices of approximately $18.1 million (after taxes $11.2 million,
or $.48 per share).
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<PAGE> 53
<TABLE>
SCHEDULE I
POLICY MANAGEMENT SYSTEMS CORPORATION
MARKETABLE SECURITIES
<CAPTION>
December 31, 1993
Maturity Amortized Market Book
Description Value Cost Value Value
(In Thousands)
<S> <C> <C> <C> <C>
3.24% - 11.0% Municipal bonds
and notes, maturing on various
dates through December 1998
(all rated AA- or better)........ $122,189 $127,505 $129,702 $127,505
5.29% - 9.50% U.S. Government and
Agency securities, maturing on
various dates through November
1994............................. 4,698 4,795 4,931 4,795
200,000 shares, The Seibels Bruce
Group, Inc. common stock,
par value $1 per share........... - - 350 350
$126,887 $132,300 $134,983 $132,650
</TABLE>
53
<PAGE> 54
SCHEDULE V
POLICY MANAGEMENT SYSTEMS CORPORATION
PROPERTY AND EQUIPMENT
Balance Addi-
At tions Other Balance
Beginning At Retire- Changes At End
of Year Cost ments (1) of Year
(In Thousands)
Year ended
December 31, 1993:
Land and improvements...... $ 2,557 $ - $ - $ - $ 2,557
Buildings.................. 41,820 1,347 - 16,451 59,618
Construction in progress... 15,721 730 - (16,451) -
Leasehold improvements..... 3,351 269 (682) 355 3,293
Office furniture,
fixtures and equipment... 30,370 5,987 (201) 1,474 37,630
Data processing and
communications equipment
and support software..... 116,135 29,983 (14,689) 3,123 134,552
Other...................... 5,472 956 (2,206) (220) 4,002
$215,426 $39,272 $(17,778) $ 4,732 $241,652
Note
(1)Includes assets acquired through business acquisitions, foreign currency
translation adjustments, transfers and other adjustments.
54
<PAGE> 55
SCHEDULE VI
POLICY MANAGEMENT SYSTEMS CORPORATION
ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY AND EQUIPMENT
Balance Addi-
At tions Other Balance
Beginning To Retire- Changes At End
of Year Expense ments (1) of Year
(In Thousands)
Year ended
December 31, 1993:
Buildings.................. $ 7,618 $ 1,699 $ - $ - $ 9,317
Leasehold improvements..... 1,838 349 (349) - 1,838
Office furniture,
fixtures and equipment... 15,418 2,832 (175) 8 18,083
Data processing and
communications equipment
and support software..... 55,417 21,719 (7,189) 167 70,114
Other...................... 3,439 585 (493) (260) 3,271
$83,730 $27,184 $ (8,206) $ (85) $102,623
Note
(1) Includes foreign currency translation adjustments, transfers and other
adjustments.
55
<PAGE> 56
Schedule VIII
POLICY MANAGEMENT SYSTEMS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance Charged
at to Balance
Beginning Costs & (1) at End
Description of Period Expenses Other Deductions of Period
(In Thousands)
Allowance for
uncollectible
amounts
Year ended
December 31, 1993 $1,630 1,768 601 (2,182) $ 1,817
Accrued restruct
- - - - - -uring and lease
termination cost
Year ended
December 31, 1993 $ 0 29,696 0 (440) $29,256
Note
(1) Acquired through business acquisition.
56
<PAGE> 57
SCHEDULE X
POLICY MANAGEMENT SYSTEMS CORPORATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year ended December 31,
1993
(In Thousands)
Amortization of intangible assets:
Computer software...................... $24,844
Intangible assets from business
acquisitions......................... 9,274
Maintenance and repairs.................. 8,118
$42,236
57
<PAGE> 58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Item 4 of the Company's Report on Form 8-K, dated August 17,
1993, is incorporated herein by reference.
58
<PAGE> 59
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Current Position with the Company
Name and Age and Business Experience*
Roy L. Faulks Vice Chairman of the Board of the Company
(68) since 1981 and his current term will expire
in 1994; prior to retirement in April, 1986,
Executive Vice President and Treasurer of
The Seibels Bruce Group, Inc. ("Seibels")
and certain subsidiaries; Director of
Seibels and certain subsidiaries.
Donald W. Feddersen Director of the Company since 1983 and his
(59) current term will expire in 1996; General
Partner of Charles River Ventures, Boston,
Massachusetts; Director of Network Systems
Corporation, Brooklyn Park, Minnesota;
Director of Parametric Technology
Corporation, Waltham, Massachusetts;
Director of Sybase, Inc., Emeryville,
California.
Frederick B. Karl Director of the Company since 1981 and his
(69) current term will expire in 1994; Attorney
at Law and Chief Executive Officer of
Hillsborough County, Florida since 1990;
prior thereto, Senior Partner of Karl,
McConnaughhay, Roland and Maida, P.A., a law
firm in Tallahassee, Florida from 1978
through 1990; Justice of the Florida Supreme
Court from 1977 to 1978.
Dr. John M. Palms Director of the Company since 1992 and his
(58) current term will expire in 1995; President
of the University of South Carolina since
March, 1991; President of Georgia State
University, 1989 to March 1991; prior
thereto, various teaching and administration
positions at Emory University; Director of
PECO Energy, Inc., Philadelphia,
Pennsylvania; Director of Fortis Holding,
Inc., New York, New York; Director of
NationsBank of South Carolina, N.A.,
Columbia, South Carolina; Trustee, Institute
of Defense Analysis, Alexandria, Virginia.
* For directors only, includes certain other directorships.
59
<PAGE> 60
Current Position with the Company
Name and Age and Business Experience*
Joseph D. Sargent Director of the Company since 1986 and his
(64) current term will expire in 1995; Chairman
of Connecticut Surety Corporation and Vice
Chairman of Conning & Company, Hartford,
Connecticut; Chairman of the Board and
Treasurer of S.K.I., Ltd., Killington,
Vermont; Director of Trenwick Group, Inc.,
Stamford, Connecticut; Director of Mutual
Risk Management, Ltd., Hamilton, Bermuda;
Director of EW Blanch Holdings, Inc.,
Minneapolis, Minnesota; Director of
Executive Risk Inc., Simsbury, Connecticut;
Director if MMI Companies, Inc., Deerfield,
Illinois.
John P. Seibels Director of the Company since 1981 and his
(52) current term will expire in 1996; Investor,
Columbia, South Carolina; Director of
Seibels and certain subsidiaries.
Richard G. Trub Director of the Company since 1981 and his
(63) current term will expire in 1994; Chairman
and Treasurer of Trubco, Inc., West
Simsbury, Connecticut, since June, 1992;
prior thereto, Senior Vice President of
Connecticut National Bank, Hartford,
Connecticut; Director of Riverfront
Recapture, Inc., Hartford, Connecticut.
G. Larry Wilson Chairman of the Board (since 1985),
(47) President and Chief Executive Officer of the
Company (since 1980) and his current term as
Director will expire in 1995; Director of
LEGENT Corporation, Vienna, Virginia.
Employed by the Company since its inception.
*For directors only, includes certain other directorships.
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<PAGE> 61
Current Position with the Company
Name and Age and Business Experience*
David T. Bailey Executive Vice President of the Company
(47) since 1986. Responsible for the Property and
Casualty Insurance Group. Employed by the
Company since 1981.
Jeffery S. Bragg Senior Vice President of the Company since
(45) 1993. Responsible for the Health and
Information Services Group. Employed by the
Company since 1987.
James P. Brown Senior Vice President of the Company since
(47) 1992. Responsible for the Total Policy
Management Group since February 1994.
Employed by the Company since 1982.
Charles E. Callahan Executive Vice President of the Company
(45) since 1989. Responsible for the Life, Health
& Information Services Group. Employed by
the Company since 1983.
Donald A. Coggiola Executive Vice President of the Company
(54) since 1986. Responsible for the Industry
Markets Group. Employed by the Company
since 1979.
Robert L. Gresham Executive Vice President (since 1986) and
(51) Treasurer (since 1981) of the Company.
Responsible for the Corporate Services
Group. Employed by the Company since 1978.
Stephen G. Morrison Executive Vice President, Secretary and
(44) General Counsel since January 1994.
Responsible for the administration of the
legal affairs of the Company. Employed by
the Company since January 1994. Prior to
joining the Company, Mr. Morrison was
engaged full time in the practice of law as
Senior Partner with Nelson, Mullins, Riley &
Scarborough in Columbia, South Carolina. In
that capacity, Mr. Morrison served as the
Company's chief outside litigation counsel
for matters other than those described in
Note 8 to the Financial Statements. Mr.
Morrison will continue his affiliation with
Nelson, Mullins, Riley & Scarborough and
continue to perform certain services in that
capacity on a declining basis.
* For directors only, includes certain other directorships.
61
<PAGE> 62
Current Position with the Company
Name and Age and Business Experience*
Timothy V. Williams Executive Vice President and Chief Financial
(44) Officer. Responsible for the Financial
Services Group. Employed by the Company
since February 1994. Prior thereto, Mr.
Williams served in senior management
capacities with Holiday Inn Worldwide, based
in Atlanta, Georgia, most recently as
Executive Vice President of Corporate
Services and Chief Financial Officer.
In April of 1994, the Company was informed by Mr. Coggiola
that a gift of 380 shares of Common Stock was erroneously reported
as a gift of 400 shares in a Form 4 which was filed in April of
1991. This minor discrepancy was reflected only in this single
Form 4.
* For directors only, includes certain other directorships.
62
<PAGE> 63
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS: Directors who are not full-time
employees of the Company receive an annual fee of $2,000, plus
$2,000 for each Board meeting attended and $750 for each committee
meeting attended on other than a regular Board meeting date.
Directors participating in any meeting by telephone receive a $250
fee for such meeting. Directors who do not reside in Columbia,
South Carolina, are reimbursed for travel expenses.
COMPENSATION OF EXECUTIVE OFFICERS: The following table sets
forth information regarding compensation earned, including stock
options granted, during 1991, 1992 and 1993 by the executive
officers listed in the table (the "Executive Group").
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
Awards Payouts
Number of
Name Securities Long-Term All
and Underlying Incentive Other
Principal Annual Compensation Options Plan Compen-
Position Year Salary Bonuses (1) Granted Payouts sation (2)
<S> <C> <C> <C> <C> <C> <C>
G. Larry Wilson 1993 $496,930 $ 50,000 100,000 $ -0- $7,284
President 1992 456,940 234,000 50,000 1,196,000 6,198
1991 417,312 218,000 50,000 -0- -
David T. Bailey 1993 280,482 -0- 50,000 -0- 7,075
Executive Vice 1992 260,540 98,250 25,000 777,400 8,700
President 1991 241,615 83,835 25,000 -0- -
Charles E. Callahan 1993 245,538 -0- 50,000 -0- 6,641
Executive Vice 1992 213,538 86,400 25,000 598,000 6,075
President 1991 183,307 73,600 25,000 -0- -
Donald A. Coggiola 1993 279,546 -0- 50,000 -0- 7,075
Executive Vice 1992 260,540 86,329 25,000 777,400 8,700
President 1991 241,615 60,750 25,000 -0- -
Robert L. Gresham 1993 265,326 -0- 50,000 -0- 6,805
Executive Vice 1992 243,308 98,000 25,000 777,400 6,198
President 1991 221,615 89,200 25,000 -0- -
<FN>
(1) Reflects amount earned in year indicated even though actually
paid in following year and for Mr. Wilson includes amounts
earned under his Executive Compensation Agreement (see
"Executive Compensation Agreement").
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<PAGE> 64
(2) Disclosure under this column is not required for 1991 under
the rules of Securities and Exchange Commission. Amounts
shown are matching contributions from the Company under its
401(k) retirement savings plan.
</TABLE>
The following tables set forth certain information regarding
options for Common Stock granted to the Executive Group during 1993
and include the potential realizable value which would exist based
on assumed annual compounded rates of stock price appreciation of
five and ten percent over the full ten-year term of the options.
<TABLE>
OPTIONS GRANTED IN 1993
<CAPTION>
Individual Grants
Percent
Number of Total
of Securities Options Exercise
Underlying Granted to Price Expiration
Options Employees Per Date of
Name Granted (1) in 1993 Share Options
<S> <C> <C> <C> <C>
All Stockholders - - - -
G. Larry Wilson 100,000 16.8% $81.90 January 19, 2003
David T. Bailey 50,000 8.4% 81.90 January 19, 2003
Charles E. Callahan 50,000 8.4% 81.90 January 19, 2003
Donald A. Coggiola 50,000 8.4% 81.90 January 19, 2003
Robert L. Gresham 50,000 8.4% 81.90 January 19, 2003
<FN>
(1) All option grants shown in these tables are pursuant to the
Company's 1993 Long-Term Incentive Plan for Executives.
Options granted under the plan in 1993 have an exercise price
of 105% of the fair market value of the Common Stock on
January 19, 1993 (the date of grant) and become exercisable
as follows: 25% on January 1, 1995; 25% on January 1, 1997;
and 50% on January 1, 1999. If there is a change in control
of the Company, as defined in this plan, then each option
granted under the plan shall become immediately exercisable
in full regardless of whether there is a change in office or
employment of the participant. In addition, in the event of
dissolution or liquidation of the Company or any merger or
combination in which the Company is not the surviving entity,
then each option granted shall terminate, but not before each
participant is permitted to exercise his options to the
extent they are exercisable, without regard to any
installment exercise provisions in the plan.
</TABLE>
64
<PAGE> 65
Potential Realizable Value at
Assumed Annual Rates of Stock Price
Appreciation for Option Term
Name 5% 10%
All Stockholders (2) $1,154,116,972 $2,924,939,465
G. Larry Wilson $ 4,515,000 $ 12,041,000
David T. Bailey 2,257,500 6,020,500
Charles E. Callahan 2,257,500 6,020,500
Donald A. Coggiola 2,257,500 6,020,500
Robert L. Gresham 2,257,500 6,020,500
(2) The potential realizable value for all Stockholders is based
on the number of shares of Common Stock outstanding on
January 19, 1993 (the date these options were granted) and
assumes the Stockholders purchased the Common Stock for
$78.00 (which was the market price of the Common Stock on
January 19, 1993) and held the Common Stock until January 19,
2003. The Company has included this information to
illustrate how the Stockholders will have fared compared to
each of the named executives if the assumed appreciation is
achieved.
The following table sets forth information regarding the
value of "in-the-money" options, which are options having a
positive difference between the exercise price of such stock option
and the 1993 year-end market price of Common Stock. None of the
officers in the Executive Group exercised options during 1993.
<TABLE>
AGGREGATED YEAR-END OPTION VALUES
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at December 31, 1993 at December 31, 1993 (1)
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
G. Larry Wilson 149,999 150,001 $ -0- $ -0-
David T. Bailey 49,999 75,001 $ -0- $ -0-
Charles E. Callahan 31,666 75,001 $ -0- $ -0-
Donald A. Coggiola 84,999 75,001 $ 75,000 $ -0-
Robert L. Gresham 49,999 75,001 $ -0- $ -0-
<FN>
(1) Value represents the aggregate excess of the market price of
the Common Stock on December 31, 1993, which was $31.00, over
the exercise price for the options. All options included in
65
<PAGE> 66
the table have an exercise price equal to the fair market
value of the Common Stock on the dates of grant, except those
granted pursuant to the Company's 1993 Long Term Incentive
Plan for Executives, which are described in the Options
Granted in 1993 Tables.
</TABLE>
EXECUTIVE COMPENSATION AGREEMENT: The Company has an Executive
Compensation Agreement with G. Larry Wilson whereby the Company is
to pay, subject primarily to Mr. Wilson's continued employment,
certain specified amounts over a five-year period. This Agreement
is renewable annually at the option of the Company. A payment of
$50,000 for 1993 was paid in early 1994.
DEFERRED COMPENSATION AGREEMENT: G. Larry Wilson is covered
by a Deferred Compensation Agreement providing annual remuneration
of $25,000.00 upon the event of a qualifying retirement, death or
total disability. The Agreement, which provides for monthly
payments over a fifteen-year period, is contingent primarily upon
Mr. Wilson's continued employment until such an event occurs, and
the deferred benefits are not vested until that time. The Company
owns life insurance contracts covering Mr. Wilson, of which it is
the beneficiary, in an aggregate amount equal to or in excess of
the total benefit.
EMPLOYMENT AGREEMENTS: The Company had Employment Agreements
with Messrs. Wilson, Bailey, Callahan, Coggiola and Gresham which
provided for payments to be made to the individuals in certain
circumstances following a change of control of the Company. During
1993, there were no events which would entitle any of the
individuals to any post-termination benefits. All of these
Employment Agreements expired at the end of 1993.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
STOCK OWNERSHIP OF DIRECTORS AND OFFICERS: The following
table sets forth beneficial ownership of Common Stock by each
Director and the executive officers named in the Summary
Compensation Table and by all Directors and all executive officers
as a group. No one Director owns one percent or more of the
outstanding shares, but in the aggregate, the Directors and
executive officers beneficially own two percent.
66
<PAGE> 67
Amount & Nature
Name & Address of Beneficial Shares Subject
of Beneficial Owner (1) Ownership (2) to Option (3)
Roy L. Faulks 3,999 3,499
Donald W. Fedderson 8,366 8,366
Frederick B. Karl 3,000 2,500
Dr. John M. Palms 833 833
Joseph D. Sargent 2,500 2,500
John P. Seibels 13,499 8,333
Richard G. Trub 2,700 2,500
G. Larry Wilson 191,436 (4) 149,999
David T. Bailey 50,816 (5) 49,999
Charles E. Callahan 31,984 (6) 31,666
Donald A. Coggiola 90,243 (7) 84,999
Robert L. Gresham 57,108 (8) 49,999
Directors and Executive
Officers as a group 483,379 420,859
(1) The address of each individual is the Company's address.
(2) Except where noted below, each individual has sole voting and
sole dispositive power.
(3) These shares, which are included in the "Amount & Nature of
Beneficial Ownership" column, are subject to option on or
before June 30, 1994, pursuant to the Company's various stock
option plans.
(4) 1,437 of these shares are held in the Company's 401(k)
Retirement Savings Plan for which Mr. Wilson has sole
dispositive power but no voting power.
(5) 151 of these shares are held in the Company's 401(k)
Retirement Savings Plan for which Mr. Bailey has sole
dispositive power but no voting power.
(6) 318 of these shares are held in the Company's 401(k)
Retirement Savings Plan for which Mr. Callahan has sole
dispositive power but no voting power.
(7) 452 of these shares are held in the Company's 401(k)
Retirement Savings Plan for which Mr. Coggiola has sole
dispositive power but no voting power.
(8) 345 of these shares are held in the Company's 401(k)
Retirement Savings Plan for which Mr. Gresham has sole
dispositive power but no voting power.
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<PAGE> 68
PRINCIPAL STOCKHOLDERS: The following table sets forth
certain information regarding beneficial owners of more than five
percent of the Company's Common Stock. The information provided,
except that for IBM, is based on information filed by the
respective party with the Securities and Exchange Commission.
Name Common Stock Percentage
and Address Beneficially Owned of Class (1)
International Business 3,797,561 (2) 16.78%
Machines Corporation ("IBM")
2000 Purchase Street
Purchase, New York 10577
The Capital Group, Inc. 2,214,000 (3) 9.78%
("Capital")
333 South Hope Street
Los Angeles, California 90071
Wellington Management Company 2,024,640 (4) 8.94%
("Wellington")
75 State Street
Boston, Massachusetts 02109
The Regents of the University 1,353,200 (5) 5.98%
of California ("Regents")
300 Lakeside Drive
Office of the Treasurer
Oakland, California 94612
Government of Singapore 1,264,800 (6) 5.59%
Investment Corporation
Pte Ltd. ("Singapore")
250 North Bridge Road
#33-00 Raffles City Tower
Singapore 0617
(1) Based on number of shares outstanding at year-end.
(2) Of the shares reported, IBM has sole voting power and sole
dispositive power for all of the shares.
(3) Of the shares reported, Capital has sole voting power for
1,099,400 of the shares, shared voting power for none of the
shares and sole dispositive power for all of the shares.
Capital Guardian Trust Company and Capital Research and
Management Company, operating subsidiaries of Capital,
exercised as of December 31, 1993, investment discretion with
respect to 2,014,000 and 200,000 shares, respectively, of
outstanding shares which were owned by various institutional
investors.
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<PAGE> 69
(4) Of the shares reported, Wellington has sole voting power for
none of the shares, shared voting power for 1,131,140 of the
shares, and shared dispositive power for all of the shares.
(5) Of the shares reported, Regents has sole voting power and sole
dispositive power for all of the shares.
(6) Of the shares reported, Singapore has shared voting power and
shared dispositive power for all of the shares. Of the shares
held by Singapore, the Government of Singapore is beneficial
owner of 912,400 for which it has shared voting and shared
dispositive power, and the Monetary Authority of Singapore is
beneficial owner of 352,400 for which it has shared voting and
shared dispositive power.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During calendar year 1993 the Company and its subsidiaries paid
to IBM and its subsidiaries $6.6 million for computer hardware,
programs and services and received $10.4 million from IBM and its
subsidiaries for computer software and services.
During 1993, Connecticut Surety Corporation, of which Mr.
Sargent is a director and was during 1993 an executive officer and
of which Mr. Trub was during 1993 a director, received software
licenses and data processing and information services from the
Company for which it paid the Company approximately $256,000.
The Company considers such dealings with IBM and Connecticut
Surety Corporation to have been on substantially similar terms as
those prevailing at the time for comparable transactions with
unrelated third parties.
69
<PAGE> 70
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
Financial Statements and Schedules
The following consolidated financial statements of Policy
Management Systems Corporation are included in Item 8 (Page 30 to
35):
Report of Independent Accountants.
Consolidated Balance Sheet as of December 31, 1993 and 1992.
Consolidated Statement of Operations for the year ended
December 31, 1993.
Consolidated Statement of Changes in Stockholders'
Equity for the year ended December 31, 1993.
Consolidated Statement of Cash Flows for the year
ended December 31, 1993.
Notes to Consolidated Financial Statements for the
year ended December 31, 1993.
The following Consolidated Financial Statement Schedules are
included in Item 14 (Page 53 to 57):
Schedule I - Marketable Securities
Schedule V - Property and Equipment
Schedule VI - Accumulated Depreciation and Amortization
Schedule VIII - Valuation and Qualifying Accounts
Schedule X - Supplementary Income Statement Information
Exhibits Filed
Exhibits required to be filed with this Annual Report on Form
10-K are listed in the following Exhibit Index.
Pursuant to Rule 15d-21 promulgated under the Securities
Exchange Act of 1934, the following annual report for the Company's
employee stock purchase plan will be furnished to the Commission
when the information becomes available:
Form 11-K for the Company's 401(k) Retirement Savings Plan for
the year ended December 31, 1993 is incorporated herein by
reference.
Form 8-K
The Company filed a report on Form 8-K, dated December 8, 1993
under Item 5. Other events, relating to a letter issued to the
Company's stockholders, customers and employees, advising them of
recent developments in connection with the Company's audit and its
business.
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REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Policy Management Systems Corporation
Our report, which includes two emphasis paragraphs discussing
errors in previously issued financial statements and litigation
and a Securities and Exchange Commission investigation, on the
consolidated financial statements of Policy Management Systems
Corporation and subsidiaries is included on page 31 of this Form
10-K. In connection with our audits of such financial
statements, we have also audited the related financial statement
schedules listed in the index on page 30 of this Form 10-K.
In our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material
respects, the information required to be included therein.
Atlanta, Georgia Coopers & Lybrand
April 5, 1994
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(REGISTRANT) POLICY MANAGEMENT SYSTEMS CORPORATION
BY (SIGNATURE) /s/ Timothy V. Williams
Timothy V. Williams, Executive Vice
President, Chief Financial Officer
DATE April 6, 1994
BY (SIGNATURE) /s/ Stan F. Stoudenmire
Stan F. Stoudenmire, Vice President
and Controller
DATE April 6, 1994
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
BY (SIGNATURE) /s/ G. Larry Wilson
(NAME AND TITLE) G. Larry Wilson, Chairman of the Board of
Directors, President and Chief Executive
Officer
DATE April 6, 1994
BY (SIGNATURE) /s/ Roy L. Faulks
(NAME AND TITLE) Roy L. Faulks, Vice Chairman of the
Board of Directors
DATE April 6, 1994
BY (SIGNATURE) /s/ John P. Seibels
(NAME AND TITLE) John P. Seibels, Director
DATE April 6, 1994
BY (SIGNATURE) /s/ Frederick B. Karl
(NAME AND TITLE) Frederick B. Karl, Director
DATE April 6, 1994
BY (SIGNATURE) /s/ Richard G. Trub
(NAME AND TITLE) Richard G. Trub, Director
DATE April 6, 1994
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SIGNATURES
BY (SIGNATURE) /s/ Donald W. Feddersen
(NAME AND TITLE) Donald W. Feddersen, Director
DATE April 6, 1994
BY (SIGNATURE) /s/ Joseph D. Sargent
(NAME AND TITLE) Joseph D. Sargent, Director
DATE April 6, 1994
BY (SIGNATURE) /s/ Dr. John M. Palms
(NAME AND TITLE) Dr. John M. Palms, Director
DATE April 6, 1994
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POLICY MANAGEMENT SYSTEMS CORPORATION
EXHIBIT INDEX
Exhibit
Number
3. ARTICLES OF INCORPORATION AND BY-LAWS
A. Articles of Incorporation of the Company, as amended
through December 31, 1993, incorporating all amendments
thereto subsequent to December 31, 1983. (File No. 0-
10175 - Filed under cover of Form SE on April 5, 1994)
B. Bylaws of the Company, as amended through December 31,
1993 incorporating all amendments thereto subsequent to
October 5, 1982. (Filed herewith)
10. MATERIAL CONTRACTS
A. Deferred Compensation Agreement with G. Larry Wilson
(Filed herewith)
B. Executive Compensation Agreement with G. Larry Wilson
(Filed herewith)
C. Annual Bonus Program for Executive Officers (Filed
herewith)
D. CYBERTEK Corporation Acquisition Agreement (File No. 0-
10175 - Filed under cover of Form SE on April 5, 1994)
22. SUBSIDIARIES OF THE REGISTRANT
(Filed herewith)
24. CONSENTS OF EXPERTS AND COUNSEL
Consent of Coopers & Lybrand (Filed herewith)
99. ADDITIONAL EXHIBITS
Report on Form 8-K, dated August 17, 1993 (Filed herewith)
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<PAGE> 1
EXHIBIT 22
LIST OF SUBSIDIARIES
OF POLICY MANAGEMENT SYSTEMS CORPORATION
(Jurisdiction of Incorporation)
Policy Management Systems Canada, Ltd. (Canada)
Policy Management Systems International, Ltd. (Delaware)
Policy Management Corporation (South Carolina)
Policy Management Systems Netherlands B.V. (The
Netherlands)
Policy Management Systems (Barbados), Ltd. (Barbados)
Policy Management Systems Europe, Limited (England)
P.M.S., Inc. d/b/a Telepro, Telefacts and Legal Facts
(Texas)
Policy Management Systems Australia Pty. Limited
(Australia)
Policy Management Systems Information and Administration
Services, Inc. (South Carolina)
Portsmouth I.T. Services Limited (England)
Policy Management Systems (Germany) GmbH (Germany)
Policy Management Systems Life, Inc. (South Carolina)
Policy Management Systems Osterreich GmbH (Austria)
Policy Management Systems Investment, Inc. (Delaware)
Medical Correspondence Service, Inc. (Georgia)
CYBERTEK Management Services, Inc. (California)
CYBERTEK Corporation (Texas)
CYBERTEK Computer Products International, Inc.
(California)
CYBERTEK Agency Services, Inc. (Texas)
CYBERTEK LAN Software, Inc. (California)
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<PAGE> 2
CYBERTEK Solutions, Inc. (Texas)
CYBERTEK-Cogensys, Inc. (Delaware)
Policy Management Systems Norden A.S. (Norway)
Myers and Boles Corporation (California)
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EXHIBIT 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Policy Management Systems Corporation ("Company")
on Form S-8 (Nos. 33-33848, 33-35002 and 33-35917) of our report,
which includes two emphasis paragraphs discussing errors in
previously issued financial statements and litigation and a
Securities and Exchange Commission investigation, dated April 5,
1994 on our audits of the consolidated financial statements and
financial statement schedules of the Company as of December 31,
1993 and 1992, and for the twelve months ended December 31, 1993,
which report is included in this Annual Report on Form 10-K.
Atlanta, Georgia Coopers & Lybrand
April 5, 1994
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BYLAWS
AS AMENDED THROUGH MAY 1, 1992
OF
POLICY MANAGEMENT SYSTEMS CORPORATION
OF
SOUTH CAROLINA
ARTICLE 1: OFFICES
Section 1: Registered Office and Agent. The registered office
of the Corporation and the registered agent shall be at One PMS
Center, Blythewood, South Carolina 29016.
Section 2: Other Offices. The Corporation may also have
offices at such other places within and without the State of South
Carolina as the Board of Directors may from time to time determine
or the business of the Corporation may require.
ARTICLE 2: SHAREHOLDERS
Section 1: Place of Meetings. Meetings of shareholders shall
be held at the time and place, within or without the State of South
Carolina, stated in the notice of the meeting or in a waiver of
notice.
Section 2: Annual Meetings. An annual meeting of the
shareholders shall be held each year at 11:00 a.m. on a date to be
set by the Board of Directors each year in accordance with all
applicable notice requirements. At the meeting, the shareholders
shall elect directors and transact such other business as may
properly be brought before the meeting.
Section 3: Voting List. At least ten (10) days prior to each
meeting of the shareholders, a complete list of the shareholders
entitled to vote at the meeting, arranged in alphabetical order,
with the address of each and the number of voting shares held by
each, shall be prepared by the officer or agent having charge of
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the stock transfer books. The list, for a period of ten (10) days
prior to the meeting, shall be kept on file at the registered
office of the Corporation and shall be subject to inspection by any
shareholder at any time during usual business hours. The list
shall also be produced and kept open at the time and place of the
meeting during the whole time thereof, and shall be subject to the
inspection of any shareholder during the whole time of the meeting.
Section 4: Special Meeting. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise
prescribed by statute or by the Articles of Incorporation, or by
these Bylaws, may be called by the chief executive officer, the
president, the chairman of the Board of Directors, or a majority of
the Board of Directors. Business transacted at the special meeting
shall be confined to the purposes stated in the notice of the
meeting.
Section 5: Notice. Written or printed notice stating the
place, day and hour of the meeting and, in case of a special
meeting the purpose or purposes for which the meeting is called,
shall be delivered not less than ten (10) nor more than sixty (60)
days before the date of the meeting, either personally or by mail,
by or at the direction of the chairman, the chief executive
officer, the president, the secretary, or the officer or persons
calling the meeting, to each shareholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed delivered
when deposited with postage prepaid in the United States mail,
addressed to the shareholder at the address appearing on the stock
transfer books of the Corporation. No failure or irregularity of
notice of any regular meeting shall invalidate the same or any
proceeding thereat.
Section 6: Quorum. The holders of a majority of the shares
issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall be requisite and shall
constitute a quorum at meetings of the shareholders for the
transaction of business except as otherwise provided by statute, by
the Articles of Incorporation or by these Bylaws. If a quorum is
not present or represented at a meeting of the shareholders, the
shareholders entitled to vote, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a
quorum is present or represented, provided, however, that such
adjournment or adjournments shall not extend beyond sixty (60) days
from the date such meeting is originally held without additional
notice of such meeting as provided in Section 5 immediately above.
At an adjourned meeting at which a quorum is present or
represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 7: Majority Vote; Withdrawal of Quorum. Except in
regards to the election of directors, when a quorum is present at
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a meeting, the vote of the holders of a majority of the shares
having voting power, present in person or represented by proxy,
shall decide any question brought before the meeting, unless the
question is one on which, by express provision of the statutes, the
Articles of Incorporation, or these Bylaws, a higher vote is
required in which case the express provision shall govern.
Directors shall be elected by plurality vote of the shareholders.
The shareholders present at a duly constituted meeting may continue
to transact business until adjournment, despite the withdrawal of
enough shareholders to leave less than a quorum.
Section 8: Method of Voting. Each outstanding share,
regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of shareholders, except to the
extent that the Articles of Incorporation provide otherwise and
except to the extent that the Articles of Incorporation limit or
deny the voting rights of the shares of any class or classes. At
any meeting of the shareholders, every shareholder having the right
to vote may vote either in person, or by proxy executed in writing
by the shareholder or by his duly authorized attorney-in-fact, or
by a telegram or cablegram appearing to have been transmitted by a
shareholder. No proxy shall be valid after the expiration of
eleven (11) months from the date of its execution. Every proxy
shall be filed with the secretary of the Corporation prior to or at
the time of the meeting. Voting for directors shall be in
accordance with Article 3 Section 3 of these Bylaws. Any vote may
be taken by voice or by hands unless someone entitled to vote
objects, in which case written ballots shall be used.
Section 9: Record Date; Closing Transfer Books. The Board of
Directors shall fix in advance a record date for the purpose of
determining shareholders entitled to notice of and to vote at a
meeting of the shareholders, the record date to be not less than
ten (10) nor more than seventy (70) days prior to the meeting and
the Board of Directors shall cause the stock transfer books to be
closed for such purpose on such record date.
ARTICLE 3: DIRECTORS
Section 1: Management. The business and affairs of the
Corporation shall be managed by the Board of Directors who may
exercise all such powers of the Corporation and do all such lawful
acts and things as are not (by statute or by the Articles of
Incorporation or by these Bylaws) directed or required to be done
or exercised by the shareholders.
Section 2: Number, Classification and Election of Directors.
The Board of Directors shall be limited to a maximum of sixteen
directors, with the precise number thereof to be fixed as the Board
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shall from time to time resolve. The members of the Board of
Directors need not be shareholders nor need they be residents of
any particular state. Subject to the provisions of S.C. Code
33-8-104, formerly S.C. Code 33-15-50, the directors shall be
classified with respect to the time for which they shall severally
hold office by dividing them into three classes, each consisting of
an approximately equal number of directors, and each director of
the Corporation shall hold office until his successor shall be
elected and shall qualify.
Section 3: Election of Directors. Directors shall be elected
by plurality vote. Each shareholder entitled to vote at an
election of directors shall be entitled to cumulate his votes. Any
shareholder who intends to cumulate his votes shall either give
written notice of such intention to an officer of the Corporation
not less than forty-eight (48) hours before the time fixed for the
meeting or shall announce his intention in such meeting before the
election of directors has commenced. If a shareholder intending to
accumulate his votes gives notice in the meeting, the person
presiding may, or if requested by any shareholder shall, recess the
meeting for a period not to exceed two (2) hours. If any
shareholder his given notice of his intention to cumulate his votes
either prior to or in the meeting, all shareholders entitled to
vote at such meeting shall, without further notice, be entitled to
accumulate their votes.
Section 4: Retirement of Directors. Any member of the Board
of Directors who shall attain his seventieth (70th) birthday during
his term shall retire from the Board on the last day of his term
and shall be deemed to retire from the Board on such day. No
person shall be elected to serve upon the Board of Directors who
has attained the age of seventy (70) years.
Section 5: Removal of Directors.
(a) Directors may be removed without cause by the
affirmative vote of the holders of a majority of the
shares entitled to vote at an election of directors, such
vote being taken at a meeting of the shareholders called
for that purpose at which the holders of eighty percent
(80%) of the shares entitled to vote are present in person
or represented by proxy. No amendment, alternation,
change or repeal of this subparagraph of Article 3,
Section 5 may be effected unless it is first approved by
the affirmative vote of holders of not less than eighty
percent (80%) of each class of shares of the Corporation
entitled to vote thereon.
(b) Directors may be removed for cause by the affirmative
vote of the holders of a majority of the shares entitled
to vote at an election of directors, such vote being taken
at a meeting of the shareholders called for that purpose
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at which quorum as provided in Article 2, Section 6 is
present.
(c) No director who has been elected by cumulative voting
may be removed if the votes cast against his removal would
be sufficient to elect him if then cumulatively voted at
an election of the entire Board of Directors, or, if there
be classes of directors, at an election of the class of
Directors of which his is a part.
Section 6: Vacancies. Any vacancy occurring in the Board of
Directors, whether by increase in the number of directors or by
death, resignation, removal, or otherwise may be filled by an
affirmative vote of a majority of the remaining directors then in
office for a term ending at the next annual meeting of the
shareholders of the Corporation.
Section 7: Place of Meetings. Meetings of the Board of
Directors, regular or special, may be held either within or without
the State of South Carolina.
Section 8: Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place as
shall from time to time be determined by the Board.
Section 9: Special Meetings. Special meetings of the Board of
Directors may be called without notice by the chairman, the chief
executive officer, the president, or any executive vice president.
Section 10: Telephone and Similar Meetings. Directors may
participate in and hold a meeting by means of conference telephone
or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in
such a meeting shall constitute presence in person at the meeting,
except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
Section 11: Quorum; Majority Vote. At meetings of the Board
of Directors a majority of the number of directors then in office
shall constitute a quorum for the transaction of business. The act
of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors,
except as otherwise specifically provided by statute, the Articles
of Incorporation, or these Bylaws. If a quorum is not present at
a meeting of the Board of Directors, the directors present may
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present.
Section 12: Compensation. By resolution of the Board of
Directors, the directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be
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paid a fixed sum for attendance at each meeting of the Board of
Directors. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving
compensation therefor. Members of the executive committee, audit
committee, or of special or standing committees may, by resolution
of the Board of Directors, be allowed compensation for attending
committee meetings.
Section 13: Procedure. The Board of Directors shall keep
regular minutes of its proceedings. The minutes shall be placed in
the minute book of the Corporation.
Section 14: Action Without Meeting. Any action required or
permitted to be taken at a meeting of the Board of Directors may be
taken without a meeting by a majority of directors, and such action
shall be deemed action of the Board of Directors if all directors
execute, either before or after the action is taken a written
consent thereto, and the consent is filed with the records of the
Corporation. Such consent shall have the same force and effect as
a majority vote or such greater percentage vote as is required by
the Articles of Incorporation, Bylaws, or statute, at a meeting.
ARTICLE 4: EXECUTIVE COMMITTEE; AUDIT COMMITTEE;
NOMINATING COMMITTEE; COMPENSATION COMMITTEE
AND OTHER COMMITTEES
Section 1: Designation. The Board of Directors may, by
resolution adopted by a majority of the full Board, designate an
Executive Committee, an Audit Committee, a Nominating Committee, a
Compensation Committee and other committees.
Section 2: Executive Committee.
(a) Number; Qualifications; Term. The Executive
Committee shall consist of one or more directors elected
by the Board, one of whom shall be the chief executive
officer of the Corporation. The Executive Committee shall
serve at the pleasure of the Board of Directors.
(b) Authority. The Executive Committee, to the extent
provided in such resolution, shall have and may exercise
all of the authority of the Board of Directors in the
management of the business and affairs of the Corporation,
including authority over the use of the corporate seal.
However, the Executive Committee shall not have the
authority of the Board to:
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(1) Amend the Articles of Incorporation;
(2) Adopt a plan of merger, consolidation, or
exchange;
(3) Recommend to the shareholders the sale or
disposition of all or substantially all of the
property and assets of the Corporation other than
in the usual course of its business;
(4) Recommend to the shareholders a voluntary
dissolution of the Corporation or revocation of
such dissolution;
(5) Declare dividends or other corporate
distributions;
(6) Adopt or revise a bylaw of the Corporation;
(7) Fill vacancies on the Board of Directors;
(8) Issue stock, except by Board of Directors'
resolution, or provisions of the Articles or
Bylaws.
Section 3: Audit Committee.
(a) Number; Qualification; Term. The Audit Committee
shall consist of three (3) or more directors elected by
the Board, none of whom shall be employed by the
Corporation in any capacity other than as a director, the
chairman of which shall be appointed by the chief
executive officer of the Corporation. The Audit Committee
shall serve, by resolution addressed thereto, at the
pleasure of the Board of Directors.
(b) Authority. The Audit Committee, to the extent
provided in such resolution, shall select and nominate for
consideration of the Board of Directors independent
auditors of the Corporation, shall be responsible for the
arrangements for and scope of the independent examination
of the financial records of the Corporation by such
auditors, shall give appropriate consideration to the
controls of such audit, and shall perform such other
duties and assume such additional responsibility as may
from time to time be placed upon it by the Board of
Directors, subject, however, to the same restrictions set
forth in Section 2(b) of this Article 4 with respect to
the Executive Committee.
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Section 4: Nominating Committee.
(a) Number; Qualification; Term. The Nominating
Committee shall consist of one or more directors elected
by the Board. The Nominating Committee shall serve at the
pleasure of the Board of Directors.
(b) Authority. The Nominating Committee shall nominate
for consideration of the Board of Directors candidates for
the various offices provided under these Bylaws. The
Nominating Committee shall perform such other duties and
assume such additional responsibility as may from time to
time be placed upon it by the Board of Directors, subject,
however, to the same restrictions set forth in Section
2(b) of the Article 4 with respect to the Executive
Committee.
Section 5: Compensation Committee.
(a) Number; Qualification; Term. The Compensation
Committee shall consist of one or more directors elected
by the Board. The Compensation Committee shall serve at
the pleasure of the Board of Directors.
(b) Authority. The Compensation Committee shall be
responsible for the overall administration of all matters
pertaining to compensation of the officers and employees
of the Corporation. The committee shall give appropriate
consideration to any salary administration plan or bonus
plan which may from time to time be proposed or adopted by
the Corporation. The Compensation Committee shall perform
such other duties and assume such additional
responsibility as may be placed upon it by the Board of
Directors, subject, however, to the same restrictions set
forth in Section 2(b) of the Article 4 with respect to the
Executive Committee.
Section 6: Other Committees.
(a) Number; Qualification; Term. The Board of Directors
may appoint such other committees as it deems appropriate,
each consisting of one or more directors. Any director
may serve on any such other committee. Any committee
appointed under this Section 6 shall serve at the pleasure
of the Board.
(b) Authority. Any committee appointed under this
Section 6 shall perform such duties and assume such
responsibility as may from time to time be placed upon it
by the Board of Directors, subject, however, to the same
restrictions set forth in Section 2(b) of this Article 4
with respect to the Executive Committee.
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Section 7: Meetings. Time, place and notice of Executive,
Audit, Nominating, Compensation and other committee meetings shall
be as called and specified by the chief executive officer, the
committee chairman, or any two (2) members of each committee.
Section 8: Quorum; Majority Vote. At meetings of the
Executive, Audit, Nominating, Compensation and other committees, a
majority of the number of members designated by the Board of
Directors shall constitute a quorum for the transaction of
business. The act of a majority of the members present at any
meeting at which a quorum is present shall be the act of the
Executive, Audit, Nominating, Compensation and other committees,
except as otherwise specifically provided by statute, the Articles
of Incorporation, or these Bylaws. If a quorum is not present at
a meeting of the Executive, Audit, Nominating, Compensation and
other committees, the members present may adjourn the meeting from
time to time, without notice other than an announcement at the
meeting, until a quorum is present.
Section 9: Procedure. The Executive, Audit, Nominating,
Compensation and other committees shall keep regular minutes of
their proceedings and report the same to the Board of Directors at
its next regular meeting. The minutes of the proceedings of the
Executive, Audit and other committees shall be placed in the minute
book of the Corporation.
Section 10: Action Without Meeting. Any action required or
permitted to be taken at a meeting of the Executive, Audit,
Nominating, Compensation or other committees may be taken without
a meeting by a majority of the members of the Executive, Audit,
Nominating, Compensation, or other committees and such action shall
be deemed the action of the respective committee if all committee
members execute, either before or after the action is taken, a
written consent thereto, and the consent is filed with the records
of the Corporation.
Section 11: Telephone and Similar Meetings. Executive, Audit,
Nominating, Compensation and other committee members may
participate in and hold a meeting by means of conference telephone
or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in
such a meeting shall constitute presence in person at the meeting,
except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
Section 12: Responsibility. The designation of an Executive,
Audit, Nominating, Compensation or other committee and the
delegation of authority to it shall not operate to relieve the
Board of Directors, or any member thereof, of any responsibility
imposed upon it or him by law.
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ARTICLE 5: NOTICE
Section 1: Method. Whenever by statute, the Articles of
Incorporation, these Bylaws, or otherwise, notice is required to be
given to a director, committee member, or security holder, and no
provision is made as to how the notice shall be given, it shall not
be construed to mean personal notice, but any such notice may be
given: (a) in writing, by first class mail, postage prepaid,
addressed to the director, committee member, or security holder at
the address appearing on the books of the Corporation; or (b) in
any other method permitted by law. Any notice required or
permitted to be given by mail shall be deemed given at the time
when the same is thus deposited in the United States mails.
Section 2: Waiver. Whenever, by statute or the Articles of
Incorporation or these Bylaws, notice is required to be given to
security holder, committee member, or director, a waiver thereof in
writing signed by the person or persons entitled to such notice,
whether before or after the time stated in such notice, shall be
equivalent to the giving of such notice. Attendance at a meeting
shall constitute a waiver of notice of such meeting, except where
a person attends for the express purpose of objecting to the
transaction of any business on the grounds that the meeting is not
lawfully called or convened.
ARTICLE 6: OFFICERS
Section 1: Number; Qualification; Election; Term.
(a) The Corporation shall have: (1) a president, a
secretary, a treasurer and a general counsel, and such
other officers as the Board of Directors thereof may elect
from time to time, and (2) such assistant officers to
those positions elected by the Board of Directors as the
president may in his discretion, without approval of the
Board, appoint from time to time.
(b) Officers named by Bylaw Article 6, Section 1(a)(1)
shall be elected by the Board of Directors on the
expiration of an officer's term or whenever a vacancy
exists. Officers named in Bylaw Article 6, Section
1(a)(2) may be appointed by president at any time.
(c) Unless otherwise specified by the Board at the time
of election or appointment, or in an employment contract
approved by the Board, each officer's term shall end at
the first meeting of directors after the next annual
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meeting of shareholders. He shall serve until the end of
his term or, if earlier, his death, resignation, or
removal.
Section 2: Removal. Any officer elected or appointed by the
Board of Directors may be removed by two-thirds (2/3) vote of the
Board of Directors or the executive committee whenever in its
judgment the best interests of the Corporation will be served
thereby. Such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment
of an officer shall not of itself create contract rights.
Section 3: Vacancies. Any vacancy occurring in any office of
the Corporation (by death, resignation, removal or otherwise) may
be filled by the Board of Directors.
Section 4: Authority. Officers shall have such authority and
perform such duties in the management of the Corporation as are
provided in these Bylaws or as may be determined by resolution of
the Board of Directors not inconsistent with these Bylaws.
Section 5: Compensation. The compensation of officers shall
be fixed from time to time by the Board of Directors or as they may
delegate.
Section 6: Chairman of the Board. The office of the chairman
of the Board may be filled by the Board at its pleasure by the
election of one of its members of the office. The chairman shall
preside at all meetings of the Board, and shall perform such other
duties as may be assigned to him by the Board of Directors.
Section 7: Vice Chairman of the Board. The office of vice
chairman of the Board may be filled by the Board at its pleasure by
the election of one of its members to the office. In the absence
of the chairman of the Board or in the event that that office is
vacant either temporarily or otherwise, during such period the vice
chairman shall assume the duties of the office of chairman of the
Board.
Section 8: Chief Executive Officer. The position of chief
executive officer may be filled by the Board at its pleasure by the
election of one of its members to the office. The chief executive
officer shall be responsible for the general and active management
of the business and affairs of the Corporation, and shall see that
all orders and resolutions of the Board are carried into effect.
He shall perform such other duties and have such other authority
and powers as the Board of Directors may from time to time
prescribe.
Section 9: President. The president shall preside at all
meetings of the shareholders and the Board of Directors. In the
event no other person is designated the chief executive officer of
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the Corporation, or in the event that office is vacant either
temporarily or otherwise, during such period the president shall
assume the duties of that office. He shall perform such other
duties and have such other authority and powers as the Board of
Directors may from time to time prescribe.
Section 10: Vice Presidents. The executive vice president and
vice presidents, in the order of their seniority, unless otherwise
determined by the Board of Directors, shall, in the absence or
disability of the president, perform the duties and have the
authority and exercise the powers of the president. They shall
perform such other duties and have such other authority and powers
as the Board of Directors may from time to time prescribe or as the
president may from time to time delegate.
Section 11: Secretary.
(a) The secretary shall attend all meetings of the Board
of Directors and all meetings of the shareholders and
record all votes, actions and the minutes of all
proceedings in a book to be kept for that purpose and
shall perform like duties for the executive and other
committees when required.
(b) He shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the
Board of Directors.
(c) He shall keep in safe custody the seal of the
Corporation and, when authorized by the Board of Directors
or the executive committee, affix it to any instrument
requiring it. When so affixed, it shall be attested by
his signature or by the signature of the treasurer or an
assistant secretary.
(d) He shall be under the supervision of the president.
He shall perform such other duties and have such other
authority and powers as the Board of Directors may from
time to time prescribe or as the president may from time
to time delegate.
Section 12: Assistant Secretary. The assistant secretaries in
the order of their seniority, unless otherwise determined by the
Board of Directors, shall, in the absence or disability of the
secretary, perform the duties and have the authority and exercise
the powers of the secretary. They shall perform such other duties
and have such other powers as the Board of Directors may from time
to time prescribe or as the president may from time to time
delegate.
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Section 13: Treasurer.
(a) The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate
accounts of receipts and disbursements of the Corporation
and shall deposit all moneys and other valuables in the
name and to the credit of the Corporation in appropriate
depositories.
(b) He shall disburse the funds of the Corporation
ordered by the Board of Directors, and prepare financial
statements as they direct.
(c) He shall perform such other duties and have such
other authority and powers as the Board of Directors may
from time to time prescribe or as the president may from
time to time delegate.
(d) His books and accounts shall be opened at any time
during business hours to the inspection of any director of
the Corporation.
Section 14: Assistant Treasurers. The assistant treasurers in
the order of their seniority, unless otherwise determined by the
Board of Directors, shall in the absence or disability of the
treasurer, the duties and have the authority and exercise the
powers of treasurer. They shall perform such other duties and have
such other powers as the Board of Directors may from time to time
prescribe or as the president may from time to time delegate.
Section 15: General Counsel. The general counsel of the
Corporation shall prepare and review such contracts and agreements
as are required in the business of the Corporation and shall
inspect and pass upon all such instruments presented to the
Corporation as may be of sufficient importance to justify such
examination. He shall counsel the officers of the Corporation in
all legal matters pertaining to the affairs of the Corporation.
The general counsel shall be responsible for the administration of
the legal affairs of the Corporation including employment and
coordination of outside counsel.
ARTICLE 7: CERTIFICATES AND SHAREHOLDERS
Section 1: Certificates. Certificates in the form determined
by the Board of Directors shall be delivered representing all
shares of which shareholders are entitled. Certificates shall be
consecutively numbered and shall be entered in the books of the
Corporation as they are issued. Each certificate shall state on
its face the holder's name, the number and class of shares, the par
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<PAGE> 14
value and such other matters as may be required by law. It shall
be signed by the president or a vice president and such other
officer or officers as the Board of Directors shall designate, and
may be sealed with the seal of the Corporation or a facsimile
thereof. If a certificate is countersigned by a transfer agent, or
an assistant transfer agent or registered by a registrar (either of
which is other than the Corporation or an employee of the
Corporation), the signature of any officer may be facsimile.
Section 2: Issuance. Shares (both treasury and authorized but
unissued) may be issued for such consideration (not less than par
value) and to such persons as the Board of Directors may determine
from time to time. Shares may not be issued until the full amount
of consideration has been paid as provided by law.
Section 3: Payment for Shares.
(a) Kind. The consideration of the issuance of shares
shall consist of money paid, labor done (including
services actually performed for the Corporation) or
property (tangible or intangible) actually received.
Neither promissory notes nor the promise of future
services shall constitute payment for shares.
(b) Valuation. In the absence of fraud in the
transaction, the judgment of the Board of Directors as to
the value of consideration received shall be conclusive.
(c) Effect. When consideration, fixed as provided by
law, has been paid, the shares shall be deemed to have
been issued and shall be considered fully paid and
nonassessable.
(d) Allocation of Consideration. The consideration
received for shares shall be allocated by the Board of
Directors, in accordance with law, between stated capital
and capital surplus accounts.
Section 4: Subscriptions. Unless otherwise provided in the
subscription agreement, subscriptions for shares, whether made
before or after organization of the Corporation, shall be paid in
full at such time or in such installments and at such times as
shall be determined by the Board of Directors. Any call made by
the Board of Directors for payment on subscriptions shall be
uniform as to all shares of the same series. In case of default in
the payment on any installment or call when payment is due, the
Corporation may proceed to collect the amount due in the same
manner as any debt due to the Corporation.
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Section 5: Lien. For any indebtedness of a shareholder to the
Corporation with respect to his stock, the Corporation shall have
a first and prior lien on all shares of its stock owned by him and
on all dividends or other distributions declared thereon.
Section 6: Lost, Stolen or Destroyed Certificates. The
Corporation shall issue a new certificate in place of any
certificate for shares previously issued if the registered owner of
the certificate:
(a) Claim. Makes proof in affidavit form that it has
been lost, destroyed or wrongfully taken; and
(b) Timely Request. Requests the issuance of a new
certificate before the Corporation has notice that the
certificate has been acquired by a purchaser for value in
good faith and without notice of an adverse claim; and
(c) Bond. Gives a bond in such form, and with such
surety or sureties, with fixed or open penalty, as the
Corporation may direct, to indemnify the Corporation (and
its transfer agent and registrar, if any) against any
claim that may be made on account of the alleged loss,
destruction, or theft of the certificate; and
(d) Other Requirements. Satisfies any other reasonable
requirements imposed by the Corporation.
When a certificate has been lost, apparently destroyed or
wrongfully taken, and the holder of record fails to notify the
Corporation within a reasonable time after he has notice of it, and
the Corporation registers a transfer of the shares represented by
the certificate before receiving such notification, the holder of
record is precluded from making any claim against the Corporation
for the transfer or for a new certificate.
Section 7: Registration of Transfer. The Corporation shall
register the transfer of a certificate for shares presented to it
for transfer if:
(a) Endorsement. The certificate is properly endorsed by
the registered owner or by his duly authorized attorney;
and
(b) Guarantee and Effectiveness of Signature. The
signature of such person has been guaranteed by a
commercial bank or brokerage firm that is a member of the
National Association of Securities Dealers and reasonable
assurance is given that such endorsements are effective;
and
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(c) Adverse Claims. The Corporation has no notice of an
adverse claim or has discharged any duty to inquire in
such a claim; and
(d) Collection of Taxes. Any applicable law relating to
the collection of taxes has been complied with.
Section 8: Registered Owner. Prior to due presentment for
registration of transfer of a certificate for shares, the
Corporation may treat the registered owner as the person
exclusively entitled to vote, to receive notices and otherwise to
exercise all the rights and powers of a shareholder.
Section 9: Pre-Emptive Rights. No shareholder or other person
shall have any pre-emptive right whatsoever.
ARTICLE 8: GENERAL PROVISIONS
Section 1: Dividends and Reserves
(a) Declaration and Payment. Subject to statute and the
Articles of Incorporation, dividends may be declared by
the Board of Directors at any regular or special meeting
and may be paid in cash, in property, or in shares of the
Corporation. The declaration and payment shall be at the
discretion of the Board of Directors.
(b) Record Date. The Board of Directors shall fix in
advance a record date for the purpose of determining
shareholders entitled to receive payment of any dividend,
the record date to be not more than seventy (70) days
prior to the payment date of such dividend, and shall
cause the stock transfer books to be closed for such
purpose on such record date.
(c) Reserves. By resolution the Board of Directors may
create such reserve or reserves out of the earned surplus
of the Corporation as the directors from time to time, in
their discretion, think proper to provide for
contingencies, or to equalize dividends, or to repair or
maintain any property of the Corporation, or for any other
purpose they think beneficial to the Corporation. The
directors may modify or abolish any such reserve in the
manner in which it was created.
Section 2: Books and Records. The Corporation shall keep
correct and complete books and records of account and shall keep
minutes of the proceedings of its shareholders and Board of
Directors, and shall keep at its registered office or principal
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<PAGE> 17
place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of the
shares held by each.
Section 3: Checks and Notes. All checks or demands for money
and notes of the Corporation shall be signed by such officer or
officers or such other person or persons as the Board of Directors
may from time to time designate.
Section 4: Fiscal Year. The fiscal year of the Corporation
shall be the same as the calendar year.
Section 5: Seal. The Corporation seal (of which there may be
one or more examplars) shall contain the name of the Corporation
and the name of the state of incorporation. The seal may be used
by impressing it or reproducing a facsimile of it, or otherwise.
Section 6: Indemnification. The Corporation shall indemnify
those persons and to the extent provided in the Articles of
Incorporation.
Section 7: Resignation. Any director, committee member, or
officer may resign by giving written notice to the president or the
secretary. The resignation shall take effect at the time specified
therein, or immediately if no time is specified. Unless otherwise
specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 8: Amendment of Bylaws.
(a) These Bylaws may be altered, amended, or repealed or
new Bylaws may be adopted at any meeting of the Board of
Directors at which a quorum is present, by a two- thirds
(2/3) vote of the directors then in office, provided
notice of the proposed alteration, amendment, or repeal is
contained in the notice of the meeting.
(b) These Bylaws may also be altered, amended or repealed
or new Bylaws may be adopted at any meeting of the
shareholders at which a quorum is present or represented
by proxy, by the affirmative vote of the holders of
sixty-six and two-thirds percent (66 2/3%) of each class
of shares entitled to vote thereon, provided notice of the
proposed alteration, amendment or repeal is contained in
the notice of the meeting.
(c) Upon adoption of any new Bylaws by the shareholders,
the shareholders may provide that such Bylaw shall not be
repealed, altered or amended by the Board of Directors.
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Section 9: Construction. Whenever the context so requires,
the masculine shall include the feminine and neuter, and the
singular shall include the plural, and conversely. If any portion
of these Bylaws shall be invalid or inoperative, then, so far as is
reasonable and possible:
(a) The remainder of these Bylaws shall be considered
valid and operative, and
(b) Effect shall be given to the intent manifested by the
portion held invalid or inoperative.
Section 10: Headings. The headings are for organization,
convenience and clarity. In interpreting these Bylaws, they shall
be subordinated in importance to the other written material.
Section 11: Relation to Articles of Incorporation. These
Bylaws are subject to, and governed by, the Articles of
Incorporation.
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<PAGE> 1
EXECUTIVE COMPENSATION AGREEMENT
THIS AGREEMENT, made and entered into this date: 18 January 1978
by and between SEIBELS, BRUCE & COMPANY, a South Carolina
corporation (hereinafter referred to as the "Company"), and G.
LARRY WILSON, a resident of Columbia, South Carolina (hereinafter
referred to as the "Employee").
WITNESSETH:
WHEREAS, the Employee has been employed by the Company since 20
June, 1966 and currently holds the position of Senior Vice
President and has rendered valuable services to the Company; and
WHEREAS, the Company wishes to insure the continuation of the
Employee's services and to reward the Employee properly therefor;
NOW, THEREFORE, in consideration of the services rendered and to be
rendered by the Employee to the Company, the Company hereby agrees
to provide the Employee with the following benefits under the
following terms and conditions:
1. BENEFITS TO BE PAID AT RETIREMENT OR UPON DEATH PRIOR TO
RETIREMENT:
(a) The Employee's Retirement Date shall be the first day of
the calendar month next succeeding the date upon which he
attains the age of sixty-five (65); the Employee may retire
on said date, or upon such later date as may be consented
to by the Company, unless the Employee elects Early
Retirement as described below in Section 2.
(b) Upon the Employee's actual retirement pursuant to Early
Retirement or at or after his Retirement Date, the Company
agrees to pay to the Employee one hundred and twenty (120)
monthly payments in the amount of Six hundred and sixty-
seven dollars ($667.00) each, payable on the first day of
each month.
(c) In the event that the Employee dies prior to retirement, or
prior to receipt of all payments to which he is entitled
pursuant to the preceding paragraph, said payments, or the
balance thereof, shall be made to the Beneficiary, and if
necessary and contingent Beneficiary, designated by the
Employee in writing for said purpose. Said designation may
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<PAGE> 2
be changed by the Employee, by writing instrument delivered
to the Secretary of the Company, at any time prior to said
Employee's death. In the event that payments are made to
a contingent Beneficiary, the Company may in its sole
discretion provide that said payments shall be commuted on
the basis of five perecnt [sic] (5%) per annum compound
interest and paid in a lump sum. Notwithstanding the
foregoing, no payments shall be made after the Employee's
death if death results from suicide within two (2) years
after the date of this Agreement.
2. EARLY RETIREMENT:
The Employee shall be entitled to retire, prior to his
Retirement Date, as of the first day of any month next
following the date upon which be [sic] both completes twenty-
five (25) years of employment with the Company and attains the
age of sixty (60); provided, however, that no benefit payment
shall commence pursuant hereto until a date at least two (2)
years after the date of this Agreement.
3. BENEFITS TO BE PAID UPON DISABILITY PRIOR TO RETIREMENT:
(a) In the event that the Employee should be determined to be
totally disabled, as defined below, prior to his retirement
or other termination of service, the Company shall pay to
said Employee his normal salary for six (6) months
following his termination of employment resulting
therefrom, and shall thereafter pay to said Employee a
monthly amount determined in its sole discretion based on
the Employee's financial need, but in no event shall said
monthly amount exceed 50% of the monthly amount described
in Section 1 of this Agreement. Said monthly payments
shall continue for the period of said Employee's disability
but not beyond the Employee's Retirement Date. Beginning
at the Retirement Date, after having been disabled, the
Employee will then receive the benefits described in
Section 1 without reduction for any benefits paid due to
Disability.
(b) In the event of the employee's [sic] death during
disability, payments shall be made to his designated
Beneficiary or Contingent Beneficiary in the method
described in Section 1 without reduction for benefits paid
due to Disability. Notwithstanding the foregoing, in the
event that the Employee should recover from his disability
but should not, for any reason, offer to return to
employment with the Company, in a position and salary
comparable to that occupied and received at the time of
disability, he shall receive no further payments at his
Retirement Date.
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(c) For purposes of this Agreement, total disability shall mean
the inability of the Employee, because of sickness, disease
or injury, including mental or nervous disorder, but not
including any intentional injury or the results thereof, to
perform the material duties and functions of his occupation
or any comparable occupation commensurate with his
education, training and experience and consistent with his
attained standard of living as of the time of the inception
of said disability. The determination as to whether the
Employee has incurred said total disability shall be made
in the sole discretion of the Company, which may require a
certificate from a physician attesting to said disability,
among other requirements it may impose for such a
determination.
4. CONDITIONS OF PAYMENTS:
(a) The payments described in Sections 1 and 3 of this
Agreement shall be made only in the event that the Employee
continues in the active employ of the Company until his
retirement, total disability or death. In the event that
the Employee's service is terminated for any other reason,
neither he nor his Beneficiary shall have any rights
pursuant to this Agreement. Absence due to illness, of a
temporary nature, shall not of [sic] itself constitute a
termination of employment.
(b) The payments described in Section 1 and 3 of this Agreement
shall cease, and neither the Employee nor any Beneficiary
shall have any further right thereto, in the event that the
Employee engages, directly or indirectly, in any business
which is substantially similar to the business of the
Company, either as proprietor, owner of ten percent (10%)
or more of such a business' stock or partnership interests,
officer, employee, or otherwise, unless the Company has
first consented in writing thereto.
(c) During the period that payments are being made pursuant to
this Agreement, the Employee shall render such services of
an advisory or consultative nature as the Company may
reasonably request, provided however, that the Employee
shall not be required to travel from his residence (either
permanent or temporary) for said purposes unless the
expenses of any such travel shall be paid by the Company.
5. NO SECURITY INTEREST TRANSFERRED:
(a) The Company's obligation hereunder shall consist of an
unfunded, unsecured promise to pay the amounts above
described, and shall transfer no prior interest in any
assets of the Company.
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(b) Neither the Employee nor any Beneficiary shall have any
power to transfer, assign, anticipate, hypothocate [sic] or
otherwise encumber in advance any of the benefits payable
pursuant hereto, nor shall said benefits be subject to
seizure or attachment for the payment of any debts or
judgments or any of them, nor be transferable by operation
of law in the event of bankruptcy, insolvency or otherwise.
6. GENERAL PROVISIONS:
(a) Nothing in this Agreement shall be deemed to constitute a
contract or promise by the Company to continue to employ
the Employee, and the Company shall be free at any time to
discharge the Employee for cause. The Company does agree,
however, that it will not arbitrarily reduce or terminate
the Employee's compensation normally paid for services
rendered.
(b) Nothing in this Agreement shall affect any right of the
Employee to participate in any other retirement or deferred
benefit plan which the Company may now maintain or
hereafter institute, provided, however, that the amounts
payable pursuant to this Agreement shall not constitute
compensation for purposes of computing any benefits or
contributions for purposes of any such plan or program.
(c) This Agreement shall be binding upon the Company and the
Employee and any Beneficiary, their respective heirs,
executors, administrators or successors in interest,
including any company into which the Company may be merged
or by which it may be acquired.
(d) This Agreement shall be interpreted according to the laws
of South Carolina. In the event that any provision of this
Agreement is deemed unenforceable pursuant to said laws,
said provision shall be deemed null and void but the
remainder of this Agreement shall be enforced according to
its terms.
(e) This Agreement may be amended or revoked only by the mutual
written agreement of the Company and the Employee (or
Beneficiary, if appropriate).
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IN WITNESS WHEREOF, the Company and the Employee have caused this
Agreement to be executed and their respective seals affixed hereto,
the day and year first above written.
SEIBELS, BRUCE & COMPANY
(CORPORATE SEAL)
/s/ William R. Bruce
William R. Bruce, President
Attest: /s/ J. Smith Harrison
J. Smith Harrison, Exec
Vice Pres & Corp Sec
/s/ G. Larry Wilson
G. Larry Wilson
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
I, the undersigned, as provided in the Executive Compensation
Agreement entered into between Seibels, Bruce & Company and the
undersigned and dated 18 January 1978, do hereby designate as my
beneficiary the following:
PRIMARY: Patricia Ervin Wilson
if living; but if not living, then:
CONTINGENT: Christopher Chadwick Wilson
if living; but if not living, then any funds due
shall be payable to the executor or administrator of
the estate of the last survivor of said Employee,
Primary Beneficiary, or Contingent Beneficiary
Dated: 18 January 1978 /s/ G. Larry Wilson
Witness:
/s/ J. Smith Harrison
/s/ Priscilla C. Jones
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AMENDMENT NO. 1 TO THE
EXECUTIVE COMPENSATION AGREEMENT
Effective March 8, 1983, the Executive Compensation Agreement
entered into on January 18, 1978 between Seibels, Bruce & Company
(and later assumed by Policy Management Systems Corporation) and G.
LARRY WILSON is hereby amended as follows:
Section 1(b) is amended so as to provide for one hundred and
eighty (180) monthly payments in the amount of TWO THOUSAND AND
EIGHTY-THREE DOLLARS ($2,083) each, payable on the first day of
each month beginning with the Employee's Retirement Date (or the
first month following actual retirement in the event of Early
Retirement) and said paragraph is further amended to add a
provision that no payments will commence under the provisions of
retirement, including early retirement, prior to October 1, 1984.
Section 1(c) is amended to the extent of specifying that should
the Employee die prior to or after retirement, including early
retirement, and his death be the result of suicide within two years
from the date of this Amendment, the payments shall revert to the
monthly amount specified in the original Agreement and the
aggregate amount paid and to be paid shall not exceed the aggregate
amount specified in the original Agreement.
Section 2 is amended to the extent of removing the concluding
provision "provided, however, that no benefit payment shall
commence pursuant hereto until a date at least two (2) years after
the date of this Agreement."
The reference in Section 3(a) and 3(b) to "Section 1" are
hereby amended to read "Section 1, as amended."
All other terms and conditions of the Agreement remain
unchanged and in full force and effect.
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IN WITNESS WHEREOF, the Company and the Employee have caused
this Amendment to be executed and their respective seals affixed
hereto, the day and year first above written.
POLICY MANAGEMENT SYSTEMS
(Corporate Seal) CORPORATION
ATTEST: /s/ John C. Wyatt /s/ Robert L. Gresham
Employee
/s/ G. Larry Wilson
G. Larry Wilson
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<PAGE> 1
SUMMARY OF THE
ANNUAL BONUS PROGRAM
FOR
EXECUTIVE OFFICERS
OF
POLICY MANAGEMENT SYSTEMS CORPORATION
Each executive officer of the Company participates in an annual
bonus program which provides an opportunity
to earn up to forty percent (40%) of the executive's base salary.
The program is not set forth in a formal plan
document. The annual bonus is based upon goals defined by the
Company for the business unit for which the
executive has responsibility and on Company earnings.
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SUMMARY OF THE
EXECUTIVE COMPENSATION
AGREEMENT
BY AND BETWEEN
G. LARRY WILSON
AND
POLICY MANAGEMENT SYSTEMS CORPORATION
Pursuant to the Agreement for Transfer of Assets for Stock between the Company
and Seibels, Bruce and Company, dated September 30, 1981, the Company was
assigned an Executive Compensation Agreement from Seibels Bruce Group, Inc. the
former parent of the Company. Under this agreement, the Company is to pay,
subject primarily to Mr. Wilson's continued employment, certain specified
amounts over a five-year period. This Agreement is renewable annually at the
option of the Company.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 17, 1993
POLICY MANAGEMENT SYSTEMS CORPORATION
(Exact name of registrant as specified in Charter)
South Carolina 0-10175 57-0723125
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
One PMS Center (P.O.Box Ten)
Blythewood, S.C. (Columbia, S.C.) 29016 (29202)
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (803) 735-4000
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<PAGE> 2
Item 4. Changes in Registrant's Certifying Accountant
On August 17, 1993, Policy Management Systems
Corporation (the "Company") engaged the firm of Coopers & Lybrand
("Coopers") as its independent accountants to audit the Company's
financial statements for the six months ended June 30, 1993,
including a review of the Company's internal control structure.
Coopers has also agreed to work with the Company's previous
independent accountants to resolve any adjustments that could
impact prior periods. On August 17, the Company dismissed Arthur
Andersen & Co. ("Arthur Andersen"), which has served as the
Company's independent accountants since 1992. These actions were
approved by the Board of Directors upon the recommendation of the
Audit Committee.
Neither the previously issued auditors' report of
Arthur Andersen on the Company's financial statements for the
year ended December 31, 1992 nor the previously issued auditors'
report of Ernst & Young on the Company's financial statements for
the year ended December 31, 1991 contained any adverse opinion or
disclaimer, nor was either report qualified as to uncertainty,
audit scope, or accounting principles. By letter dated August
10, 1993, Arthur Andersen informed the Company of its withdrawal
of its auditors' report on the Company's financial statements for
the year ended December 31, 1992 for the reasons set forth in its
letter, a copy of which is filed herewith as Exhibit 99.1 and
incorporated by reference herein.
By letter dated August 13, 1993, Ernst & Young informed
the Company that its February 20, 1992 auditors' report should no
longer be associated with the Company's financial statements for
the years ended December 31, 1991 and 1990 for the reasons set
forth in its letter, a copy of which is attached herewith as
Exhibit 99.2 and is incorporated by reference herein.
By letter dated August 16, 1993, Ernst & Young further
advised the Company that its review reports on interim
financial statements during the years ended December 31, 1992,
1991 and 1990 should no longer be associated with those financial
statements. A copy of that letter is attached herewith as
Exhibit 99.3 and is incorporated by reference herein.
There have been no disagreements within the meaning of
Item 304(a) of Regulation S-K between the Company and either
Arthur Andersen or Ernst & Young in connection with the audits
for the fiscal years ended December 31, 1992 and 1991,
respectively, or subsequently, on any matter of accounting
principles or practices, financial statements disclosure, or
auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of such former principal accountants, would
have caused either firm to make reference to the subject matter
of the disagreements in connection with its report.
At a meeting on August 10, 1993, in connection with the
withdrawal of its auditors' report, Arthur Andersen advised the
Board of Directors that subsequent to the issuance of Arthur
Andersen's report and after the first quarter of 1993, certain
information came to its attention relating to the following
matters. Arthur Andersen advised the Board that it believes that
there are material weaknesses in the internal controls of the Company,
that information has come to its attention that has led it to question
certain of the Company's business practices and whether it would
any longer be able to rely on management's representations and
that information has come to its attention that, if further
investigated, may materially impact the fairness and reliability
of the Company's financial statements for prior periods. In its
comments to the Board of Directors, Arthur Andersen raised
questions regarding the Company's accounting practices related to
revenue recognition and certain other matters which had not been
resolved at the time of its termination. The Company, through
its representatives, has discussed each of these matters with
Arthur Andersen. The Company has authorized Arthur Andersen to
respond fully to inquiries of Coopers & Lybrand concerning these
matters, based upon information that has come to Arthur Andersen
in its capacity as principal accountant to audit the Company's
financial statements.
The Company and certain of its officers and directors
are defendants in a lawsuit alleging violation of the Federal
Securities Laws and purporting to be a class action. Among the
allegations are that the Company's financial statements for the
year ended December 31, 1992 are materially false and misleading.
Because Arthur Andersen audited those financial statements, the
Company believes that there exists the potential for conflicts
between the Company and Arthur Andersen. As a result, the
Company concluded that a change in its outside auditors was
appropriate.
The Company has furnished Arthur Andersen a copy of
this report and requested Arthur Andersen furnish a letter
addressed to the Securities and Exchange Commission stating
whether it agrees with the statements made herein. A copy of
such letter is filed herewith as Exhibit 16.1 and incorporated
by reference herein.
Item 7. Exhibits
Exhibit Number Description
16.1 Letter of Arthur Andersen dated
August 24, 1993
99.1 Letter of Arthur Andersen dated
August 10, 1993
99.2 Letter of Ernst & Young dated
August 13, 1993
99.3 Letter of Ernst & Young dated
August 16, 1993
106
<PAGE> 3
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 hereunto duly authorized.
POLICY MANAGEMENT SYSTEMS CORPORATION
(Registrant)
Date: August 24, 1993 By: Robert L. Gresham
Executive Vice President
(Chief Financial Officer)
107
<PAGE> 4
Exhibit 16.1
August 24, 1993
Arthur Andersen & Co.
Suite 2300
1201 Main Street
Columbia SC 29201
803 254 8102
The Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Gentlemen:
We have read item 4 included in the attached Form 8-k dated
August 24, 1993 of Policy Management Systems Corporation to be
filed with the Securities and Exchange Commission and are in
agreement with the statements contained therein.
Very Truly Yours,
ARTHUR ANDERSEN & CO.
/s/ ARTHUR ANDERSEN & CO.
108
<PAGE> 5
Exhibit 99.1
August 10, 1993
Arthur Andersen & Co.
Suite 2300
1201 Main Street
Columbia SC 29201
803 254 8102
Board of Directors of Policy Management
Systems Corporation
c/o Mr. G. Larry Wilson
Chairman of the Board, President,
and Chief Executive Officer
Policy Management Systems Corporation
Post Office Box 10
Columbia, South Carolina 29202
This is to inform you that Arthur Andersen & Co. withdraws its
report dated February 26, 1993 issued on the 1992 financial
statements of Policy Management Systems Corporation ("the
Company") due to the significant uncertainty related to the
outcome of the extended and broadened internal investigation
being conducted by the Company and Jones Day Reavis and Pogue,
concerning certain of the Company's business and accounting
practices and the effect of those practices on the financial
statements. Reliance should not be placed on the Arthur Andersen
& Co. report or the 1992 financial statements. The outcome of
the internal investigation is likely to require a restatement of
the 1992 financial statements. Please inform the Securities and
Exchange Commission concerning this development and make other
disclosures as appropriate.
Very truly yours,
ARTHUR ANDERSEN & CO.
/s/ ARTHUR ANDERSEN & CO.
109
<PAGE> 6
Exhibit 99.2
ERNST & YOUNG
Two Insignia Financial Plaza
Suite 800
P.O. Box 10647
Greenville
South Carolina
803 242 5740
August 13, 1993
Board of Directors of Policy Management
Systems Corporation
c/o Mr. G. Larry Wilson
Chairman of the Board, President,
and Chief Executive Officer
Policy Management Systems Corporation
Post Office Box 10
Columbia, South Carolina 29202
This is to inform you that Ernst & Young's report dated February
20, 1992 should no longer be associated with the financial
statements of Policy Management Systems Corporation (the Company)
for the years ended December 31, 1991 and December 31, 1990.
Following our inquiry of August 10, 1993, the Company confirmed
on August 13, 1993 that the outcome of an internal investigation
being conducted by the Company and its legal counsel into certain
of the Company's business and accounting practices is likely to
result in revision of its financial statements for periods prior
to 1992. We are taking this action as a result of the
significant uncertainty which thus exists as to the effect of
this matter on the Company's 1991 and 1990 financial statements.
Please inform the Securities and Exchange Commission and all
persons known to be currently relying on, or who are likely to
rely on, the financial statements that our report must no longer
be associated with the Company's financial statements for the
years ended December 31, 1991 and December 31, 1990.
/s/ ERNST & YOUNG
110
<PAGE> 7
Exhibit 99.3
ERNST & YOUNG
Two Insigna Financial Plaza
Suite 800
P.O. Box 10647
Greenville
South Carolina
803 242 5740
August 16, 1993
Board of Directors of Policy Management
Systems Corporation
c/o Mr. G. Larry Wilson
Chairman of the Board, President,
and Chief Executive Officer
Policy Management Systems Corporation
Post Office Box 10
Columbia, South Carolina 29202
We refer to our letter dated August 13, 1993 in which we informed
you that Ernst & Young's report dated February 20, 1992 should no
longer be associated with the financial statements of Policy
Management Systems Corporation (the Company) for the years ended
December 31, 1991 and December 31, 1990. This letter is to
inform you that Ernst & Young's review reports on interim
financial statements during the years ended December 31, 1992,
1991 and 1990 should no longer be associated with the respective
interim financial statements of the Company. Please inform all
persons known to be currently relying on, or who are likely to
rely on, the interim financial statements that our review reports
must no longer be associated with the Company's interim financial
statements for such periods.
/s/ ERNST & YOUNG
111
