<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For Quarter Ended June 30, 1995 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
(I.R.S. Employer
of incorporation)
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
Indicate by check mark whether the registrant (1) has filed
all
reports required to be filed by Section 13 or 15(d) of the
Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
19,378,465 Common shares, $.01 par value, as of August 4, 1995
The information furnished herein reflects all adjustments which
are,
in the opinion of management, necessary for the fair presentation
of
the results for the periods reported. Such information should be
read in conjunction with the Company's Annual Report on Form 10-K
for
the year ended December 31, 1994.
<PAGE> 2
POLICY MANAGEMENT SYSTEMS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Consolidated Statements of Income for
the three and six months ended June 30, 1995
and 1994.......................................... 3
Consolidated Balance Sheets as of
June 30, 1995 and December 31, 1994............... 4
Consolidated Statements of Cash Flows for
the six months ended June 30, 1995 and 1994....... 5
Notes to Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................28
Item 6. Exhibits and Reports on Form 8-K....................28
Signatures....................................................29
<PAGE> 3
<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Six
Months
Ended June 30,
Ended June 30,
1995 1994 1995
1994
(In Thousands, Except Per
Share Data)
<S> <C> <C> <C>
<C>
Revenues:
Licensing.......................... $ 22,737 $ 23,521 $
48,280 $ 39,991
Services........................... 110,766 101,220
218,642 200,692
133,503 124,741
266,922 240,683
Costs and Expenses:
Employee compensation & benefits... 47,865 44,872
95,445 89,842
Computer and communications
expenses......................... 8,103 6,303
15,152 12,407
Information services and
data acquisition costs........... 29,470 33,370
61,367 67,826
Depreciation and amortization...... 15,374 16,257
29,567 30,131
Other operating costs & expenses... 16,174 11,984
32,136 20,705
Litigation settlement and
expenses, net.................... 7,866 -
6,216 -
Gain on sale of Health business
and related assets............... (8,116) -
(8,116) -
Impairment and restructuring
credits, net..................... (246) (1,715)
(246) (1,715)
116,490 111,071
231,521 219,196
Operating income .................... 17,013 13,670
35,401 21,487
Other Income and Expenses:
Investment income.................. 535 1,849
958 3,672
Loss on sale of marketable
securities....................... - (802) -
(819)
Interest expense and other
charges.......................... (827) (824)
(1,518) (1,719)
(292) 223
(560) 1,134
Income before income taxes........... 16,721 13,893
34,841 22,621
Income taxes ........................ 4,631 5,295
11,431 8,455
Net income .......................... $ 12,090 $ 8,598 $
23,410 $ 14,166
Net income per share................. $ .62 $ .40 $
1.21 $ .64
Weighted average number of shares.... 19,363 21,498
19,363 22,067
<FN>
See accompanying notes.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Audited)
June 30,
December 31,
1995
1994
(In
Thousands,
Except Share
Data)
<S> <C> <C>
Assets
Current assets:
Cash and equivalents............................ $ 24,390 $
17,686
Marketable securities........................... 8,099
11,051
Receivables, net of allowance for uncollectible
amounts of $1,109 ($1,478 at 1994)........... 92,690
90,474
Income tax receivable........................... 28,194
31,072
Deferred income taxes........................... 6,132
6,644
Other........................................... 14,638
10,798
Total current assets......................... 174,143
167,725
Property and equipment, at cost less accumulated
depreciation and amortization of $106,900
($125,601 at 1994)............................. 133,779
136,503
Receivables....................................... 477
500
Goodwill and other intangible assets.............. 84,031
77,763
Capitalized software costs........................ 128,138
118,621
Deferred income taxes............................. 12,097
12,453
Investments....................................... 5,336
5,567
Other............................................. 4,868
4,899
Total assets.............................. $542,869
$524,031
Liabilities
Current liabilities:
Accounts payable and accrued expenses........... $ 48,803 $
50,231
Accrued restructuring charges................... 5,916
5,648
Accrued contract termination costs.............. 1,313
1,819
Current portion of long-term debt............... 1,741
4,734
Income taxes payable............................ 3,890
2,279
Unearned revenues............................... 11,970
11,930
Other........................................... 754
215
Total current liabilities.................... 74,387
76,856
Long-term debt.................................... -
4,162
Deferred income taxes............................. 59,466
54,671
Accrued restructuring charges..................... 7,348
10,796
Other............................................. 2,041
624
Total liabilities............................ 143,242
147,109
Commitments and contingencies (Note 1)
Stockholders' Equity
Special stock, $.01 par value, 5,000,000 shares
authorized..................................... -
-
Common stock, $.01 par value, 75,000,000 shares
authorized, 19,368,681 shares issued and
outstanding (19,362,984 at December 31, 1994). 194
194
Additional paid-in capital........................ 170,482
170,323
Retained earnings................................. 230,384
206,974
Unrealized holding loss on marketable securities.. (50)
(118)
Foreign currency translation adjustment........... (1,383)
(451)
Total stockholders' equity...................... 399,627
376,922
Total liabilities and stockholders' equity... $542,869
$524,031
<FN>
See accompanying notes.
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended
June 30,
June 30,
1995
1994
(In
Thousands)
<S> <C> <C>
Operating Activities
Net income................................... $ 23,410 $
14,166
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization.............. 29,566
30,131
Deferred income taxes...................... 5,050
5,736
Loss on sale of marketable securities...... -
819
Provision for uncollectible accounts....... 534
280
Changes in assets and liabilities:
Accrued restructuring and lease
termination costs........................ (3,180)
(8,803)
Receivables................................ (2,727)
7,262
Income taxes receivable.................... 2,878
(1,822)
Accounts payable and accrued expenses...... (1,428)
1,334
Income taxes payable....................... 2,224
2,728
Other, net................................... (3,594)
(4,513)
Cash provided by operations............. 52,733
47,318
Investing Activities
Proceeds from sales/maturities of marketable
securities, net............................. 3,000
126,710
Purchases of marketable securities, net...... -
(87,873)
Acquisition of property and equipment........ (11,919)
(7,961)
Capitalized internal software development
costs....................................... (20,394)
(17,890)
Purchased software........................... (250)
(157)
Proceeds from disposal of property &
equipment................................... 709
304
Contract acquisition costs................... (10,000) -
Cash (used for)/provided by investing
activities............................ (38,854)
13,133
Financing Activities
Payments on long-term debt................... (7,155)
(4,597)
Repurchase of common stock................... -
(56,555)
Issuance of common stock under stock
option plans................................ 159 -
Cash used for financing activities...... (6,996)
(61,152)
Effect of exchange rate changes on cash........ (179)
(937)
Net increase (decrease) in cash and
equivalents.................................. 6,704
(1,638)
Cash and equivalents at beginning of period.... 17,686
24,122
Cash and equivalents at end of period.......... $ 24,390 $
22,484
Noncash Activities
Supplemental Information
Interest paid................................ 1,160
1,390
Income taxes paid............................ 1,105
2,099
<FN>
See accompanying notes.
</TABLE>
<PAGE> 6
POLICY MANAGEMENT SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
NOTE 1. COMMITMENTS AND CONTINGENCIES
Commitments
On March 27, 1995, the Company entered into a long-term license
and maintenance agreement in order to acquire rights to certain
operating system management software products for use in the
Company's worldwide data center operations. The agreement, which
has an initial term of ten years, may be renewed and extended for
an additional period of five years, subject to mutual agreement
and
other modifications. The March 27, 1995 agreement replaces three
five-year term agreements executed in 1993, and other related
agreements. Minimum contract payments by the Company over the
initial ten year term aggregate $33.0 million payable in
specified
annual installments which escalate over the ten year period. The
first annual installment due March 31, 1995 was reduced by $1.5
million to reflect the application of a pre-payment credit
relating
to a prior agreement which was terminated. In addition to
minimum
contract payments, the Company will pay an annual supplemental
revenue fee (beginning 1997 for the 1996 annual period) equal to
a
specified annual percentage of the Company's applicable annual
gross revenues, less the specified annual installment for such
period. Minimum contract payments will be expensed on a
straight-
line basis over the initial ten year term. Annual supplemental
revenue fees, if any, will be accrued in the period in which
determined.
On April 7, 1995, the Company finalized certain terms of a ten-
year agreement with an insurance holding company and its
subsidiaries, initially entered into in November 1994. The
Company
is to provide certain data processing and other professional
services as required. The minimum contractual processing
revenues
are expected to be in excess of $60 million over the term of the
agreement. The Company has incurred costs of $10 million related
to this agreement in the second quarter of 1995 ($5 million in
the
fourth quarter of 1994), which have been deferred as contract
acquisition costs and are being expensed on a straight-line basis
over the term of the agreement. At June 30, 1995, the net
unamortized amounts related to this continuing agreement,
included
in other intangible assets, were $14.2 million.
Contingencies - Legal Proceedings
In December 1994, the Company reached an agreement, which was
subsequently approved on May 26, 1995 by the United States
District
Court for the District of South Carolina, to settle its
shareholder
class action. The settlement of $31 million was paid by the
Company's Directors' and Officers' Liability Insurance Carrier,
the
<PAGE> 7
Company's former accountants and the Company. The Company's
portion of the settlement and associated litigation costs
resulted
in a special one-time charge of $34.2 million ($21.3 million
after
tax) in the fourth quarter of 1994. This represents the
Company's
portion of the total settlement, plus the Company's litigation
costs of $18.1 million ($11.2 million after tax), less the
recovery
from the insurance company. In March 1995, the Company and its
insurance carrier signed an agreement to settle amounts contested
and the carrier agreed to pay an additional amount of $1.7
million
in full settlement of the Company's claims. Accordingly, the
Company recorded a credit of $1.7 million, in the first quarter
of
1995, as a further adjustment to the estimated costs of settling
the securities class action.
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 United States Attorney for the District of
South Carolina also is conducting an investigation into certain
of
these matters. The Company is cooperating with these
investigations.
The Company is involved in two lawsuits alleging, among other
things, breach of a life insurance joint development contract and
breach of a contract concerning an early version of its Series
III
property and casualty software. The Company believes it has
meritorious defenses, is vigorously defending its position in
these
matters and is pursuing counterclaims against the plaintiffs (see
Item 1, Legal Proceedings, of Part II contained in the Company's
report on Form 10-Q for the quarters ended March 31, 1995. The
Company was informed by its insurer that based upon the
allegations
raised in these two lawsuits, the insurer does not believe it
would
be obligated under the Company's insurance policies to reimburse
defense costs or indemnify the Company for any payments relating
to
these claims. The Company disagrees with this conclusion and on
June 20, 1995 the Company's insurer commenced a declaratory
judgment action to determine the insurer's obligations related to
defense costs and indemnity related to these two lawsuits. As a
result of this action, the Company determined it was probable the
Company would incur litigation expenses for certain actual
expenses
previously incurred and for estimated future litigation expenses
arising from these matters through their conclusion, over the
next
twelve months, of $7.9 million, which estimate is based upon the
Company's prior experience in these matters.
<PAGE> 8
In addition to the litigation described above, the Company is
presently involved in two contract disputes arising out of the
Company's change in the direction of its future life software
systems development following the acquisition of CYBERTEK. There
are also various other litigation proceedings and claims arising
in
the ordinary course of business. The Company believes it has
meritorious defenses and is vigorously defending these matters.
While the resolution of any of the above matters could have a
material adverse effect on the results of operations in future
periods, the Company does not expect these matters to have a
material adverse effect on its consolidated financial position.
The Company, however, is unable to predict the ultimate outcome
or
the potential financial impact of these matters.
NOTE 2. IMPAIRMENT AND RESTRUCTURING CHARGES
The Company recorded, at October 1, 1994, impairment charges to
write-off the carrying value of certain identifiable assets ($7.7
million), goodwill ($13.9 million) and acquired software ($11.5
million), principally related to its property and casualty
information services business acquisitions and certain software
product acquisitions licensed in the property and casualty market
(see Note 12 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended December
31, 1994).
The Company established reserves of $2.0 million at December
31,
1994, in connection with the acquisition of Creative Group
Holdings, Limited, to provide for the costs of terminating the
Company's existing lease obligations in the United Kingdom and
relocation and severance costs associated with consolidating its
existing operations (see Note 2 of Notes to Consolidated
Financial
Statements in the Company's Annual Report on Form 10-K for the
year
ended December 31, 1994).
NOTE 3. CREDIT AGREEMENT
On August 11, 1995, the Company entered into two unsecured
credit
facilities of $100 million each with a syndicate of financial
institutions (the syndicate) to provide an additional source of
funds for general corporate purposes. The first $100 million
facility bears a term of 364 days. The second $100 million
facility bears a term of 3 years. Borrowings under the
facilities
bear interest payable at rates based upon the Morgan Guaranty
Trust
Company's Prime Rate, the Federal Funds Rate, the London
Interbank
Offering Rate or the yield on certain certificates of deposit as
appropriate, plus a spread above certain of these rates. The
Company is subject to certain covenants including, but not
limited
to, the maintenance of certain operating ratios and levels of
tangible net worth.
<PAGE> 9
NOTE 4. CERTAIN TRANSACTIONS
On June 30, 1995, the Company sold its Health Insurance Systems
Division for a total consideration of $9.3 million in cash. After
selling expenses of $.5 million, the net book value of assets
sold
of $.5 million, liabilities resulting from the sale, including
severance liabilities for certain employees and other reserves of
$1.5 million, and the present value of a sublease executed by the
purchaser for certain office space of $1.3 million, the Company
recorded a pre-tax gain of $8.1 million, which has been recorded
under "Costs and Expenses" in the Consolidated Statements of
Income
for the three and six months ended June 30, 1995 (see
Management's
Discussion and Analysis of Financial Condition and Results of
Operations).
NOTE 5. INCOME TAXES
The Company's effective tax rate for the second quarter of 1995
was 27.7% compared with 37.5% for the first quarter of 1995. The
Company's annual effective income tax rate (income taxes
expressed
as a percentage of pre-tax income) was 32.8% and 37.4% for the
six
months ended June 30, 1995 and 1994, respectively. The effective
rate for 1995 was significantly lower due principally to the
goodwill deducted for tax purposes, providing a benefit of $.9
million in the second quarter of 1995 as a result of the change
in
estimate of the annual effective tax rate, relating to the sale
of
the Company's Health Insurance Systems Division (see Note 4
above).
<PAGE> 10
POLICY MANAGEMENT SYSTEMS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information
which
management believes is relevant to an assessment and
understanding
of the Company's consolidated results of operations and financial
condition. The discussion should be read in conjunction with the
consolidated financial statements and notes thereto contained in
Part I of this report on Form 10-Q and with the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
RESULTS OF OPERATIONS
Set forth below are certain operating items expressed as a
percentage of revenues and the percent increase (decrease) for
those items between the periods presented:
<TABLE>
<CAPTION>
1995 vs 1994
Percent Increase
(Decrease)
Percentage Percentage
Three Six
of Revenues of Revenues
Months Months
Three Months Six Months
Ended Ended
Ended June 30, Ended June 30,
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
<C> <C>
Revenues:
Licensing................... 17.0 18.9 18.1 16.6
(3.4) 20.8
Services.................... 83.0 81.1 81.9 83.4
9.5 8.9
100.0 100.0 100.0 100.0
7.0 10.9
Costs and Expenses:
Employee compensation
and benefits............ 35.9 36.0 35.8 37.3
6.7 6.2
Computer & communication
expenses................ 6.1 5.1 5.7 5.2
28.6 22.1
Information services & data
acquisition costs....... 22.1 26.8 23.0 28.2
(11.7) (9.5)
Depreciation and amorti-
zation.................. 11.5 13.0 11.1 12.5
(5.4) (1.9)
Other operating costs
and expenses............ 12.1 9.6 12.0 8.6
35.0 55.2
Litigation settlement and
expenses, net........... 5.9 - 2.3 -
- -
Gain on sale of Health
business and related
assets.................. (6.1) - (3.0) -
- -
Impairment and restructuring
charges, net............ (.2) (1.4) (0.1) (.7)
(85.7) (85.7)
87.3 89.1 86.7 91.1
4.9 5.6
Operating income............ 12.7 10.9 13.3 8.9
24.5 64.8
Other Income and Expenses... (0.2) 0.2 (0.2) 0.5
(230.9) (149.4)
Income before income taxes.. 12.5 11.1 13.1 9.4
20.4 54.0
Income taxes................ 3.5 4.2 4.3 3.5
(12.5) 35.2
Net income.................. 9.0 6.9 8.8 5.9
40.6 65.3
</TABLE>
<PAGE> 11
The Company's revenues are generated principally by licensing
standardized insurance software systems and providing automation
and administrative support and information services to the
worldwide insurance industry. Licensing revenues are provided
for
under the terms of 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. Services revenues are derived from professional
support services, which include implementation and integration
assistance, consulting and education services, 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,
administration support and automated information services through
the Company's nationwide telecommunications network using the
Company's database products.
THREE MONTHS COMPARISON
A comparison of revenues for each line of business and
geographic
market for the periods presented is as follows:
Revenues
Three Months
Ended June 30,
1995 1994
(Dollars in Millions)
Line of Business
Property & Casualty.... $ 96.8 $ 88.3
Life................... 32.4 30.0
Health................. 4.0 6.4
Geographic Market
United States.......... $103.2 $107.3
International.......... 30.0 17.4
REVENUES
Three Three
Months Ended Months Ended
Licensing June 30, 1995 June 30, 1994 Change
(Dollars in Millions)
Initial charges.......... $ 9.5 $ 10.4 (8.7)%
Monthly charges.......... 13.2 13.1 .8 %
$22.7 $23.5 (3.4)%
Percentage of revenues... 17.0% 18.9%
Initial license revenues for the three months ended June 30,
1995
decreased $.9 million (8.7%) compared to the corresponding period
in 1994. The decrease is principally related to a decline in
<PAGE> 12
licensing activity in the life insurance market of $1.5 million,
as
well as a decline in licensing activity in the health insurance
market of $.3 million (see Note 4 of Notes to Consolidated
Financial Statements). These decreases were partially offset by
an
increase of $.9 million in licensing activities related to the
property and casualty insurance market. Although down from the
second quarter of 1994 (see table below), the current quarter
licensing activity in the life insurance market continues to
reflect customer interest in the Company's CK/4 Enterprise and
emerging CYBERLife software system solutions. CYBERLife
incorporates advanced client/server technology and was initially
released in March 1995. Licensing of property and casualty
systems
from activities in the European, Asian and Canadian markets
increased $3.1 million. This increase was partially offset by a
decline in licensing activities in the domestic property and
casualty insurance market of $2.2 million. The variance in
initial
license revenues between quarters for both the domestic and
international property and casualty insurance markets continues
to
reflect the timing of customers' decisions to enter into large
license agreements with the Company for either new systems and/or
the migration to client/server technology (see table below). The
Company recognized $1.1 million in initial license charges for
the
period, relating to a distribution agreement with AT&T Global
Information Solutions (AT&T Global). Under the distribution
agreement, which is part of the Company's joint marketing
arrangement with AT&T Global, AT&T markets the Company's Series
III
systems worldwide to insurance companies implementing AT&T
Global's
UNIX-based solutions. Additionally, the Company recognized $1.5
million related to an exclusive marketing arrangement with AT&T
Global. Under the exclusive marketing arrangement, the Company
markets the UNIX-based version of its mid-range property and
casualty software systems exclusively to AT&T Global UNIX
platform
customers for a period of three years. There are no monthly
license revenues under the distribution agreement or exclusive
marketing arrangement with AT&T Global, and the Company's current
joint marketing agreement with AT&T Global is subject to
extension
in September 1996.
Because a significant portion of initial license charges are
recorded at the time new systems are licensed, there can be
significant fluctuations in revenue from quarter to quarter. Set
forth below is a comparison of initial license revenues for the
preceding six quarters expressed as a percentage of total
revenues
for each of the periods presented:
<PAGE> 13
<TABLE>
<CAPTION>
1995 1994
Second First Fourth Third
Second First
Quarter Quarter Quarter Quarter
Quarter Quarter
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
<C>
Property and Casualty
Initial license
revenues............. $ 7.3 $ 8.0 $ 5.6 $ 7.4 $
6.4 $ 1.6
Total revenues......... 5.5% 6.0% 4.5% 5.8%
5.2% 1.4%
Life
Initial license
revenues............. $ 2.1 $ 3.7 $ 1.6 $ 3.4 $
3.6 $ 1.6
Total revenues......... 1.6% 2.8% 1.3% 2.7%
2.8% 1.4%
Health
Initial license
revenues............. $ .1 $ .2 $ 2.5 $ 3.5 $
.4 $ .4
Total revenues......... - .1% 2.0% 2.8%
.3% .3%
Combined
Initial license
revenues............. $ 9.5 $11.9 $ 9.7 $14.3
$10.4 $ 3.6
Total revenues......... 7.1% 8.9% 7.8% 11.3%
8.4% 3.1%
</TABLE>
Revenues from continuing monthly license charges ("MLC") for
Maintenance, Enhancements and Services Availability ("MESA")
remained relatively unchanged for the second quarter of 1995
compared to the corresponding quarter of 1994.
Three Three
Months Ended Months Ended
Services June 30,1995 June 30,1994 Change
(Dollars In Millions)
Professional and
outsourcing........... $ 65.5 $ 51.2 27.9 %
Information............. 44.5 49.4 (9.9)%
Other................... .8 .6 33.3 %
$110.8 $101.2 9.5 %
Percentage of revenues.. 83.0% 81.1%
Professional and outsourcing services for the three months
ended
June 30, 1995 increased $14.3 million (27.9%) compared to the
same
period in 1994. This increase is principally related to services
from both new and existing contracts amounting to $13.1 million
for
property and casualty insurance business and $2.8 million for
life
insurance business, and was partially offset by a decline in
revenues from the health insurance market of $1.6 million. The
<PAGE> 14
increase in the property and casualty business resulted from
increased services in both the international and domestic
markets.
The Company's international property and casualty insurance
services increased $6.6 million principally as a result of the
acquisition of Creative Group Holdings, Limited at December 31,
1994 and new services contracts in the European and Asia/Pacific
regions. Creative, headquartered in the United Kingdom, is a
British holding company whose wholly-owned subsidiaries, located
in
England, Australia and Southeast Asia, provide software
consulting,
development, licensing and support services to medium-sized
general
insurance companies. The increase in the domestic property and
casualty insurance market amounted to $6.5 million and
principally
resulted from new professional services contracts and an increase
in the residual markets for total policy management outsourcing
services. Services in the life insurance market increased
principally as a result of additional outsourcing services. The
decline in professional services revenues from the health
insurance
market of $1.6 million reflected the continued reluctance of
health
insurers to make major system decisions.
Revenues from information services were $44.5 million for the
second quarter in 1995 compared with $49.4 million for the
corresponding quarter in 1994. This $4.9 million decrease (9.9%)
is principally attributable to a decline in revenues associated
with the Company's domestic property and casualty automobile and
risk information services business of $5.5 million. This decline
relates principally to significant changes in the property and
casualty insurance industry, as described more fully in Item 7 of
Part II and Note 12 of Notes to Consolidated Financial Statements
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994. The decrease in revenues associated with the
property and casualty information services business was partially
offset by an increase in life information services of $.6
million.
Costs and Expenses
Employee compensation and benefits increased $3.0 million
(6.7%)
for the second quarter of 1995 compared to the corresponding
quarter in 1994, principally as a result of increased salaries,
costs associated with the acquisition of Creative Group Holdings,
Limited in December 1994, and increased costs associated with the
growth in staffing for additional services activity and an
increase in Company contributions relating to certain of its
benefit plans. These
increases were partially offset by a reduction in compensation
and
other benefits related to the Company's downsizing of its health
insurance services staff from 209 at the end of the second
quarter
of 1994 to 112 at the end of the second quarter of 1995 (see Note
4 of Notes to Consolidated Financial Statements). As a
percentage
of revenues, employee compensation and benefits expense remained
significantly unchanged for the second quarter of 1995 as
compared
to the same period of 1994.
<PAGE> 15
As a percentage of revenues, computer and communications
expenses
increased to 6.1% for the second quarter of 1995 from 5.1% for
the
corresponding quarter of 1994, representing an increase of $1.8
million (28.6%). This increase was due principally to expenses
for
certain operating system management software products utilized in
the Company's worldwide data center operations (see Note 1 of
Notes
to Consolidated Financial Statements), and increased
communications, data circuit and maintenance costs associated
with
the expansion of the Company's international operations.
Information services and data acquisition costs for the second
quarter of 1995 decreased $3.9 million (11.7%) compared to the
corresponding quarter of 1994, due principally to a continued
decrease in the volume of state fees for motor vehicle reports
associated with the domestic property and casualty automobile and
information services business (see Revenue discussion above).
Depreciation and amortization expense decreased $.9 million
(5.4%) for the second quarter of 1995 compared to the
corresponding
quarter of 1994. The decrease is due principally to lower
amortization charges resulting from the impairment of certain
identifiable intangible assets, goodwill and software products
relating to the Company's property and casualty information
services business (see Note 12 of Notes to Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the
year
ended December 31, 1994) and lower depreciation charges due to
certain retirements of data processing equipment. These decreases
were partially offset by additional amortization charges relating
to internally developed software costs. These costs are
associated
with a new release of the Company's property and casualty
insurance
Series III client/server software system and the initial release
of
its life insurance CYBERLife client/server software system. Both
became generally available during the first quarter of 1995.
Other operating costs and expenses for the second quarter of
1995
increased $4.2 million (35%) compared to the corresponding
quarter
in 1994. This increase relates principally to additional costs
relating to outside consultants and independent contractors
resulting from increased professional services activities and the
acquisition of the Creative Holdings Group, Limited at December
31,
1994, and costs associated with providing total policy management
outsourcing services. In the second quarter of 1994, a credit of
$1.6 million resulted from the recovery of certain receivables,
previously written-off, and the completion of certain projects
during the second quarter of 1994, for which cost overruns had
been
charged in prior periods. Also included in other operating costs
and expenses for 1995 is a credit of approximately $1.0 million
related to the amendment of a professional services contract.
<PAGE> 16
The Company, as of June 30, 1995, has provided for $7.9 million
in estimated litigation costs arising from two lawsuits to which
the Company is both a defendant and counter-claimant. The costs
provided for include, but are not limited to, fees paid or
anticipated to be paid to external counsel and other costs
related
to the Company's defense and claims regarding these matters (see
Item 1, Legal Proceedings, of Part II contained in the Company's
report on Form 10-Q for the quarter ended June 30, 1995).
On June 30, 1995, the Company completed the sale of its Health
Insurance Systems Division for a total consideration of $9.3
million in cash. After selling expense and other accrued costs,
the Company recorded a pre-tax gain of $8.1 million.
In June 1995, the Company reduced certain of its restructuring
reserves by $.4 million for the balances remaining, as of June
30,
1995, as a result of completing certain restructuring activities
for its life and health insurance businesses. At June 30, 1994,
the Company, as a result of new events occurring, changed its
estimates and reduced its restructuring reserves by $1.7 million,
which were established at June 30, 1993 for employee severance
and
outplacement costs in connection with the downsizing of its
health
staff.
Operating Income
Operating income, after the effects of the gain from the sale
of
the Health Division and special charges, was $17.0 million for
the
three months ended June 30, 1995, compared with $13.7 million for
the corresponding period in 1994. The Company recorded a gain
from
the sale of the Company's Health Division of approximately $ 8.1
million (see Note 4 of Notes to the Consolidated Financial
Statements), and special charges aggregating $7.6 million for the
three months ended June 30, 1995 relating to legal costs ($7.9
million) and impairment and restructuring credits ($.3 million).
Special charges for the three months ended June 30, 1994 of $1.7
million relate to impairment and restructuring credits (see Costs
and Expenses).
Operating income, excluding the gain on the sale of the
Company's
Health Division and special charges, was $16.5 million for the
three months ended June 30, 1995, compared with $12.0 million for
the corresponding period in 1994. Operating income, excluding
the
gain and special charges, as a percentage of revenues increased
to
12.4% for the second quarter of 1995 from 9.6% for the comparable
quarter in 1994. The increase in operating income (37.5%),
excluding the gain and special charges, results principally from
an increase in professional and outsourcing services revenues
provided under new and existing contracts with property and
casualty insurance companies and residual markets ($13.1 million)
<PAGE> 17
and an increase in new professional and outsourcing services
revenues from life insurers ($2.8 million).
A significant portion of both the Company's revenues and its
operating income is derived from initial licensing charges
received
as part of the Company's software licensing activities. Because a
substantial portion of these revenues are recorded at the time
new
systems are licensed, there can be significant fluctuations from
quarter-to-quarter in the revenues and operating income derived
from licensing activities. This is attributable principally to
the
timing of customers' decisions to enter into license agreements
with the Company, which the Company is unable to control (see
table
above).
Investment income decreased $1.3 million as a result of a lower
level of investable funds, resulting from large cash expenditures
for the acquisition of Creative Group Holdings, Limited ($19.9
million), in December 1994, the repurchase in May 1994 of
2,278,537
of the 3,797,561 shares of common stock held by IBM ($56.6
million), the repurchase during the last half of 1994 of 995,500
shares of the Company's outstanding common stock on the open
market
($35.3 million) under its 2.5 million share repurchase
authorization and payments to settle the shareholder class action
and related expenses made principally during the fourth quarter
of
1994.
As part of the Company's repurchase of 2,278,537 of the
3,797,561
shares of its common stock held by IBM, at a price of $24.77 per
share, the Company liquidated a portion of its marketable
securities. The Company incurred a loss on the sale of
securities
of approximately $.8 million related directly to the repurchase
during the second quarter of 1994.
Interest expense and other charges remained relatively
unchanged
for the second quarter in 1995 compared to the corresponding
period
in 1994.
The effective income tax rate (income taxes expressed as a
percentage of pre-tax income) was 27.7% and 38.1% for the three
months ended June 30, 1995 and 1994, respectively. The effective
rate for the 1995 second quarter was significantly lower due
principally to goodwill, deducted for tax purposes, relating to
the
sale of the Company's Health Insurance Systems Division (see
Notes
4 and 5 of Notes to Consolidated Financial Statements). The 1995
second quarter tax was further reduced to adjust the year-to-date
effective tax rate to the expected tax rate for 1995, resulting
in
an estimated effective income tax rate for the remainder of 1995
of
32.8%.
<PAGE> 18
<PAGE>
SIX MONTHS COMPARISON
A comparison of revenues for each line of business and
geographic
market for the periods presented is as follows:
Revenues
Six Months
Ended June 30,
1995 1994
(Dollars in Millions)
Line of Business
Property & Casualty... $193.7 $167.8
Life.................. 65.0 57.2
Health................ 7.9 15.7
Geographic Market
United States......... $207.3 $203.8
International......... 59.3 36.9
REVENUES
Six Six
Months Ended Months Ended
Licensing June 30,1995 June 30,1994 Change
(Dollars in Millions)
Initial charges..... $21.5 $14.1 52.5%
Monthly charges..... 26.8 25.9 3.5%
$48.3 $40.0 20.8%
Percentage of
revenues.......... 18.1% 16.6%
Total licensing revenues for the six months ended June 30, 1995
increased $8.3 million (20.8%) compared to the corresponding
period
in 1994, due principally to a $7.4 million increase in initial
license revenues. The increase in initial license revenues is
principally related to licensing activities in the property and
casualty insurance market of $7.3 million, as well as an increase
in licensing activities in the life insurance market of $.5
million. These increases were partially offset by a decrease in
licensing activities related to the health insurance market of
$.4
million (see table below). Increased licensing of property and
casualty systems resulted principally from activities in the
United
States, Europe, Canada and Asia-Pacific, and reflect licensing
activity related to the Company's acquisition of Creative Group
Holdings, Limited at December 31, 1994. Licensing activities in
the
property and casualty insurance market include $2.6 million for
the
six months ended June 30, 1995, relating to a distribution
<PAGE> 19
agreement and $1.5 million relating to an exclusive marketing
arrangement, both with AT&T Global. During the first six months
of
1994, the Company recognized licensing revenue of $2.0 million
from
AT&T Global. Increased licensing activities in the life
insurance
market principally reflect continuing customer interest in the
Company's CK/4 Enterprise software system and the March 31, 1995
initial release of its CYBERLife client/server software system
solution.
Because a significant portion of initial license charges are
recorded at the time new systems are licensed, there can be
significant fluctuations in revenue from period to period. Set
forth below is a comparison of initial license revenues for the
six
months ended June 30, 1995 and 1994, expressed as a percentage of
total revenues for each of the periods presented:
Six Months Ended Six Months Ended
June 30, 1995 June 30, 1994
(Dollars in Millions)
Property and Casualty
Initial license
revenues............. $15.3 $ 8.0
Total revenues......... 5.7% 3.3%
Life
Initial license
revenues............. $ 5.8 $ 5.3
Total revenues......... 2.2% 2.2%
Health
Initial license
revenues............. $ .4 $ .8
Total revenues......... .1% .3%
Combined
Initial license
revenues............. $21.5 $14.1
Total revenues......... 8.0% 5.8%
Revenues from continuing monthly license charges ("MLC") for
Maintenance, Enhancements and Services Availability ("MESA")
remained relatively unchanged for the six months ended June 30,
1995, compared to the corresponding period in 1994.
<PAGE> 20
Six Six
Months Ended Months Ended
Services June 30,1995 June 30,1994 Change
(Dollars in Millions)
Professional and
outsourcing............ $126.6 $101.6 24.6 %
Information.............. 91.0 98.4 (7.5)%
Other.................... 1.0 .7 42.8 %
$218.6 $200.7 8.9 %
Percentage of revenues... 81.9% 83.4%
Total services revenues for the six months ended June 30, 1995
increased $17.9 million (8.9%) compared to the corresponding
period
in 1994.
Revenues from professional and outsourcing services increased
$25.0 million (24.6%) to $126.6 million for the six months
ended
June 30, 1995 from $101.6 million for the corresponding period in
1994. This increase was due primarily to additional services to
new
and existing customers in the property and casualty insurance
market ($26.0 million) and the life insurance market ($5.7
million). These increases were partially offset by a decline in
health related services of $ 6.5 million. Increased revenues from
the property and casualty insurance market principally relate to
new professional services contracts with domestic insurance
companies and a continued increase in the residual markets for
total policy management outsourcing services. International
property and casualty services revenues increased principally as
a
result of the Company's acquisition of Creative Group Holdings,
Limited at December 31, 1994, and new services contracts in the
Asia/Pacific region. Professional and outsourcing services in the
life insurance market increased primarily as the result of new
professional services and outsourcing contracts in both the
domestic ($3.0 million) and international markets ($2.7 million).
These increases were partially offset by a decline in
professional
services revenues from the health insurance market of $6.5
million
(see Note 4 of Notes to Consolidated Financial Statements).
Revenues from information services were $91.0 million for the
six
months ended June 30, 1995 compared with $98.4 million for the
corresponding period in 1994. This $7.4 million decrease is
primarily attributable to a decrease in revenues associated with
the Company's domestic property and casualty automobile and risk
information services business ($ 8.7 million). This decline
relates
principally to significant changes in the property and casualty
insurance industry, as described more fully in Item 7 of Part II
and Note 12 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended December
31, 1994. The decrease in revenues associated with the property
and casualty information services business is partially offset by
<PAGE> 21
an increase in life information services of $ 1.3 million
(principally attending physician statements and medical history
reports).
Costs And Expenses
Employee compensation and benefits increased $5.6 million
(6.2%)
for the six months ended June 30, 1995 compared to the
corresponding period in 1994, principally as a result of
increased
costs associated with the acquisition of Creative Group Holdings,
Limited in December 1994, increased costs associated with the
growth in staffing for additional services activity for both new
and existing customers, and an increase in the Company's
provision
for performance bonus expense as a result of higher earnings per
share. These increases were partially offset by a reduction in
compensation and other benefits related to the Company's
downsizing
of its health insurance services staff from 209 at the end of the
second quarter of 1994 to 112 at the end of the second quarter of
1995 (see Note 4 of Notes to Consolidated Financial Statements).
As
a percentage of revenues, employee compensation and benefits
expense decreased to 35.8% compared to 37.3% for the same period
of
1994.
As a percentage of revenues, computer and communications
expenses
increased to 5.7% for the six months ended June 30, 1995 from
5.2%
for the corresponding period of 1994, representing an increase of
$2.7 million (22%). This increase was due principally to
expenses
for certain operating system management software products
utilized
in the Company's worldwide data center operations (see Note 1 of
Notes to Consolidated Financial Statements), and increased
communications, data circuit and maintenance costs associated
with
the expansion of the Company's international operations and
additions of new outsourcing business.
Information services and data acquisition costs for the six
months ended June 30, 1995 decreased $6.5 million (9.5%) compared
to the corresponding period of 1994, due principally to a
continued
decrease in the volume of state fees for motor vehicle reports
associated with the domestic property and casualty automobile and
information services business (see Revenue discussion above).
Depreciation and amortization expense decreased $.6 million
(1.9%) for the six months ended June 30, 1995 compared to the
corresponding period of 1994. The decrease is due principally to
lower amortization charges resulting from the impairment of
certain
identifiable intangible assets, goodwill and software products
relating to the Company's property and casualty information
services business (see Note 12 of Notes to Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the
year
ended December 31, 1994) and lower depreciation charges due to
certain retirements of data processing equipment. These decreases
<PAGE> 22
were partially offset by additional amortization charges relating
to internally developed software costs. These costs are
associated
with a new release of the Company's property and casualty
insurance
Series III client/server software and the initial release of its
life insurance CYBERLife client/server software system. Both
became generally available during the first quarter of 1995.
Other operating costs and expenses for the six months ended
June
30, 1995 increased $11.4 million (55%) compared to the
corresponding period in 1994. The increase is principally
attributable to an increase in outside consultants and
independent
contractors relating to increased professional services
activities
and the acquisition of the Creative Holdings Group, Limited.
Additionally, operating costs associated with providing total
policy management outsourcing services increased. In the second
quarter of 1994, a credit of $1.6 million resulted from the
recovery of certain receivables, previously written-off, and the
completion of certain projects during the second quarter of 1994,
for which cost overruns had been charged in prior periods. These
increases were partially offset by a decrease in outside legal
and professional fees and an increase in amounts
capitalized, principally associated with the internal development
of the Company's life insurance CYBERLife client/server software
system. Also included in other operating costs and expenses is a
credit of approximately $1.0 million related to the amendment of
a
professional services contract.
Litigation settlement and expenses, net for the six months
ended
June 30, 1995, amounted to $6.2 million. The Company, as of June
30, 1995, has provided for $7.9 million in estimated litigation
costs arising from two lawsuits to which the Company is both a
defendant and counter-claimant. The costs provided for include,
but are not limited to, fees paid or anticipated to be paid to
external counsel and other costs related to the Company's defense
and claims regarding these matters (see Item 1, Legal
Proceedings,
of Part II contained in the Company's report on Form 10-Q for the
quarter ended June 30, 1995). On March 20, 1995, the Company and
its Directors' and Officers' Liability Insurance Carrier signed
an
agreement to settle amounts contested and the carrier agreed to
pay
an additional amount of $1.7 million, in the first quarter of
1995,
in full settlement of the Company's claims. Accordingly, the
Company recorded a credit of $1.7 million as a further adjustment
to the estimated costs of settling the securities class action
which were recorded in the fourth quarter of 1994 (see Note 1 of
Notes to Consolidated Financial Statements and Note 8 of Notes to
Consolidated Financial Statements in the Company's Annual Report
on
Form 10-K for the year ended December 31, 1994).
On June 30, 1995, the Company completed the sale of its Health
Insurance Systems Division for a total consideration of $9.3
million in cash. After selling expense and other accrued costs
the
Company recorded a pre-tax gain of $8.1 million.
<PAGE> 23
In June 1995, the Company reduced certain of its restructuring
reserves by $.4 million for the balances remaining, as of June
30,
1995, as a result of completing certain restructuring activities
for its life and health insurance businesses. At June 30, 1994,
the Company, as a result of new events occurring, changed its
estimates and reduced its restructuring reserves by $1.7 million,
which were established at June 30, 1993 for employee severance
and
outplacement costs in connection with the downsizing of its
health
staff.
Operating Income
Operating income, after the effects of the gain from the sale
of
the Health Division and special charges, was $35.4 million for
the
six months ended June 30, 1995, compared with $21.5 million for
the
corresponding period in 1994. The Company recorded a gain from
the
sale of the Company's Health Division of approximately $ 8.1
million (see Note 4 of Notes to the Consolidated Financial
Statements). Special charges aggregating $5.9 million for the six
months ended June 30, 1995 relate to litigation settlement and
other legal expenses, net ($6.2 million) and impairment and
restructuring credits ($.3 million). Special charges for the six
months ended June 30, 1994 of $1.7 million relate to impairment
and
restructuring credits (see Costs and Expenses).
Operating income, excluding the gain and special charges, was
$33.3 million for the six months ended June 30, 1995, compared
with
$19.8 million for the corresponding period in 1994. Operating
income, excluding the gain and special charges, as a percentage
of
revenues increased to 12.5% for the first six months of 1995 from
8.2% for the comparable quarter in 1994. The increase in
operating
income, excluding the gain and special charges (68%), results
principally from an increase in professional and outsourcing
services revenues provided under new and existing contracts
principally with property and casualty insurance companies and
residual markets, partially offset by a decrease in health
services
revenues of $6.5 million, and an increase in initial license
revenues of $7.4 million from both property and casualty and life
insurers.
A significant portion of both the Company's revenues and its
operating income is derived from initial licensing charges
received
as part of the Company's software licensing activities. Because
a
substantial portion of these revenues are recorded at the time
new
systems are licensed, there can be significant fluctuations from
quarter-to-quarter and period to period in the revenues and
operating income derived from licensing activities. This is
attributable principally to the timing of customers' decisions to
enter into license agreements with the Company, which the Company
is unable to control (see table above).
<PAGE> 24
Investment income decreased $2.7 million as a result of a lower
level of investable funds, resulting from large cash expenditures
for the acquisition of Creative Group Holdings, Limited ($19.9
million) in December 1994, the repurchase in May 1994 of
2,278,537
of the 3,797,561 shares of common stock held by IBM ($56.6
million), the repurchase during the last half of 1994 of 995,500
shares of the Company's outstanding common stock on the open
market
($35.3 million) under its 2.5 million share repurchase
authorization and payments to settle the shareholder class action
and related expenses made principally during the fourth quarter
of
1994.
As part of the Company's repurchase of 2,278,537 of the
3,797,561
shares of its common stock held by IBM, at a price of $24.77 per
share, the Company liquidated a portion of its marketable
securities. The Company incurred a loss on the sale of
securities
of approximately $.8 million related directly to the repurchase
during May 1994.
Interest expense and other charges decreased $.2 million for
the
six months ended June 30, 1994 compared to the corresponding
period
in 1993, principally as a result of the repayment of long-term
debt
associated with business acquisitions.
The effective income tax rate (income taxes expressed as a
percentage of pre-tax income) was 32.8% and 37.4% for the six
months ended June 30, 1995 and 1994, respectively. The effective
rate for 1995 was significantly lower due principally to
goodwill,
deducted for tax purposes, relating to the sale of the Company's
Health Insurance Systems Division (see Notes 4 and 5 of Notes to
Consolidated Financial Statements).
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
June 30, December 31,
1995 1994
Cash and equivalents, marketable (Dollars in Millions)
securities, and investments.......... $ 37.8 $ 34.3
Current assets......................... 174.1 167.7
Current liabilities.................... 74.3 76.8
Working capital........................ 99.8 90.9
Long-term debt......................... - 4.2
Six-months Six-months
ended ended
June 30, June 30,
1995 1994
(Dollars in Millions)
Cash provided by operations............ $ 52.7 $ 47.3
Cash (used for) provided by
investing activities................. (38.9) 13.1
Cash used for financing activities..... (7.0) (61.2)
The Company's financial condition remained strong at June 30,
1995. The increase in cash and equivalents, marketable securities
and investments compared to December 31, 1994 is due principally
to
cash flows generated by operations. The $8.9 million increase
(9.8%) in working capital is principally due to a $6.7 million
increase in cash and a $8.6 million reduction in accounts payable
and long-term debt.
Net cash provided by operations increased $5.4 million (11.4%)
for the six months ended June 30, 1995 compared to the
corresponding period for 1994. This increase is principally the
result of higher net income for the six months ended June 30,
1995
compared to the corresponding period of 1994, and a $5.6 million
increase associated with reductions in accrued restructuring and
lease termination costs from the 1994 period to the 1995 period.
These increases were offset in part by the increase in accounts
receivable of $2.7 million during the six months ended June 30,
1995 compared to a decrease of $7.3 million for the same period
of
1994. During the six months ended June 30, 1995, the Company
reduced its liabilities for accrued restructuring charges by $2.0
million ($2.9 million in cash outlays, less $.5 million in
non-cash
discount amortization, and $.4 million associated with an
increased
estimate of lease termination costs) for lease terminations, and
$1.2 million in cash outlays for employee severance and
outplacement costs.
<PAGE> 26
Net cash used for investing activities increased $52.0 million.
During the first six months of 1994, as part of the Company's
repurchase of 2.3 million shares of its common stock, the Company
liquidated a portion of its marketable securities and had net
positive cash flow from marketable securities sales/purchasing
activity of $38.8 million. The Company did not repurchase any of
its outstanding common shares during the six months ended June
30,
1995, and had no significant sales/purchases of securities during
this period. Additionally, the Company expended $10 million to
acquire a significant outsourcing contract, which is expected to
have minimum contractual processing revenues in excess of $60
million over the next ten years, resulting in an increase in cash
used for investing activities.
Net cash used for financing activities decreased $54.2 million
during the six months ended June 30, 1995 compared to the
corresponding period in 1994, due principally to the Company's
not
repurchasing any of its outstanding common stock during the 1995
period, which it did in the corresponding period in 1994.
During the six months ended June 30, 1995, the Company utilized
its $30 million line of credit for certain short-term operating
needs and general corporate purposes (see discussion of
significant
terms in Note 7 of Notes to Consolidated Financial Statements in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994). The average daily balance carried during the
period was $6.2 million and the highest balance carried during
the
period was $14.8 million. At June 30, 1995, there were no amounts
outstanding under this line of credit, and it has been the
Company's practice to regularly liquidate any outstanding
balance.
On August 11, 1995 the Company entered into two unsecured
credit
facilities of $100 million each with a syndicate of financial
institutions. These lines of credit may be used for general
corporate purposes (see Note 3 of Notes to Consolidated Financial
Statements).
Significant expenditures anticipated for the remainder of 1995,
excluding any possible business and/or contract acquisitions and
stock repurchases, are as follows: acquisition of data
processing,
communications equipment and office furniture, fixtures and
equipment ($5.0 million) and costs relating to the internal
development of software systems ($20.0 million).
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 and cash and investment reserves 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.
<PAGE> 27
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future operating results may be affected by a
number of factors, including uncertainties relative to economic
conditions; industry factors; the Company's ability to develop
and
sell its products profitably; the Company's ability to
successfully
increase market share in its core business while expanding its
product base into other markets; and the Company's ability to
effectively manage expense growth relative to revenue growth in
anticipation of continued pressure on gross margins. The
Company's
operating results could be adversely affected should the Company
be
unable to anticipate customer demand accurately, to introduce new
products on a timely basis, or to effectively manage the impact
on
the Company of changes in the insurance marketplace.
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.
A significant portion of both the Company's revenue and its
operating income is derived from initial licensing charges
received
as part of the Company's software licensing activities. Because
a
substantial portion of these revenues are recorded at the time
new
systems are licensed, there can be significant fluctuations from
period to period in the revenues and operating income derived
from
licensing activities based upon the timing of the licensing of
new
systems.
Because of the foregoing factors, as well as other factors
affecting the Company's operating results, past financial
performance should not be considered to be a reliable indicator
of
future performance, and investors should not use historical
trends
to anticipate results or trends in future periods.
<PAGE> 28
PART II
OTHER INFORMATION
POLICY MANAGEMENT SYSTEMS CORPORATION
Item 1. Legal Proceedings
The Company is involved in lawsuits with Security Life of
Denver
Insurance Company and with the California State Automobile Inter-
Insurance Bureau and the California State Automobile Association
(see Item 1, Legal Proceedings, of Part II contained in the
Company's report on Form 10-Q for the quarter ended March 31,
1995). The Company was informed by its insurer that based upon
the
allegations raised in these two lawsuits, the insurer does not
believe it would be obligated under the Company's insurance
policies to reimburse defense costs or indemnify the Company for
any payments relating to these claims. The Company disagrees
with
this conclusion and on June 20, 1995 the Company's insurer
commenced a declaratory judgment action to determine the
insurer's
obligations related to defense costs and indemnity related to
these
two lawsuits. As a result of this action, the Company determined
it was probable the Company would incur litigation expenses for
certain actual expenses previously incurred and for estimated
future litigation expenses arising from these matters through
their
conclusion, over the next twelve months, of $7.9 million, which
estimate is based upon the Company's prior experience in these
matters.
Items 2, 3, 4, and 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
Exhibits required to be filed with this Quarterly Report on
Form
10-Q are listed in the following Exhibit Index.
Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended June 30, 1995.
<PAGE> 29
POLICY MANAGEMENT SYSTEMS CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
POLICY MANAGEMENT SYSTEMS CORPORATION
(Registrant)
BY (SIGNATURE) /s/ Timothy V. Williams
Timothy V. Williams
Executive Vice President
(Chief Financial Officer)
DATE August 14, 1995
<PAGE> 1
POLICY MANAGEMENT SYSTEMS CORPORATION
EXHIBIT INDEX
Exhibit
Number
10. MATERIAL CONTRACTS
A. Second Amendment to the Policy Management Systems
Corporation 1989 Stock Option Plan.
B. Third Amendment to the Policy Management Systems
Corporation 1989 Stock Option Plan.
C. Stock Option/Non-Compete Form Agreement for named
executive officers together with schedule identifying
particulars for each named executive officer.
11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
27. FINANCIAL DATA SCHEDULE
<PAGE> 1
POLICY MANAGEMENT SYSTEMS CORPORATION
EXHIBIT 10.A
EXHIBIT A
SECOND AMENDMENT
TO THE
POLICY MANAGEMENT SYSTEMS CORPORATION
1989 STOCK OPTION PLAN
THIS AMENDMENT to Policy Management Systems Corporation 1989
Stock
Option Plan (the "Plan) is made by POLICY MANAGEMENT SYSTEMS
CORPORATION (the "Company") and entered into as of this 13th day
of
October, 1994, to be effective as of the date this amendment is
approved by the stockholders of the Company at a meeting duly
called and held.
W I T N E S S E T H:
WHEREAS, the Company sponsors and maintains the Plan and,
pursuant
to Section 15 thereof, the Company has the right to amend the
Plan
subject to stockholders approving certain amendments; and
WHEREAS, the Company desires to amend the Plan to authorize
additional shares of the Company's stock to be reserved for use
under the Plan;
NOW THEREFORE, the Plan is hereby amended, effective as set forth
above, as follows:
1. The first sentence of Section 3 is amended to read as
follows:
There shall be 2,750,000 shares of Common Stock reserved
for use under this Plan, and such shares of Common Stock
shall be reserved to the extent that PMSC deems
appropriate from authorized but unissued shares of Common
Stock.
2. The first sentence in the second paragraph of Section 9 is
amended to read as follows:
An Option Agreement shall provide when the Option shall
become exercisable, but in no event shall an Option
become exercisable earlier than in installments as
follows:
(1) During the first year of the Term, the
Option shall be exercisable as to one-third
(1/3) of the number of shares subject to the
Option;
(2) During the second year of the Term, the
Option shall be exercisable as to two-thirds
(2/3) of the number of shares subject to the
Option, minus the number of shares, if any,
as to which the Option was exercised during
the first year of the Term; and
<PAGE> 2
(3) During the third and following years of the
Term, the Option shall be exercisable as to
all of the shares subject to the Option,
minus and number of shares, if any, as to
which the Option was exercised during the
first and second years of the Term.
IN WITNESS WHEREOF, this Amendment has been executed on the day
and
year first above written.
POLICY MANAGEMENT SYSTEMS CORPORATION
BY (SIGNATURE) /s/ G. Larry Wilson
(NAME AND TITLE) G. Larry Wilson, President and
Chairman
<PAGE> 3
EXHIBIT B
Insert to Form of Option
THESE OPTIONS MAY BE REVOKED BY THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS IN THEIR ABSOLUTE DISCRETION, PRIOR TO THE
TIME
THEY BECOME EXERCISABLE IN ACCORDANCE WITH THE PLAN IF THEY DEEM
IT
APPROPRIATE TO DO SO BASED UPON SUCH FACTS OR CIRCUMSTANCES AS
THEY
DEEM RELEVANT, INCLUDING, WITHOUT LIMITATION, THE RESULTS OR
FINDINGS, WHETHER PRELIMINARY OR FINAL, OF THE VARIOUS
INVESTIGATIONS INTO THE COMPANY'S PREVIOUSLY ISSUED FINANCIAL
STATEMENTS.
<PAGE> 1
POLICY MANAGEMENT SYSTEMS CORPORATION
EXHIBIT 10.B
THIRD AMENDMENT
TO THE
POLICY MANAGEMENT SYSTEMS CORPORATION
1989 STOCK OPTION PLAN
THIS AMENDMENT to Policy Management Systems Corporation 1989
Stock
Option Plan (the "Plan) is made by POLICY MANAGEMENT SYSTEMS
CORPORATION (the "Company") and entered into as of this 26th day
of
March, 1995, to be effective as of the date this amendment is
approved by the stockholders of the Company at a meeting duly
called and held.
W I T N E S S E T H:
WHEREAS, the Company sponsors and maintains the Plan and,
pursuant
to Section 15 thereof, the Company has the right to amend the
Plan
subject to stockholders approving certain amendments; and
WHEREAS, the Company desires to amend the Plan to authorize
additional shares of the Company's stock to be reserved for use
under the Plan;
NOW THEREFORE, the Plan is hereby amended, effective as set forth
above, as follows:
1. There shall be an additional 2,250,000 shares of Common
Stock
reserved for use under this Plan, and such shares of Common
Stock shall be reserved to the extent that PMSC deems
appropriate from authorized but unissued shares of Common
Stock.
2. Section 14 of the Plan is amended to add the following
Subsection 14.2 and the existing paragraph under Section 14
is
re-numbered as Section 14.1:
14.2 The Committee may, in its sole descretion, include in
an
Option Agreement that if there is a Change in Control
(as hereinafter defined) of PMSC prior to the
expiration
date of the Options, then, notwithstanding any other
provision of this Plan or the Option Agreement to the
contrary, each Option then outstanding shall become
immediately exercisable in full and shall become
nonforfeitable regardless of whether there is a change
in
office or employment status subsequent to such Change
in
Control. For purposes of this Section, a "Change in
Control" shall be deemed to have occurred in the event
any person, corporation, partnership or other entity,
either alone or in conjunction with its "affiliates" as
that term is defined in Rule 405 of the General Rules
and
Regulations under the Securities Act of 1933, as
amended,
or other group of persons, corporations, partnerships
or
other entities who are not affiliates, but who are
acting
in concert, becomes the owner of record or beneficially
of securities of PMSC which represent thirty-three and
one-third percent (33 1/3%) or more of the combined
voting power of PMSC's then outstanding securities
entitled to elect directors or (3) the
<PAGE> 2
Board or a committee thereof makes a determination in
its
reasonable judgment that a Change in Control of PMSC
has
taken place. In addition, the Committee may, in its
sole
descretion, include in an Option Agreement that
notwithstanding any other provision in the Plan or the
Option Agreement to the contrary, following a change
in
control of PMSC the Key Employee may exercise the
Options
for a period of one (1) year following the date of the
change in control but in no event shall such Options be
exercised after the tenth anniversay date such Options
were granted.
"Cause" for the purposes of Section 14.2 is defined to
mean: (1) willful failure to substantially perform
prescribed duties other than as a result of disability;
or (2) willful engagement in misconduct significantly
detrimental to PMSC.
"Good Reason" to terminate employment with PMSC occurs
if: (1) duties are assigned that are materially
inconsistent with previous duties; (2) duties and
responsibilities are substantially reduced; (3) base
compensation is reduced not as part of an across the
board reduction for all senior officers or executives;
or
(4) participation under compensation plans or
arrangements generally made available to persons at Key
Employee's level of responsibility at PMSC is denied.
3. Section 9 is amended to add to the end of the Section the
following:
Notwithstanding the foregoing, the Committee may, but
shall not be required to do so, in its sole and
absolute
discretion, permit a Key Employee to exercise
outstanding
options sooner than would otherwise be permitted by the
foregoing and as set forth in the Option Agreement in
the
event the Key Employee retires or otherwise leaves the
employ of the PMSC.
IN WITNESS WHEREOF, this Amendment has been executed on the day
and
year first above written.
POLICY MANAGEMENT SYSTEMS CORPORATION
BY (SIGNATURE) /s/ G. Larry Wilson
(NAME AND TITLE) G. Larry Wilson, President and
Chairman
<PAGE> 1
POLICY MANAGEMENT SYSTEMS CORPORATION
EXHIBIT 10.C
EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT
THIS EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT ("the Agreement")
is made effective as of May 10, 1995, by and between &NAME&
("EMPLOYEE") and Policy Management Systems Corporation ("PMSC").
W I T N E S S E T H:
WHEREAS, EMPLOYEE has been employed by PMSC in a position of
significant responsibility and PMSC desires to recognize EMPLOYEE'S
contribution to PMSC by making EMPLOYEE a "Key Employee" as defined
in the Policy Management Systems Corporation 1989 Stock Option Plan
("Plan") and therefore eligible to be granted Options as defined
therein; and
WHEREAS, EMPLOYEE has developed and will continue to develop
intimate knowledge of PMSC's business practices, which, if
exploited by EMPLOYEE in contravention of this Agreement, could
seriously, adversely and irreparably affect the business of PMSC;
and
WHEREAS, EMPLOYEE and PMSC each desire to induce the other to enter
into this Agreement; and
WHEREAS, PMSC would not make EMPLOYEE a Key Employee in the event
that EMPLOYEE refused to agree to the terms and conditions of this
Agreement and thus EMPLOYEE would not be eligible to receive
Options under the Plan;
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants of the parties hereto, EMPLOYEE and PMSC
agree as follows:
1. Grant. Effective May 10, 1995, PMSC grants EMPLOYEE
"non-qualified" Options to purchase up to &SHARES& shares of
PMSC common stock pursuant to the Plan. Non-qualified options
are subject to tax upon exercise as set forth in paragraph 5
below.
THESE OPTIONS MAY BE REVOKED BY THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS IN THEIR ABSOLUTE DISCRETION, PRIOR TO
THE TIME THEY BECOME EXERCISABLE IN ACCORDANCE WITH SECTION 9
OF THE PLAN IF THEY DEEM IT APPROPRIATE TO DO SO BASED UPON
SUCH FACTS OR CIRCUMSTANCES AS THEY DEEM RELEVANT, INCLUDING,
WITHOUT LIMITATION, THE RESULTS OR FINDINGS, WHETHER
PRELIMINARY OR FINAL, OF THE VARIOUS INVESTIGATIONS INTO THE
COMPANY'S PREVIOUSLY ISSUED FINANCIAL STATEMENTS.
2. Price and Expiration. The option price of the shares subject
to these Options is the closing price of the stock on the New
York Stock Exchange on the date of grant, i.e., forty-nine
dollars
<PAGE> 2
($49.00). These Options must be exercised within ten (10)
years of the effective date of this Agreement or they expire.
3. Availability for Exercise. 20% of the shares subject to the
Options granted will become available for exercise at the end
of each of the five (5) years following the effective date of
this Agreement. For example . . . 20% of the total number of
Options granted will be available for exercise beginning May
10, 1996; 40% will be available for exercise beginning May 10,
1997; 60% will be available for exercise beginning May 10,
1998; 80% will be available for exercise beginning May 10,
1999; and 100% will be available for exercise beginning May
10, 2000. Once Options become available for exercise, they
will remain available for exercise for so long as EMPLOYEE is
employed by the Company unless they expire. Notwithstanding
the foregoing, the Options hereby granted shall not be
exercisable until such time as the common stock to be issued
on exercise of the Options has been registered under the
Securities Act of 1933 or PMSC has otherwise qualified such
issuance of shares under an exemption from registration under
said Act.
3A. Change in Control. If there is a Change in Control (as
hereinafter defined) of PMSC prior to the Expiration Date,
then, notwithstanding any other provision of the Plan or this
Agreement to the contrary other than Section 3B below, each
Option granted hereby then outstanding shall become
immediately exercisable in full and shall become
nonforfeitable regardless of whether there is a change in
office or employment status subsequent to such Change in
Control.
For purposes of this Section, a "Change in Control" shall be
deemed to have occurred in the event: (1) that substantially
all of PMSC's assets are sold to another person, corporation,
partnership, or other entity other than one owned or
controlled by PMSC; or (2) any person, corporation,
partnership or other entity, either alone or in conjunction
with its "affiliates" as that term is defined in Rule 405 of
the General Rules and Regulations under the Securities Act of
1933, as amended, or other group of persons, corporations,
partnerships or other entities who are not affiliates, but who
are acting in concert, becomes the owner of record or
beneficially of securities of PMSC which represent thirty-
three and one-third percent (33-1/3%) or more of the combined
voting power of PMSC's then outstanding securities entitled to
elect directors; or (3) the Board or a committee thereof makes
a determination in its reasonable judgment that a Change in
Control of PMSC has taken place.
If there is a Change in Control of PMSC prior to the
Expiration Date, then notwithstanding any other provision of
the Plan or this Agreement except Section 3B below: (i) each
Option granted hereby then outstanding shall become
immediately exercisable in full regardless of whether there is
a change in office or employment status subsequent to such
Change in Control; (ii) EMPLOYEE shall have a period of ninety
(90) days after termination of employment to exercise the
Options granted hereby; and (iii) and in the event of the
death of EMPLOYEE during the aforementioned ninety (90) day
period, said Options may be exercised during a period of one
(1) year from the date of death, as described in Section 10 of
the Plan,
<PAGE> 3
but in no event shall these Options be exercised after the
tenth anniversary date these Options were granted.
3B. Sale or Merger. In the event of dissolution or liquidation of
PMSC or any merger or combination in which PMSC is not a
surviving corporation ("Sale or Merger"), each outstanding
Option granted hereunder shall terminate, but the Optionee
shall have the right, immediately prior to such dissolution,
liquidation, merger or combination, to exercise his or her
Option, in whole or in part, to the extent that it shall not
have been exercised, without regard to any installment
exercise provisions.
4. Order of Exercise. The Options may be exercised without
regard to the order in which these and any other Options were
granted and without regard to any unexpired and unexercised
qualified, Incentive Stock Options ("ISO's") or other
non-qualified options.
5. Tax Liability. The tax liability which EMPLOYEE may incur
relating to these Options is described below based upon
present law and regulations which are subject to change.
Taxes incurred are:
+ when options are granted - none
+ when options are exercised - the difference between the
fair market value of the stock at the date of exercise of
an Option and the option price is a capital gain but
generally will be treated as ordinary income during the
year the Option is exercised. Such tax liability is
created at the time EMPLOYEE exercises an Option and PMSC
is required to collect withholding taxes from EMPLOYEE.
Federal income taxes (computed at a rate of 28% of the
above described difference) and FICA and state income
taxes (computed at the applicable rate of the above
described difference) are withheld. For example...if the
option price is $33.00 and the fair market value at the
date of the exercise is $38.00, the difference is $5.00,
and assuming an applicable FICA rate of 7.65% and state
income tax rate of 7%, along with the 28% federal income
tax, the Company would collect a tax of $2.13 per share
from EMPLOYEE.
+ when shares are sold - the difference between the fair
market value at the date of exercise (the $38.00 in the
above example) and the price at which EMPLOYEE sells the
stock is treated the same as above described during the
year in which EMPLOYEE sells the stock purchased by
exercise of his or her options.
6. Exercise and Payment. Exercises of Options shall only be
handled pursuant to the Instructions set forth on the last
page of this Agreement. To exercise these Options, EMPLOYEE
shall make payment in full to PMSC for the option price of the
shares to be purchased...plus the combined (federal, FICA and
state) tax liability EMPLOYEE incurs. Such taxes paid to PMSC
will be forwarded to the Internal Revenue Service and
appropriate state tax commission and credited to EMPLOYEE in
the same manner as the withholding tax on EMPLOYEE's
<PAGE> 4
salary. EMPLOYEE's actual tax will depend upon the overall
tax rate calculated when EMPLOYEE prepares his or her tax
returns. EMPLOYEE should consult a tax professional regarding
questions about EMPLOYEE's actual tax liability.
7. Noncompetition. In consideration of the Options hereby
granted, EMPLOYEE covenants and agrees that EMPLOYEE shall
devote his or her best efforts to furthering the best
interests of PMSC and that for the one (1) year period from
the effective date hereof, and if EMPLOYEE separates from
employment with PMSC for any reason within said one (1) year
period, then for a one (1) year period from the date of such
separation from employment, EMPLOYEE shall not "Compete" with
PMSC. The region within which EMPLOYEE agrees not to Compete
with PMSC is the United States, Canada and those countries in
which PMSC has customers or clients as of the date of
EMPLOYEE's separation from employment. For the purpose of
this Agreement, the term "Compete" shall have its commonly
understood meaning which shall include, but not be limited by,
the following items with respect to PMSC's insurance
application software licensing, data processing, consulting
and information services businesses and any other businesses
carried on by PMSC at the time of EMPLOYEE's separation from
employment:
(i) soliciting or accepting as a client or customer any
individual, partnership, corporation, trust or
association that was a client, customer or actively
sought after prospective client or customer of PMSC
during the twelve (12) calendar month period
immediately preceding the date of EMPLOYEE's
separation from employment;
(ii) acting as an employee, independent contractor,
agent, representative, consultant, officer,
director, or otherwise affiliated party of any
entity or enterprise which is competing with PMSC
in offering similar application software or
services to parties described in (i) above; or
(iii) participating in any such competing entity or
enterprise as an owner, partner, limited partner,
joint venturer, creditor or stockholder (except as
an equity holder holding less than a one percent
(1%) interest).
8. Non-Hiring. During EMPLOYEE'S employment with PMSC and for a
period of three (3) years after separation from such
employment, EMPLOYEE agrees that EMPLOYEE shall under no
circumstances hire, attempt to hire or assist or be involved
in the hiring of any employee of PMSC either on EMPLOYEE'S
behalf or on behalf of any other person, entity or enterprise.
Also, for a similar period of time, EMPLOYEE agrees to not
communicate to any such person, entity or enterprise the
names, addresses or any other information concerning any
employee of PMSC or any past, present or prospective client or
customer of PMSC.
9. Equitable Relief. EMPLOYEE acknowledges (i) that EMPLOYEE'S
skill, knowledge, ability and expertise in the business
described herein is of a special, unique, unusual,
extraordinary, and/or intellectual character which gives said
skill, etc. a peculiar value; (ii) that PMSC could
<PAGE> 5
not reasonably or adequately be compensated in damages in an
action at law for breach of this Agreement; and (iii) that a
breach of any of the provisions contained in this Agreement
could be extremely detrimental to PMSC and could cause PMSC
irreparable injury and damage. Therefore, EMPLOYEE agrees
that PMSC shall be entitled, in addition to any other remedies
it may have under this Agreement or otherwise, to preliminary
and permanent injunctive and other equitable relief to prevent
or curtail any breach of this Agreement; provided, however,
that no specification in this Agreement of a specific legal or
equitable remedy shall be construed as a waiver of or
prohibition against the pursuing of other legal or equitable
remedies in the event of such a breach.
10. Breach of Agreement. EMPLOYEE agrees that in the event
EMPLOYEE breaches any provision of this Agreement, PMSC shall
be entitled, in addition to any other remedies it may have
under this Agreement, to offset, to the extent of any
liability, loss, damage or injury from such breach, any
payments due to EMPLOYEE pursuant to his or her employment
with PMSC.
11. Employment Understanding. This Agreement constitutes the
entire agreement between the parties with regard to the
subject matter hereof, and there are no agreements,
understandings, restrictions, warranties or representations
between the parties relating to said subject matter other
than those set forth or provided for herein or in any
Agreement Not To Divulge or employment agreement between PMSC
and EMPLOYEE. It is understood that PMSC's and EMPLOYEE's
relationship is one of "at will" employment unless EMPLOYEE
and PMSC have entered into a written employment agreement
which provides otherwise. This Agreement shall not affect, or
be affected by, any employment agreement, if any, between PMSC
and EMPLOYEE.
12. General. In the event that any provision of this Agreement or
any word, phrase, clause, sentence or other portion thereof
(including, without limitation, the geographical and temporal
restrictions contained herein) should be held to be
unenforceable or invalid for any reason, such provision or
portion thereof shall be modified or deleted in such a manner
so as to make this Agreement enforceable to the fullest extent
permitted under applicable laws. All references to PMSC shall
include its subsidiaries as applicable. This Agreement shall
inure to the benefit of and be enforceable by PMSC and its
successors and assigns. No provision of this Agreement may be
changed, modified, waived or terminated, except by an
instrument in writing signed by the party against whom the
enforcement of such is sought. No waiver of any provision or
provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver.
Headings in this Agreement are inserted solely as a matter of
convenience and reference and are not a part of this Agreement
in any substantive sense. This Agreement may be executed in
two counterparts, each of which will take effect as an
original and shall evidence one and the same Agreement.
<PAGE> 6
13. Plan Controls. In the event of any discrepancy between this
Agreement and the Plan as to the terms and conditions of the
Options, the Plan shall control.
14. Governing Law. The terms of this Agreement shall be governed
by and construed in accordance with the laws of the State of
South Carolina.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
POLICY MANAGEMENT SYSTEMS CORPORATION
"PMSC"
BY (SIGNATURE) /s/ Stephen G. Morrison
(NAME AND TITLE Stephen G. Morrison, Executive Vice
President
EMPLOYEE
_____________________________________
(Signature)
_____________________________________
(Type or Print Name)
_____________________________________
(Date Signed by Employee)
<PAGE> 7
INSTRUCTIONS FOR EXERCISE OF PMSC STOCK OPTIONS
Contact Person: Lynn W. Dillard, Ext. 4303
1A4
Post Office Box Ten
Columbia, SC 29202
An exercise form must be obtained and properly filled out. The
form and employee's check for the appropriate exercise price and
withholding taxes (federal and state income taxes and FICA) must be
delivered to the Contact Person. The Company does not deal with
third parties concerning employee's exercise of his or her stock
options. If an employee deals with a brokerage firm, a bank or any
other third party, the employee shall be responsible to keep such
party from impacting on the two-party transaction between the
Company and the employee. This transaction solely consists of
employee bringing Company the exercise form and his or her own
check and after several days the Company giving employee a
certificate for his or her shares of stock. The Company's stock
transfer agent is located in New York. If desired, an employee may
request and pay the charges for the certificate to be sent to the
Company via Federal Express. The certificate will only be issued
in the employee's name. Employees may only exercise a whole number
of options as PMSC shall not direct the transfer agent to issue
fractional shares.
As an optionholder, an employee is entitled to request copies of
the Company's Annual and Quarterly Reports. An employee will not
receive such reports automatically as an optionholder.
Additionally, reports are available upon request showing a complete
list of employee's options outstanding, options available for
exercise, cost per share, total costs, and expiration dates of
options. An employee may wish to request these materials or
information before exercising options by calling or writing the
Contact Person.
THESE INSTRUCTIONS ARE SUBJECT TO CHANGE WITHOUT NOTICE.
<PAGE> 8
SCHEDULE OF PARTICULARS
FOR NAMED EXECUTIVE OFFICERS
RE: EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT
NAMED EXECUTIVE DATE OF NUMBER OPTION
OFFICER GRANT GRANTED PRICE
G. Larry Wilson May 10, 1995 75,000 $49.00
David T. Bailey May 10, 1995 35,000 $49.00
Donald A. Coggiola May 10, 1995 25,000 $49.00
Stephen G. Morrison May 10, 1995 25,000 $49.00
<PAGE> 1
POLICY MANAGEMENT SYSTEMS CORPORATION
EXHIBIT 11
Statement Regarding Computation of Per Share Earnings
Three months ended Six months ended
June 30, June 30,
1995 1994 1995 1994
(in thousands, except per share data)
Primary net income per share
Net Income:
Net income as reported $12,090 $ 8,598 $23,410 $14,166
Shares:
Weighted average number
of common shares
outstanding 19,363 21,498 19,363 22,067
Common stock equivalents
(stock options) 265 54 235 36
Primary shares 19,628 21,552 19,598 22,103
Primary net income
per share $ .62 $ .40 $ 1.19 $ .64
Fully diluted net income per share
Net Income:
Net income as reported $12,090 $ 8,598 $23,410 $14,166
Shares:
Weighted average number
of common shares
outstanding 19,363 21,498 19,363 22,067
Dilutive intruments
(stock options) 2,726 2,118 2,726 2,118
Fully diluted shares 22,089 23,616 22,089 24,185
Fully diluted net
income per share $ .55 $ .36 $ 1.06 $ .59
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 24390
<SECURITIES> 8099
<RECEIVABLES> 93799
<ALLOWANCES> 1109
<INVENTORY> 0
<CURRENT-ASSETS> 174143
<PP&E> 240679
<DEPRECIATION> 106900
<TOTAL-ASSETS> 542869
<CURRENT-LIABILITIES> 74387
<BONDS> 0
<COMMON> 194
0
0
<OTHER-SE> 399433
<TOTAL-LIABILITY-AND-EQUITY> 542869
<SALES> 266922
<TOTAL-REVENUES> 266922
<CGS> 0
<TOTAL-COSTS> 231521
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 534
<INTEREST-EXPENSE> 1719
<INCOME-PRETAX> 34841
<INCOME-TAX> 11431
<INCOME-CONTINUING> 23410
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23410
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.06
</TABLE>
