<PAGE>1
UNITED STATES
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 March 31, 1997 Commission file number 1-10557
POLICY MANAGEMENT SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0723125
(State or other jurisdiction
(I.R.S. Employer
of incorporation) Identification No.)
One PMSC 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.
18,179,401 Common shares, $.01 par value, as of May 15,1997
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, 1996.
<PAGE>2
POLICY MANAGEMENT SYSTEMS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Income for
the three months ended March 31,
1997 and 1996..................................... 3
Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996.............. 4
Consolidated Statements of Cash Flows for
the three months ended March 31, 1997 and 1996.... 5
Notes to Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................17
Item 6. Exhibits and Reports on Form 8-K....................17
Signatures....................................................18
<PAGE>3
<PAGE>
PART I
FINANCIAL INFORMATION
<TABLE>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months
Ended March 31,
1997 1996
(Unaudited)
(In Thousands, Except Per Share Data)
<S> <C> <C>
Revenues
Licensing................................ $ 26,218 $ 24,295
Services................................. 129,038 108,888
155,256 133,183
Operating expenses
Cost of revenues
Employee compensation & benefits......... 51,297 41,925
Computer and communications
expenses............................... 8,515 7,975
Information services and
data acquisition costs................. 30,514 28,037
Depreciation and amortization of
property, equipment and
capitalized software costs............. 14,059 11,134
Other costs & expenses................... 8,283 6,561
Selling, general and administrative
expenses................................ 23,253 17,058
Amortization of goodwill and
other intangibles....................... 2,682 2,543
Litigation settlement and
expenses, net.......................... - (63)
Business acquisition charges.............. 71 (73)
138,674 115,097
Operating income .......................... 16,582 18,086
Minority interest income................... 369 -
Other Income and Expenses
Investment income........................ 427 596
Interest expense and other
charges................................ (1,217) (711)
( 790) (115)
Income before income taxes................. 16,161 17,971
Income taxes............................... 6,069 6,343
Net income................................. $ 10,092 $ 11,628
Net income per share....................... $ .56 $ .60
Weighted average number of shares.......... 18,179 19,463
<FN>
See accompanying notes
</TABLE>
<PAGE>4<PAGE>
<TABLE>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited) (Audited)
March 31, December 31,
1997 1996
(In Thousands,
<S> <C> <C>
Assets Except Share Data)
Current assets
Cash and equivalents................................... $ 9,993 $ 22,121
Marketable securities.................................. 2,492 2,234
Receivables, net of allowance for uncollectible
amounts of $1,402 ($883 at 1996).................... 119,996 116,113
Income tax receivable.................................. 1,355 1,383
Deferred income taxes.................................. 16,222 15,343
Other.................................................. 17,651 15,840
Total current assets................................ 167,709 173,034
Property and equipment, at cost less accumulated
depreciation and amortization of $127,879
($122,462 at 1996).................................. 116,188 115,757
Receivables.............................................. 4,374 4,866
Income tax receivable.................................... 4,041 4,041
Goodwill and other intangibles assets, net............... 78,999 83,363
Capitalized software costs, net.......................... 183,161 177,875
Deferred income taxes.................................... 2,146 1,560
Investments.............................................. 6,125 6,483
Other.................................................... 4,557 5,239
Total assets..................................... $567,300 $572,218
Liabilities
Current liabilities
Accounts payable and accrued expenses.................. $ 50,586 $ 61,435
Accrued restructuring charges.......................... 2,081 2,478
Accrued contract termination costs..................... 825 407
Current portion of long-term debt...................... 29,991 31,222
Income taxes payable................................... 10,240 6,623
Unearned revenues...................................... 12,322 9,840
Other.................................................. 413 631
Total current liabilities........................... 106,458 112,636
Long-term debt........................................... 27,281 34,268
Deferred income taxes.................................... 60,159 58,370
Accrued restructuring charges............................ 568 1,340
Other.................................................... 2,209 2,352
Total liabilities................................... 196,675 208,966
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, 18,179,401 shares issued and
outstanding (18,179,186 at December 31, 1996)......... 182 182
Additional paid-in capital............................... 106,111 106,104
Retained earnings........................................ 266,202 256,110
Foreign currency translation adjustment.................. (1,870) 856
Total stockholders' equity.......................... 370,625 363,252
Total liabilities and stockholders' equity....... $567,300 $572,218
<FN>
See accompanying notes
</TABLE>
<PAGE>5<PAGE>
<TABLE>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months
Ended March 31,
1997 1996
Operating Activities (In Thousands)
<S> <C> <C>
Net income...................................... $ 10,092 $ 11,628
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................. 17,530 14,376
Deferred income taxes......................... 320 7,226
Provision for uncollectible accounts.......... ( 742) 65
Impairment and restructuring charges.......... 444 -
Changes in assets and liabilities:
Accrued restructuring and lease
termination costs........................... ( 1,170) ( 3,823)
Receivables................................... ( 2,649) 4,188
Income taxes receivable....................... 27 ( 241)
Accounts payable and accrued expenses......... (10,849) (18,231)
Income taxes payable.......................... 3,618 3,475
Other, net...................................... 1,163 ( 2,669)
Cash provided by operations................ 17,784 15,994
Investing Activities
Proceeds from sales/maturities of marketable
securities..................................... 250 1,000
Acquisition of property and equipment........... ( 7,717) ( 4,208)
Capitalized internal software development
costs.......................................... (14,368) (13,276)
Purchased software.............................. - ( 1,040)
Earnings from minority interest................. ( 154) -
Proceeds from disposal of property and
equipment...................................... 130 409
Cash (used) by investing
activities............................... (21,859) (17,115)
Financing Activities
Payments on long-term debt...................... (23,456) (16,939)
Proceeds from borrowing under credit facility... 15,238 -
Issuance of common stock under stock
option plans................................... 7 2,260
Cash (used) by financing
activities............................... ( 8,211) (14,679)
Effect of exchange rate changes on cash........... 158 180
Net (decrease)increase in cash and
equivalents..................................... (12,128) (15,620)
Cash and equivalents at beginning of period....... 22,121 35,094
Cash and equivalents at end of period............. $ 9,993 $ 19,474
Supplemental Information
Interest paid................................... $ 1,182 $ 497
Income taxes paid(refunded)..................... 1,305 ( 4,325)
<FN>
See accompanying notes
</TABLE>
<PAGE>6<PAGE>
POLICY MANAGEMENT SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
NOTE 1. CONTINGENCIES
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 this investigation.
In March 1994, Security Life of Denver Insurance Company ("SLD") brought suit
against the Company in the United States District Court for the District of
Colorado alleging breach of a life insurance joint development contract, unfair
trade practices, and fraud. SLD sought direct, indirect, consequential, and
punitive damages in excess of $80 million. In February 1997 following a jury
trial, the Court and jury entered judgments in favor of the Company against SLD
on the claims of fraud and unfair trade practices. A verdict and judgment was
returned against the Company for breach of contract and damages of $3.5 million,
together with pre-judgment interest. In addition the jury found that SLD was
using the Company's trade secrets without permission. As a result of post trial
motions, the judgment was amended to delete the award of pre-judgment interest
and SLD was ordered to return the Company's systems. Both the Company and SLD
have appealed to the United States Court of Appeals. Changes in the status of
this proceeding could result in a change in subsequent periods in the Company's
estimate of anticipated liability for the estimated costs associated with these
matters.
The Company is also presently involved in litigation which commenced in
January of 1996 in the Circuit Court in Greenville County, South Carolina with
Liberty Life Insurance Company and certain of its affiliates ("Liberty") arising
out of the parties' prior contractual relationship related to the development
and licensing of Series III life insurance systems and the subsequent licensing
of the Company's Cybertek life insurance systems. Liberty's complaint alleges
breach of contract, breach of express and implied warranties, fraudulent
inducement, breach of contract accompanied by a fraudulent act, and recission.
Liberty has alleged actual and consequential damages of approximately $30
million and also seeks treble and punitive damages. The Company has asserted
various affirmative defenses and is pursuing counterclaims against Liberty for
breach of contract, recoupment, breach of good faith and fair dealing, and
breach of contract accompanied by a fraudulent act. The Company is seeking
equitable relief, including injunctive relief, and currently unspecified
actual, compensatory and consequential damages.
Based upon the allegations raised in a prior lawsuit and the SLD lawsuit, the
Company's insurer, St. Paul Mercury Insurance Company ("St. Paul"),in June 1995
<PAGE>7
commenced a declaratory judgment action in the United States District Court for
the District of South Carolina against the Company to determine St. Paul's
obligation for defense costs and to indemnify the Company for any payment
related to these claims. The Company filed a counterclaim against St. Paul
seeking to recover the Company's defense costs in both matters, coverage for
damages, if any, awarded in those matters, and consequential and punitive
damages.
In connection with the dismissal of the prior lawsuit, St. Paul and the
Company agreed to dismiss with prejudice all claims against each other with
respect to the matter, and St. Paul agreed to reimburse the Company for the
Company's legal fees. The action continues as to the parties claims related to
insurance coverage for the SLD matter.
In addition to the litigation described above, there are also various other
litigation proceedings and claims arising in the ordinary course of business.
The Company believes it has meritorious defenses and is vigorously defending
these matters.
The Company is currently involved in a contract dispute with a customer over
the terms and billings rates contained therein. The Company believes that the
dispute will be resolved without any significant financial impact, however at
the present time the maximum financial exposure is $1.5 million.
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. NEW ACCOUNTING STANDARDS
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("FAS 128"), was issued. FAS 128 is designed to improve the
earnings per share information provided in financial statements by simplifying
the existing computational guidelines, revising the disclosure requirements, and
increasing the comparability of earnings per share data on an international
basis. FAS 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods, earlier application is not
permitted. The Company will adopt FAS 128 on its effective date. Proforma
earnings per share of the Company computed using FAS 128 is not different from
earnings per share computed using existing standards and guidelines.
NOTE 3. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to current year
presentation.
<PAGE>8
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, 1996.
<TABLE>
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:
<CAPTION>
Percent
Percentage Increase
of Revenues (Decrease)
Three Months Three Months
Ended March 31, Ended March 31,
<S> <C> <C> <C>
Revenues 1997 1996 1997 VS 1996
Licensing...................... 16.9% 18.2% 7.9%
Services....................... 83.1 81.8 18.5
100.0 100.0 16.6
Operating expenses
Cost of revenues
Employee compensation
and benefits................. 33.0 31.5 22.3
Computer & communication
expenses..................... 5.5 6.0 6.8
Information services & data
acquisition costs............ 19.6 21.0 8.8
Depreciation & amortization
of property, equipment &
capitalized software costs... 9.1 8.4 26.3
Other costs & expenses........ 5.3 5.0 26.2
Selling, general &
administrative expenses...... 15.0 12.8 36.3
Amortization of goodwill and
other intangibles............ 1.7 1.9 5.5
Litigation settlement and
expenses, net................ - (.1) -
Business acquisition charges... .1 (.1) -
89.3 86.4 20.5
Operating income................ 10.7 13.6 ( 8.3)
Minority interest income........ .2 -
Other income and expenses....... (.5) (.1) -
Income before income taxes...... 10.4 13.5 (10.1)
Income taxes.................... 3.9 4.8 ( 4.3)
Net income...................... 6.5% 8.7% (13.2)%
</TABLE>
<PAGE>9
THREE MONTHS COMPARISON
Comparisons of revenues, operating income and margins for each business
unit for the periods presented are as follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
Revenues 1997 1996 Change
(Dollars in Millions)
<S> <C> <C> <C>
Enterprise Software and Services
Property & Casualty............. $ 56.5 $ 47.3 19.5%
Life............................ 23.3 15.8 47.2
Information Services
Property & Casualty............. 23.4 22.6 3.6
Life............................ 13.2 13.0 1.8
Total U.S.revenues............. 116.4 98.7 18.0
International ................... 38.8 34.5 12.6
Total revenues $155.2 $133.2
Operating income
Enterprise Software and Services
Property & Casualty............. $ 16.2 $ 15.1 7.3%
Life............................ 4.2 2.3 79.5
Information Services
Property & Casualty............. .1 .2 (39.1)
Life............................ .6 .5 20.7
Corporate........................ (6.1) (5.6) 9.1
Total U.S.operating income..... 15.0 12.5 19.6
International ................... 1.6 5.6 (71.4)
Total operating income $ 16.6 $ 18.1
Operating income as percentage of revenue
Enterprise Software and Services
Property & Casualty............. 28.7% 31.9%
Life............................ 18.0 14.7
Information Services
Property & Casualty............. .6 1.1
Life............................ 4.7 4.0
Total U.S...................... 12.9 12.7
International ................... 4.1 16.2
Total 10.7% 13.6%
</TABLE>
<PAGE>10
Revenues
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
Licensing March 31,1997 March 31,1996 Change
(Dollars in Millions)
<S> <C> <C>
Initial charges................ $ 11.3 $ 10.4 8.6 %
Monthly charges................ 14.9 13.9 7.2
$ 26.2 $ 24.3 7.8 %
Percentage of revenues......... 16.9% 18.2%
</TABLE>
Initial license revenues increased $.9 million from the first quarter of 1996
to the first quarter of 1997.
Domestic life insurance initial licensing revenues increased 234.2% ($2.8
million) from first quarter 1996 to first quarter 1997. International initial
licensing revenues increased slightly by 1.7%. This was offset by lower
domestic property and casualty licensing revenues, as initial licensing
revenues declined by $2.0 million from the first quarter of 1996 to the first
quarter of 1997. Property and casualty licensing revenues in the United States
are being impacted by various market factors including by many insurance
companies focusing on their year 2000 projects and the need for certain "open"
systems architectures in the Company's property and casualty products. The
Company has initiatives underway to address these issues including a Windows
release of Series III, and new releases of Insure 90, Point and Capsil and
programs to assist prospective customers with near-term year 2000 solutions.
Initial license charges for the first quarter of 1997 include right-to-use
charges (licenses excluding further MESA obligations) of $1.2 million compared
to $1.1 million for the same period of 1996. Initial license charges for the
first quarter of 1997 also include termination charges (related to the buyout of
monthly license charges) of $.2 million.
Monthly license charges increased $1.0 million from the first quarter of 1996
to the first quarter of 1997.
Domestic life insurance monthly license charges increased 44.2% ($.9 million)
and international monthly license charges increased 27.6% ($.7 million). This
increase is principally related to an increase in licensing activities due to
the acquisition of Co-Cam in August 1996. These increases were offset by a
decrease in domestic property and casualty insurance monthly license charges of
4.9% ($.5 million).
<PAGE>11
Because a significant portion of initial licensing revenues 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 current and preceding seven quarters expressed as a
percentage of total revenues for each of the periods presented:
<TABLE>
<CAPTION>
1997 1996 1995
1st 4th 3rd 2nd 1st 4th 3rd 2nd*
(Dollars in Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial license revenues $11.3 $19.4 $10.1 $12.0 $10.4 $16.1 $11.3 $9.5
Total revenues 7.3% 11.8% 6.9% 8.8% 7.8% 11.6% 8.6% 7.1%
<FN>
*Excludes licensing activity of the Company's Health Insurance Systems business,
sold June 30, 1995. Second quarter 1995 licensing revenues (initial and
monthly licensing charges) related to the Health business were $.3 million.
</TABLE>
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
Services March 31,1997 March 31,1996 Change
(Dollars In Millions)
<S> <C> <C> <C>
Professional and outsourcing... $ 87.3 $ 69.5 25.6 %
Information.................... 40.2 38.8 3.6
Other.......................... 1.5 .6 166.7
$129.0 $108.9 18.5 %
Percentage of revenues......... 83.1% 81.8%
</TABLE>
Domestic property and casualty professional and outsourcing services revenues
increased 33.1% ($10.8 million) due to increases in implementation services and
increases in processing volumes in the outsourcing areas related to new and
existing customers. International property and casualty professional and
outsourcing services revenues increased 13.5% ($3.6 million), principally due to
services activity of Co-Cam, acquired August 1996 and increases in the volume of
services provided to new and existing customers.
The domestic life insurance professional and outsourcing services increased
33.0% ($3.4 million) from the first quarter 1996 to the 1997 first quarter, due
principally to increased volumes of implementation services to new and existing
domestic customers.
<PAGE>12
Information services revenues increased $1.1 million from the 1996 first
quarter to the 1997 first quarter. This increase is due to an increase of
$.2 million in life insurance information services principally comprised of
attending physician statements and application processing services. Also
contributing to this increase is an increase in property and casualty
information services revenues of $.8 million which consists principally of fees
for domestic motor vehicle reports.
OPERATING EXPENSES
Cost of Revenues
Employee compensation and benefits increased 22.3% for the first quarter 1997
compared with the first quarter of 1996, principally the result of increased
salaries and related costs associated with the acquisition of Co-Cam in August
1996, and increased costs associated with the growth in staffing for additional
professional and outsourcing services. Compensation and benefits increased 61%
($5.9 million) internationally, while domestic increased 11.7% ($4.3 million).
Computer and communications expenses increased 6.8%($.5 million) principally as
a result of increased communications, data circuit and maintenance costs
associated with the growth of the Company's domestic and international
outsourcing operations.
Information services and data acquisition costs increased 8.8%, due
principally to increases of $1.8 million in property and casualty information
costs arising from increased volume of motor vehicle reports and $.7 million in
life insurance information services, arising from increased volume of attending
physician statements.
Depreciation and amortization of property, equipment and capitalized software
costs increased 26.3%. This increase is principally due to higher amortization
expense resulting from the March 1996 release of the latest version of
CyberLife client/server life insurance software and the October 1996 release of
the Company's property and casualty insurance Series III (Release 8)
client/server software systems. In addition depreciation expense increased
principally due to Company's increased investment in its information technology
equipment.
Other operating costs and expenses increased 26.2%. Fees related to the use of
consultants and independent contractors increased, principally the result of
training costs in new technologies and the satisfaction of staffing needs for
certain development and services activities. These increases were offset by an
increase in amounts capitalized principally related to the continued
enhancement and development of the Company's Series III property and casualty
insurance software, CyberLife life insurance software and Insure Plus
international property and casualty software solution, and decreased costs
associated with the depopulation of certain assigned risk polls serviced by the
Company's total policy management business.
Selling, general and administrative expenses
Selling, general and administrative expenses increased 36.3% for the first
quarter 1997 compared with the first quarter of 1996, principally because of the
Company's investment in its international sales force and infrastructure
mainly as a result of the August 1996 acquisition of Co-Cam. However when
compared to the fourth quarter of 1996 the increase was only 2.0%.
<PAGE>13
Amortization of goodwill and other intangibles
The 5.5% increase in amortization of goodwill and other intangibles is
principally the result of amortization of intangible assets related to the
acquisition of Co-Cam in August 1996.
OPERATING INCOME
First quarter 1997 operating income decreased 8.3% ($1.5 million) compared
with the 1996 first quarter. This decline is largely the result of increased
expenses in the international operations. International operating income
decreased $4.0 million with revenues increasing by 12.6% and expenses increasing
by 28.8% for the first quarter 1997 when compared to the same period in 1996.
The decline has been caused by the current period increase in expenditures in
the Company's international infrastructure, including its sales force,
professional services organization and product development areas. The decline in
the operating income in the international operations was offset in part by an
increase in both domestic life and property and casualty insurance business
operating income. Domestic life insurance operating income increased 79.5% and
property and casualty insurance business increased 7.3%.
OTHER INCOME AND EXPENSE
As a result of a higher average level of borrowed funds, principally
borrowings under the Company's credit facilities, interest expense increased
$.5 million. The average nominal interest rate applicable to borrowings under
these facilities during the first quarter was 5.9%.
INCOME TAXES
The effective income tax rate (income taxes expressed as a percentage of
pre-tax income) was 37.6% and 35.3% for the three months ended March 31, 1997
and 1996, respectively. The effective rate for the first quarter of 1997 is
higher than the federal statutory rate principally due to the effect of state
and local income taxes.
<PAGE>14
LIQUIDITY AND CAPITAL RESOURCES
March 31, December 31,
1997 1996
Cash and equivalents, marketable (Dollars in Millions)
securities, and investments.................... $ 18.6 $ 30.8
Current assets................................... 167.7 173.0
Current liabilities.............................. 106.4 112.6
Working capital.................................. 61.3 60.4
Long-term debt................................... 27.3 34.3
Three months ended
March 31, March 31,
1997 1996
(Dollars in Millions)
Cash provided by operations...................... $ 17.8 $ 16.0
Cash used for investing activities............... (21.9) (17.1)
Cash used for financing activities............... (8.2) (14.7)
The Company's current ratio (current assets divided by current liabilities)
stood at 1.6 at March 31, 1997, which management believes is sufficient when
combined with the available credit facilities to provide for day-to-day
operating needs and the flexibility to take advantage of investment
opportunities. The Company has available under its credit facilities (net of
amounts outstanding at March 31, 1997) $77.0 million under its 364 day $100.0
million facility and $75.0 million under its 3 year $100.0 million facility,
should management choose debt financing for any of the Company's operating,
investing or financing activities. Also, the Company has available an
uncommitted $10.0 million operating line of credit with which it may
choose to fund temporary operating cash needs.
Cash provided by operations increased $1.8 million from March 31, 1996 to
March 31, 1997. This increase was principally due to a smaller year over year
reduction in accounts payable resulting from payments of amounts accrued during
the quarter in the normal course of business.
During the three months ended March 31, 1997 the Company capitalized software
development costs of $14.4 million principally related to the development of its
Series III client/server property and casualty software (including the
incorporation of object-oriented technology and support for Microsoft Windows),
CyberLife object-oriented client/server life insurance software, an Insure Plus
international property and casualty solution as well as other ongoing projects
for other domestic as well as international products.
Significant expenditures anticipated for the remainder of 1997, excluding any
possible business acquisitions or common share repurchases, are as follows:
acquisition of data processing, communications equipment and office furniture,
fixtures and equipment ($23.1 million); and costs relating to the internal
development of software systems ($43.2 million).
<PAGE>15
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, cash and investment reserves along with
amounts available under the Company's debt facilities will be sufficient to meet
presently anticipated operating needs and to accomplish specific objectives in
these areas and for other general corporate purposes.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's operating results and financial condition can be impacted by a
number of factors, including, but not limited to, the following, any of which
could cause actual results to vary materially from current and historical
results or the Company's anticipated future results:
- - Currently, the Company's business is focused principally within the global
property and casualty and life insurance industries;
- - There is increasing competition for the Company's products and services;
- - The market for the Company's products and services is characterized by rapid
changes in technology;
- - Contracts with governmental agencies involve a variety of special risks,
including the risk of early contract termination by the governmental
agency and changes associated with newly elected state administrations or
newly appointed regulators;
- - The timing and amount of the Company's revenues are subject to a number of
factors, including, but not limited to, the timing of customers' decisions
to enter into large license agreements with the Company;
- - Unforeseen events or adverse economic or business trends may significantly
increase cash demands beyond those currently anticipated or affect the
Company's ability to generate/raise cash to satisfy financing needs;
- - The Company's operations have not proven to be significantly seasonal,
although quarterly revenues and net income could be expected to vary at
times;
- - Although the Company cannot accurately determine the amounts attributable
thereto, the Company has been affected by inflation through increased
costs of employee compensation and other operating expenses.
- - Many of the Company's current and potential customers are or will spend
significant amounts of money to make their existing information systems
capable of handling the year 2000.
<PAGE>16
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Changes in the status of certain matters or facts or circumstances
underlying these estimates could result in material changes in these estimates,
and actual results could differ from these estimates.
Because of the foregoing factors, as well as other factors affecting the
Company's operating results, past financial performance should not be considered
to be a reliable indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:Statements in this report that are not descriptions of historical facts may
be forward-looking statements that are subject to risks and uncertainties,
including economic, competitive and technological factors affecting the
Company's operations, markets, products, services and prices, as well as other
specific factors discussed in the Company's fillings with the Securities and
Exchange Commission. These and other factors may cause actual results to differ
materially from those anticipated.
<PAGE>17
<PAGE>
PART II
OTHER INFORMATION
POLICY MANAGEMENT SYSTEMS CORPORATION
Item 1. Legal Proceedings
See Note 1, Contingencies, of Notes to the Consolidated Financial Statements,
which is incorporated by reference in this Item.
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
On February 7, 1997 the Company filed a report on Form 8-K to report the
results of the verdict that was rendered in the Security Life of Denver lawsuit.
<PAGE>18
POLICY MANAGEMENT SYSTEMS CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POLICY MANAGEMENT SYSTEMS CORPORATION
(Registrant)
Date: May 15, 1997 By: Timothy V. Williams
Executive Vice President
(Chief Financial Officer)
<PAGE>19
POLICY MANAGEMENT SYSTEMS CORPORATION
EXHIBIT INDEX
Exhibit
Number
3. ARTICLES OF INCORPORATION AND BY-LAWS
A. Bylaws of the Company, as amended through July 19, 1994 incorporating
all amendments thereto subsequent to December 31, 1993 (filed as an
Exhibit to Form 10-K for the year ended December 31, 1994, and is
incorporated herein by reference)
B. Articles of Incorporation of the Company, as amended through October
13, 1994, incorporating all amendments thereto subsequent to December 31,
1993 (filed as an Exhibit to Form 10-K for the year ended December 31,
1994, and is incorporated herein by reference)
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
A. Specimen forms of certificates for Common Stock of the Company (filed
as an Exhibit to Registration Statement No. 2-74821, dated December 16,
1981, and is incorporated herein by reference)
B. Articles of Incorporation of the Company, as amended through October
13, 1994, incorporating all amendments thereto subsequent to December 31,
1993 (filed as an Exhibit to Form 10-K for the year ended December 31,
1994, and is incorporated herein by reference)
10. MATERIAL CONTRACTS
A. Policy Management Systems Corporation 1986 Stock Option Plan (filed as
an Exhibit to Form 10-K for the year ended December 31, 1986, and is
incorporated herein by reference)
B. Conformed copy of Development and Marketing Agreement between
International Business Machines Corporation and Policy Management
Systems Corporation, dated July 26, 1989 (File No. 0-10175 - filed under
cover of Form SE filed on September 29, 1989, and is incorporated
herein by reference)
C. Policy Management Systems Corporation 1989 Stock Option Plan (File No.
0-10175 - filed under cover of Form SE on March 22, 1991, and is
incorporated herein by reference)
D. Deferred Compensation Agreement with G. Larry Wilson (filed as an
Exhibit to Form 10-K for the year ended December 31, 1993, and is
incorporated herein by reference)
<PAGE>20
E. Executive Compensation Agreement with G. Larry Wilson (filed as an
Exhibit to Form 10-K for the year ended December 31, 1993, and is
incorporated herein by reference)
F. Employment Agreement with Stephen G. Morrison (filed as an Exhibit to
Form 10-Q for the quarter ended March 31, 1994, and is incorporated
herein by reference)
G. Stock Option/Non-Compete Agreement with Stephen G. Morrison (filed as
an Exhibit to Form 10-Q for the quarter ended March 31, 1994, and is
incorporated herein by reference)
H. Shareholders' Agreement, dated April 26, 1994, among Policy Management
Systems Corporation, General Atlantic Partners 14, L.P. and GAP
Coinvestment Partners (filed as an Exhibit to Form 10-Q for the quarter
ended September 30, 1994, and is incorporated herein by reference)
I. Registration Rights Agreement, dated April 26, 1994 among Policy
Management Systems Corporation, General Atlantic Partners 14, L.P. and
GAP Coinvestment Partners (filed as an Exhibit to Form 10-Q for the
quarter ended September 30, 1994, and is incorporated herein by
reference)
J. Employment Agreement with Timothy V. Williams (filed as an Exhibit to
Form 10-K for the year ended December 31, 1994, and is incorporated
herein by reference)
K. Stock Option/Non-Compete Form Agreement for named executive officers
together with schedule identifying particulars for each named executive
officer (filed as an Exhibit to Form 10-Q for the quarter ended
September 30, 1992, and is incorporated herein by reference)
L. Stock Option/Non-Compete Form Agreement for named executive officers
together with schedule identifying particulars for each named executive
officer (filed as an Exhibit to Form 10-Q for the quarter ended
September 30, 1994, and is incorporated herein by reference)
M. Stock Option (Non-Compete Form Agreement for named executive officers
together with schedule identifying particulars for each named executive
officer (filed as an Exhibit to Form 10-K for the year ended December 31,
1994, and is incorporated herein by reference)
N. Policy Management Systems Corporation 1993 Long-Term Incentive Plan for
Executives (filed as an Exhibit to Form 10-K for the year ended December
31, 1994, and is incorporated herein by reference)
O. First Amendment to the Policy Management Systems Corporation 1989 Stock
Option Plan (filed as an Exhibit to Form 10-K for the year ended December
31, 1994, and is incorporated herein by reference)
P. Fourth Amendment to the Policy Management Systems Corporation 1989
Stock Option Plan (filed as an Exhibit to Form 10-Q for the quarter
ending March 31, 1995, and is incorporated herein by reference)
<PAGE>21
Q. Second and Third Amendments to the Policy Management Systems
Corporation 1989 Stock Option Plan (filed as an Exhibits and to Form
10-Q for the quarter ended June 30, 1995, and is incorporated herein by
reference)
R. Stock Option/Non-Compete Form Agreement for named executive officers
together with schedule identifying particulars for each named executive
officer (filed as an Exhibit to Form 10-Q for the quarter ended June
30, 1995, and is incorporated herein by reference)
S. Stock Option/Non-Compete Form Agreement for named executive officers
together with schedule identifying particulars for each named executive
officer (filed as an Exhibit to Form 10-K for year ended December 31,
1995, and is incorporated herein by reference)
T. Stock Option/Non-Compete Form Agreement for named executive officers
together with schedule identifying particulars for each named executive
officer (filed as an Exhibit to Form 10-K for year ended December 31,
1995, and is incorporated herein by reference)
U. Stock Option/Non-Compete Agreement Amendment No. 1 dated November 8,
1995 to Stock Option/Non-Compete Agreement dated July 20, 1995 with
Paul R. Butare (filed as an Exhibit to Form 10-K for year ended
December 31, 1995, and is incorporated herein by reference)
V. Stock Option/Non-Compete Agreement with Timothy V. Williams dated
February 1, 1994 (filed as an Exhibit to Form 10-K for year ended
December 31, 1995, and is incorporated herein by reference)
W. Stock Option/Non-Compete Agreement with Timothy V. Williams dated May
10, 1995 (filed as an Exhibit to Form 10-K for year ended December 31,
1995, and is incorporated herein by reference)
X. Registration Rights Agreement, dated March 8, 1996, between Policy
Management Systems Corporation and Continental Casualty Company
(filed as an Exhibit to Form 10-Q for the quarter ended March 31, 1996,
and is incorporated herein by reference)
Y. Shareholders Agreement dated March 8, 1996 between Policy Management
Systems Corporation and Continental Casualty Company (filed as an
Exhibit to Form 10-Q for the quarter ended March 31, 1996, and is
incorporated herein by reference)
Z. Stock Option/Non-Compete Form Agreement for named executive officers
together with schedule identifying particulars for each named executive
officer (filed as an Exhibit to Form 10-Q for the quarter ended June 30,
1996, and is incorporated herein by reference)
AA. 364-Day Credit Agreement dated as of August 11, 1995 among Policy
Management Systems Corporation, the Guarantors Party thereto, the Banks
Listed therein and Morgan Guaranty Trust Company of New York as Agent
(filed as an Exhibit to Form for the quarter ended June 30, 1996, and
is incorporated herein by reference)
BB. Three-Year Credit Agreement dated as of August 11, 1995 among Policy
Management Systems Corporation, the Guarantors Party thereto, the
Banks Listed therein and Morgan Guaranty Trust Company of New York as
Agent (filed as an Exhibit to Form 10-Q for
<PAGE>22
the quarter ended June 30, 1996, and is incorporated herein by
reference)
CC. Amendment No. 1 to 364-Day Credit Agreement dated September 29, 1995
among
Policy Management Systems Corporation and Morgan Guaranty Trust
Company of New
York (filed as an Exhibit to Form 10-Q for the quarter ended June 30,
1996, and is
incorporated herein by reference)
DD. Amendment No. 1 to Three-Year Credit Agreement dated September 29,
1995 among
Policy Management Systems Corporation and Morgan Guaranty Trust
Company of
New York (filed as an Exhibit to Form 10-Q for the quarter ended June
30, 1996, and
is incorporated herein by reference)
EE. Amendment No. 2 to 364-Day Credit Agreement dated March 29, 1996 among
Policy
Management Systems Corporation and Morgan Guaranty Trust Company of
New York
(filed as an Exhibit to Form 10-Q for the quarter ended June 30, 1996,
and is
incorporated herein by reference)
FF. Amendment No. 2 to Three-Year Credit Agreement dated March 29, 1996
among Policy
Management Systems Corporation and Morgan Guaranty Trust Company of
New York
(filed as an Exhibit to Form 10-Q for the quarter ended June 30, 1996,
and is
incorporated herein by reference)
GG. Amendment No. 3 to 364-Day Credit Agreement dated August 9, 1996 among
Policy
Management Systems Corporation and Morgan Guaranty Trust Company of
New York
(filed as an Exhibit to Form 10-Q for the quarter ended September 30,
1996, and is
incorporated herein by reference)
HH. Amendment No. 3 to Three-Year Credit Agreement dated August 9, 1996
among Policy
Management Systems Corporation and Morgan Guaranty Trust Company of
New York
(filed as an Exhibit to Form 10-K for year ended December 31, 1996,
and is
incorporated herein by reference)
II. Employment Agreement Form dated November 7, 1996 for Messrs. Butare,
Morrison
and Williams together with a schedule identifying particulars for each
executive officer
(filed as an Exhibit to Form 10-K for year ended December 31, 1996,
and is
incorporated herein by reference)
JJ. Stock Option/Non-Compete Agreement with Stephen G. Morrison dated
October 22,
1996 (filed as an Exhibit to Form 10-K for year ended December 31,
1996, and is
incorporated herein by reference)
KK. Stock Option/Non-Compete Form Agreement dated January 8, 1997 for
named
executive officers together with schedule identifying particulars for
each executive
officer (filed herewith)
LL. Annual Bonus Program for Executive Officers (filed herewith)
<PAGE>23
11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
A. Filed herewith
27. FINANCIAL DATA SCHEDULE
A. Filed herewith
<PAGE>1
EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT
THIS EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT ("the Agreement") is made
effective as of January 8, 1997, 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 ____________, 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., $44.25. These
<PAGE>2
Options must be exercised within ten (10) years of the effective date of
this Agreement or they
expire.
3. Availability for Exercise. 25% of the shares subject to the Options
granted will become
available for exercise at the end of each of the four (4) years following
the effective date of this
Agreement. For example . . . 25% of the total number of Options granted
will be available for
exercise beginning January 8, 1998; 50% will be available for exercise
beginning January 8,
1999; 75% will be available for exercise beginning January 8, 2000; and
100% will be
available for exercise beginning January 8, 2001. Once Options become
available for
exercise, they will remain available for exercise for so long as EMPLOYEE
is employed by
PMSC 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: (I) 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; (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,
but in no event shall these Options be exercised after the tenth
anniversary date these Options
were granted.
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.
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
<PAGE>3
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
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
<PAGE>4
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
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
<PAGE>5
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
<PAGE>
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: _________________________________
Stephen G. Morrison
TITLE: Executive Vice President
EMPLOYEE
_____________________________________
(Signature)
_____________________________________
(Type or Print Name)
_____________________________________
(Date Signed by Employee)
<PAGE>7
<PAGE>
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
NUMBER
OFFICER
GRANTED
G. Larry Wilson
75,000
David T. Bailey
35,000
Paul R. Butare
35,000
Donald A. Coggiola
35,000
Stephen G. Morrison
35,000
Timothy V. Williams
35,000
<PAGE>1
ANNUAL BONUS PLAN FOR
EXECUTIVE OFFICERS
I Bonus Components
A. Company EPS Plan XX Points
Potential points reduced by 10% for each 1% under plan.
B. Company EPS Growth
Potential points reduced by 10% for each 1% under annual
targeted
growth percentage.
C. Group Profit Plan
Potential points reduced by 10% for each 1% under plan.
D. Group Profit Growth
Potential points reduced by 10% for each 1% under annual
targeted
growth percentage.
E. Staff
Potential points reduced by 10% for each 1% expense growth
exceeds EPS
growth minus 10%.
II Calculation
Points X Maximum % = Bonus Potential
100
III Bonus potential can be adjusted (up/down) for quality, strategic
value building
and other subjective factors but cannot exceed maximum %. A maximum
pool
based on bonus potential is established for each group.
IV ALL bonus payments to senior executives (CEO, EVP, SVP, VP) must be
authorized by PMSC Board of Directors and can be reduced based on
the Board's
analysis of quality, customer satisfaction, business practices,
timeliness of
product/project completion, and overall performance.
V Subject Salary - All Categories
Any Bonus payment is based on annualized salary as of September 30
of the year
for which bonus is paid.
January 7, 1997
<TABLE>
<CAPTION>
Exhibit 11
Statement Regarding Computation of Per Share Earnings
Three Months
Ended March 31,
1997 1996
(In
Thousands, Except Per Share Data)
<S>
<C> <C>
Primary net income per share
Net income:
Net income as reported $10,092
$11,628
Weighted average number
of common shares outstanding 18,179
19,463
Common stock equivalents
- -
Primary shares 18,179
19,463
Primary net income per share $ .56
$ .60
Fully diluted net income per share
Net income as reported $10,092
$11,628
Weighted average number
of common shares outstanding 18,179
19,463
Common stock equivalents 150
298
Fully diluted shares 18,329
19,761
Fully diluted net income per share $ .55 $
.59
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS OF POLICY
MANAGEMENT SYSTEMS CORPORATION AS OF AND FOR THE QUARTER ENDED MARCH 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 9993
<SECURITIES> 0
<RECEIVABLES> 121398
<ALLOWANCES> 1402
<INVENTORY> 0
<CURRENT-ASSETS> 167709
<PP&E> 244067
<DEPRECIATION> 127879
<TOTAL-ASSETS> 567300
<CURRENT-LIABILITIES> 106458
<BONDS> 0
0
0
<COMMON> 182
<OTHER-SE> 370443
<TOTAL-LIABILITY-AND-EQUITY> 370625
<SALES> 0
<TOTAL-REVENUES> 155256
<CGS> 0
<TOTAL-COSTS> 138674
<OTHER-EXPENSES> 58
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1217
<INCOME-PRETAX> 16161
<INCOME-TAX> 6069
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10092
<EPS-PRIMARY> .56
<EPS-DILUTED> 0
</TABLE>
