UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
Commission file number 1-10557
MYND CORPORATION
(FORMERLY POLICY MANAGEMENT SYSTEMS CORPORATION)
(Exact name of registrant as specified in its charter)
SOUTH CAROLINA 57-0723125
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
ONE MYND CENTER (PO BOX TEN)
BLYTHEWOOD, SC (COLUMBIA, SC) 29016 (29202)
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 333-4000
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.
35,584,517 Common shares, $.01 par value, as of November 3, 2000.
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/A for the year ended December 31, 1999.
1
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MYND CORPORATION
(FORMERLY POLICY MANAGEMENT SYSTEMS CORPORATION)
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 2000 and 1999 . . . . . . . . 3
Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Changes in Stockholders'
Equity and Comprehensive Income for the Nine
Months Ended September 30, 2000 . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 37
Item 4. Submission of matters to a vote of Security Holders. . . 37
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 37
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2
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<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
MYND CORPORATION
(FORMERLY POLICY MANAGEMENT SYSTEMS CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------- -----------------------
2000 1999 2000 1999
----------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
(In thousands, except per share data)
REVENUES
Licensing. . . . . . . . . . . . . . . $ 28,129 $ 37,383 $ 80,636 $115,846
Services . . . . . . . . . . . . . . . 112,117 131,405 348,026 386,763
------------ ---------- ----------- ---------
140,246 168,788 428,662 502,609
------------ ---------- ----------- ---------
OPERATING EXPENSES
Cost of revenues
Employee compensation and benefits. . 68,934 78,686 223,444 228,729
Computer and communications expenses. 13,628 12,654 41,075 36,336
Depreciation and amortization of
property, equipment and
capitalized software costs . . . . . 14,246 108,543 51,514 141,794
Other costs & expenses. . . . . . . . 16,126 15,228 38,169 32,030
Selling, general and administrative
expenses . . . . . . . . . . . . . . 23,581 29,230 78,401 83,164
Amortization of goodwill and
other intangibles. . . . . . . . . . 3,629 9,978 10,798 16,516
Restructuring and other charges. . . . 8,564 22,159 24,591 22,159
Merger termination charges . . . . . . 932 - 25,279 -
------------ ---------- ----------- ---------
149,640 276,478 493,271 560,728
------------ ---------- ----------- ---------
OPERATING LOSS. . . . . . . . . . . . . (9,394) (107,690) (64,609) (58,119)
Equity in earnings of
unconsolidated affiliates. . . . . . 227 320 938 609
Minority interest . . . . . . . . . . . 62 (14) 101 (94)
Other income and expenses:
Investment income . . . . . . . . . . 309 239 6,385 674
Interest expense and other charges. . (9,009) (3,564) (22,487) (7,804)
------------ ---------- ----------- ---------
(8,700) (3,325) (16,102) (7,130)
------------ ---------- ----------- ---------
Loss before tax benefit . . . . . . . . (17,805) (110,709) (79,672) (64,734)
Tax benefit . . . . . . . . . . . . . . (7,415) (40,261) (14,253) (23,249)
------------ ---------- ----------- ---------
NET LOSS. . . . . . . . . . . . . . . . $ (10,390) $ (70,448) $ (65,419) $(41,485)
============ ========== =========== =========
BASIC LOSS PER SHARE. . . . . . . . . . $ (0.29) $ (1.99) $ (1.85) $ (1.16)
============ ========== =========== =========
DILUTED LOSS PER SHARE. . . . . . . . . $ (0.29) $ (1.99) $ (1.85) $ (1.16)
============ ========== =========== =========
Weighted average common shares. . . . . 35,379 35,355 35,378 35,610
Weighted average common shares
assuming dilution . . . . . . . . . . 35,379 35,355 35,378 35,610
See accompanying notes
</TABLE>
3
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<TABLE>
<CAPTION>
MYND CORPORATION
(FORMERLY POLICY MANAGEMENT SYSTEMS CORPORATION)
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
September 30, December 31,
2000 1999
--------------- --------------
(In thousands, except share data)
<S> <C> <C>
Assets
Current assets
Cash and equivalents . . . . . . . . . . . . . . $ 19,862 $ 17,744
Receivables, net of allowance for uncollectible
amounts of $5,097 ($13,000 at December 31, 1999) 96,080 99,669
Accrued revenues. . . . . . . . . . . . . . . . 23,898 36,393
Deferred income taxes. . . . . . . . . . . . . . 17,308 15,979
Income tax receivable. . . . . . . . . . . . . . - 9,728
Other receivable . . . . . . . . . . . . . . . . - 7,788
Prepaids . . . . . . . . . . . . . . . . . . . . 13,186 12,050
Other. . . . . . . . . . . . . . . . . . . . . . 14,329 11,886
--------------- --------------
Total current assets . . . . . . . . . . . . . 184,663 211,237
Property and equipment, at cost less accumulated
depreciation and amortization of $128,218
($132,347 at December 31, 1999). . . . . . . . . 131,353 142,867
Accrued revenues. . . . . . . . . . . . . . . . . 20,877 16,032
Income tax receivable . . . . . . . . . . . . . . 4,838 4,804
Goodwill and other intangibles, net . . . . . . . 101,415 111,024
Capitalized software costs, net . . . . . . . . . 155,485 155,895
Deferred income taxes . . . . . . . . . . . . . . 27,305 29,850
Investments . . . . . . . . . . . . . . . . . . . 6,147 13,332
Other . . . . . . . . . . . . . . . . . . . . . . 21,127 21,247
--------------- --------------
Total assets . . . . . . . . . . . . . . . . $ 653,210 $ 706,288
=============== ==============
Liabilities
Current liabilities
Accounts payable and accrued expenses . . . . . $ 44,792 41,236
Notes payable 21,000 -
Current portion of long-term debt. . . . . . . . 250,000 4,000
Income taxes payable . . . . . . . . . . . . . . 666 4,616
Unearned revenues. . . . . . . . . . . . . . . . 19,218 20,290
Accrued restructuring and other charges. . . . . 6,388 3,630
Other. . . . . . . . . . . . . . . . . . . . . . 1,665 2,223
--------------- --------------
Total current liabilities. . . . . . . . . . . 343,729 75,995
Long-term debt. . . . . . . . . . . . . . . . . . - 227,000
Deferred income taxes 53,573 68,514
Accrued restructuring and other charges . . . . . 2,717 2,659
Other . . . . . . . . . . . . . . . . . . . . . . 8,922 9,935
--------------- --------------
Total liabilities . . . . . . . . . . . . . . 408,941 384,103
--------------- --------------
Minority interest . . . . . . . . . . . . . . . . 500 624
Stockholders' equity
Special stock, $.01 par value, 5,000,000 shares
authorized . . . . . . . . . . . . . . . . . . . - -
Common stock, $.01 par value, 75,000,000 shares
authorized, 35,584,517 shares issued and
outstanding (35,585,078 at December 31, 1999). . 356 356
Additional paid-in capital. . . . . . . . . . . . 56,763 56,695
Retained earnings . . . . . . . . . . . . . . . . 222,064 287,483
Accumulated other comprehensive income. . . . . . (25,748) (12,972)
Stock employee compensation trust . . . . . . . . (9,666) (10,001)
--------------- --------------
Total stockholders' equity. . . . . . . . . . 243,769 321,561
--------------- --------------
Total liabilities and stockholders' equity . . . $ 653,210 $ 706,288
=============== ==============
See accompanying notes
</TABLE>
4
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<TABLE>
<CAPTION>
MYND CORPORATION
(FORMERLY POLICY MANAGEMENT SYSTEMS CORPORATION)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(Unaudited)
Stock
Accumulated Employee
Additional Other Compen-
Common Paid-In Retained Comprehensive sation
Stock Capital Earnings Income(1) Trust Total
------ -------- ---------- ---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999. . $ 356 $ 56,695 $ 287,483 $ (12,972) $(10,001) $321,561
Comprehensive income
Net loss . . . . . . . . . . - - (65,419) - - (65,419)
Other comprehensive income,
net of tax:
Foreign currency
translation adjustments . - - - (12,776) - (12,776)
---------
Total comprehensive income. . (78,195)
---------
Restricted stock. . . . . . . - 52 - - 335 387
Stock options exercised
(1,168 shares). . . . . . . - 16 - - - 16
------ -------- ---------- ---------- --------- ---------
BALANCE, SEPTEMBER 30, 2000 . $ 356 $ 56,763 $ 222,064 $ (25,748) $ (9,666) $243,769
====== ======== ========== ========== ========= =========
See accompanying notes
<FN>
(1) Comprehensive income (loss) for the three months ended September 30, 2000
and 1999 was $(16,355) and $(67,519), respectively.
Comprehensive income (loss) for the nine months ended September 30, 1999 was $(41,559).
</TABLE>
5
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<TABLE>
<CAPTION>
MYND CORPORATION
(FORMERLY POLICY MANAGEMENT SYSTEMS CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months
Ended September 30,
----------------------
2000 1999
---------- ----------
(In thousands)
<S> <C> <C>
Operating Activities
Net loss . . . . . . . . . . . . . . . . . . . . . $ (65,419) $ (41,485)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . 67,655 163,085
Deferred income taxes. . . . . . . . . . . . . . (13,725) (31,324)
Provision for uncollectible accounts . . . . . . 3,279 513
Loss on disposal of property and equipment . . . 1,123 1,018
Gain on sale of investments. . . . . . . . . . . (5,262) -
Changes in assets and liabilities:
Receivables. . . . . . . . . . . . . . . . . . . (911) (10,424)
Accrued revenues . . . . . . . . . . . . . . . . 7,650 (20,195)
Other receivable . . . . . . . . . . . . . . . . 7,788 11,279
Accounts payable and accrued expenses. . . . . . 2,434 (14,560)
Accrued restructuring and other charges. . . . . 3,925 13,200
Income taxes . . . . . . . . . . . . . . . . . . 5,744 (3,033)
Unearned revenues (1,072) 1,772
Other, net . . . . . . . . . . . . . . . . . . . (5,144) (9,555)
---------- ----------
Cash provided by operations . . . . . . . . . 8,065 60,291
---------- ----------
Investing Activities
Acquisition of property and equipment. . . . . . . (13,910) (28,532)
Capitalized internal software development costs. . (36,641) (50,476)
Business acquisition and investments . . . . . . . (6,793) (68,053)
Proceeds from sale of investments. . . . . . . . . 18,308 1,969
Other. . . . . . . . . . . . . . . . . . . . . . . (3,227) (5,888)
---------- ----------
Cash used by investing activities . . . . . . (42,263) (150,980)
---------- ----------
Financing Activities
Payments on long-term debt . . . . . . . . . . . . (145,025) (219,312)
Proceeds from borrowing under credit facility. . . 166,025 348,900
Purchase of stock for Stock Employee . . . . . . .
Compensation Trust. . . . . . . . . . . . . . . . - (10,094)
Issuance of common stock under stock option plans. 16 7,104
Proceeds from note payable . . . . . . . . . . . . 19,000 -
Repurchase of common stock . . . . . . . . . . . . - (33,045)
Other . . . . . . . . . . . . . . . . . . . . . . (3,700) -
---------- ----------
Cash provided by financing activities. . . . 36,316 93,553
---------- ----------
Net increase in cash and equivalents. . . . . . . . 2,118 2,864
Cash and equivalents at beginning of period . . . . 17,744 26,013
---------- ----------
Cash and equivalents at end of period . . . . . . . $ 19,862 $ 28,877
========== ==========
Supplemental Information
Interest paid. . . . . . . . . . . . . . . . . . . $ 16,955 $ 6,494
Income taxes (refunded) paid . . . . . . . . . . . (4,507) 6,745
See accompanying notes
</TABLE>
6
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MYND CORPORATION
(FORMERLY POLICY MANAGEMENT SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Mynd Corporation (the "Company")
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission (the "SEC"). These consolidated financial
statements include estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities and the
amounts of revenues and expenses. Actual results may differ from those
estimated. In the opinion of management, these statements include all
adjustments necessary for a fair presentation of the results of all interim
periods reported herein. All adjustments are of a normal recurring nature
unless otherwise disclosed. Certain information and footnote disclosures
prepared in accordance with generally accepted accounting principles either have
been condensed or omitted pursuant to SEC rules and regulations. However,
management believes that the disclosures made are adequate for a fair
presentation of results of operations, financial position and cash flows. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and accompanying notes included in the
Company's latest annual report on Form 10-K/A.
BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share ("EPS") are calculated according to
the provisions of Statement of Financial Accounting Standards No. 128, "Earnings
Per Share". Since the inclusion of stock options would be anti-dilutive, the
numerator and denominator are the same for the calculation of both basic and
diluted EPS, for the three and nine months ended September 30, 2000. The average
market price of the stock for the period was below the exercise price for the
majority of options outstanding during the period.
=
Options to purchase 7,376,956 shares of common stock at a weighted average
price of $26.30 per share were outstanding but not included in the computation
of diluted EPS for the period ending September 30, 2000.
OTHER MATTERS
Certain prior period amounts have been reclassified to conform to current period
presentation.
7
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NOTE 2. ACQUISITIONS
On May 31, 2000, the Company purchased DEKRU B.V., a Dutch subsidiary of
the German based DEKRA Group ("DEKRU"), for approximately $1.1 million in cash
plus additional consideration of up to $6.1 million contingent upon the future
performance of DEKRU to be recorded as royalty expense as incurred. DEKRU owns a
software product (KDX) for managing and adjusting automobile claims. The
Company intends to market and further develop KDX primarily for the European
market.
On June 30, 1999, the Company purchased DORN Technology Group, Inc.
("DORN"), a risk and claims management company, for $33.2 million in cash plus
additional consideration based upon the performance of DORN. Pursuant to an
amendment to this agreement in the 2000 third quarter, this additional
consideration was limited to $1.1 million and was recorded as compensation
expense in 1999 and the first half of 2000. DORN owns the Riskmaster(R) claims
management software and Quest healthcare facility software, and provides risk
and claims management software and services mainly to the US self-insured
market. The Company intends to grow DORN's business and further develop the
Riskmaster and Quest systems to complement its existing claims products.
On June 30, 1999, the Company purchased Financial Administrative Services,
Inc.("FAS"), a provider of business process outsourcing ("BPO") for $13.0
million plus additional consideration of up to $12.0 million contingent on the
future performance of FAS, to be capitalized as additional goodwill when paid
until 2005. FAS uses the Company's PolicyLink system to support the rapid
introduction of variable insurance products and annuities in a business process
outsourcing environment. The Company intends to grow the business acquired.
On March 31, 1999, the Company purchased Legalgard Partners, L.P.
("Legalgard"), a legal cost containment business for $23.2 million plus
additional consideration of up to $4.3 million contingent upon the future
performance of Legalgard, to be recorded as compensation expense as incurred
until 2003. Legalgard provides legal cost containment services mainly to the US
property and casualty insurance industry using the Counsel Partnership(TM)
System, a proprietary software system. The Company intends to continue growing
Legalgard's existing services business and developing the technology acquired.
The acquisitions above have been recorded using the purchase method of
accounting. Accordingly, the Consolidated Statement of Operations of the Company
does not include the results of operations before the date of the acquisition.
8
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NOTE 3. CONTINGENCIES
In January 2000, Computer Sciences Corporation ("CSC") filed a complaint
against the Company alleging that the Company and NeuronWorks, an entity
retained by the Company in the development of Claims Outcome Advisor(TM)
("COA"), misappropriated CSC's trade secrets related to CSC's Colossus product
and used such trade secrets in the development of the Company's COA product.
The litigation was removed from Texas State court and is currently pending in
the United States District Court for the Western District of Texas, Austin
Division. CSC's complaint alleges unfair competition, product misappropriation,
trade secret theft, tortious interference with existing and prospective
contracts, aiding and abetting breach of fiduciary duty, and civil conspiracy.
CSC's complaint seeks preliminary and permanent injunctive relief, damages,
attorneys' fees and punitive damages, all in an unspecified amount. The Company
has denied the allegations against it and asserted various affirmative defenses
and counterclaims against CSC, including counterclaims for unfair trade
practices, false representation, false promotion and commercial disparagement
under the Lanham Act, business disparagement, injurious falsehood, defamation,
and tortious interference with existing and prospective contractual and business
relationships. On March 22, 2000, a hearing was held on CSC's request for
preliminary injunctive relief to enjoin the Company from marketing and licensing
COA. CSC's request for preliminary injunctive relief was denied. The case is
anticipated to be set for trial in the 2001 first quarter. The Company believes
CSC's remaining claims are without merit and is vigorously defending this matter
and pursuing relief on the Company's claims.
On May 22, 2000 an amended consolidated complaint was filed in the
previously disclosed purported class action filed on behalf of purchasers of the
Company's stock during the period October 22, 1998 and February 10, 2000. (See
Item 1, Legal Proceedings, of Part II contained in the Company's report on Form
10-Q for the quarter ended March 31, 2000). The defendants have filed a motion
to dismiss the complaint and intend to vigorously pursue a full defense of the
action.
Also on May 22, 2000, an amended complaint was filed in the previously
disclosed purported class action brought by one of the Company's employees,
suing allegedly on behalf of herself and all former or current participants in
the Company's 401(k) Retirement Savings Plan ("Plan") during the period October
22, 1998 through February 10, 2000, against the Company, its Chairman and three
members of the Administrative Committee of the Plan. The amended complaint
alleges that the Plan's investment in the Company's stock violated Sections 502
(a) (2) and (3) of ERISA and constituted a breach of fiduciary duty given
defendants' alleged knowledge that the Company's stock price was artificially
inflated throughout the class period as a result of the same series of alleged
materially false and misleading statements that form the basis of the securities
class action described above. The court has entered an order providing for the
coordination of proceedings with the securities class action. The defendants
have filed a motion to dismiss the complaint and intend to vigorously pursue a
full defense of this action.
As previously disclosed, between March 31, 2000 and May 5, 2000 four
purported class actions were filed against the Company and its directors in the
Court of Common Pleas in Richland County, South Carolina. (See Item 1, Legal
Proceedings, of Part II contained in the Company's report on Form 10-Q for the
quarter ended March 31, 2000). These actions were consolidated into a single
action and an amended consolidated complaint was filed on July 24, 2000. The
amended consolidated complaint alleges that the defendants breached their
fiduciary duties by failing to conduct a market check and agreeing to an
unreasonable termination fee in the June 20, 2000 Agreement and Plan of Merger
9
<PAGE>
between the Company and Computer Sciences Corporation (CSC transaction) and
breached their duty of candor in failing to disclose material information
concerning the CSC transaction. The plaintiffs seek preliminary and permanent
injunctive relief to enjoin payment of the termination fee under the Agreement
and Plan of Merger between Politic Acquisition Corporation and the Company which
was terminated by the Company. Plaintiffs also seek to enjoin consummation of
the CSC tender offer until additional disclosures are made, to strike the
termination fee in the CSC transaction, and seek reasonable attorney fees and
costs. The plaintiffs' request for a temporary injunction was denied on August
7, 2000 following a hearing on plaintiffs' request. Defendants have filed a
motion to dismiss the amended complaint and intend to vigorously pursue a full
defense of this action.
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.
Resolution of any of the above matters could have a material adverse effect
on the results of operations and consolidated financial position of the Company
in future periods. While the Company does not expect these matters to have a
material adverse effect in future periods it is unable to predict the ultimate
outcome or the potential financial impact of these matters.
In a letter dated April 29, 1999, the Company was notified by the Internal
Revenue Service ("IRS") of proposed adjustments to its 1994, 1995 and 1996
federal income tax returns. The Company strongly disagreed with the proposed
adjustments and submitted a written protest to the IRS. If the IRS had been
successful in its position, a charge to income of approximately $16.3 million
would have resulted. On September 29, 2000 the Company completed its
negotiations with the Appeals Division of the IRS regarding the proposed
adjustments. The Company prevailed in its position with respect to several of
the more material items and as a result of the negotiated settlement there will
be no charge to income for the proposed adjustments. Because the resolution of
all issues in the 1994, 1995 and 1996 federal income tax returns will result in
a refund in excess of $1.0 million, approval of the settlement is required from
the United States Congressional Joint Committee on Taxation, a committee that
approves large refunds. The Company is now awaiting that approval.
10
<PAGE>
NOTE 4. SEGMENT INFORMATION
The Company's operating segments are the four revenue-producing components
of the Company for which separate financial information is produced for internal
decision making and planning purposes. The segments are as follows:
1. Property and casualty enterprise software and services (generally referred to
as "property and casualty"). This segment provides software products, product
support, professional services and outsourcing primarily to the US property and
casualty insurance market.
2. Claims and risk management (generally referred to as "claims"). This segment
provides software products, product support, professional services and
outsourcing primarily to the claims management function of the US insurance
industry and risk management, i.e. self-insured, marketplace. Prior to the 2000
first quarter, claims was included in the property and casualty segment.
3. Life and financial solutions enterprise software and services (generally
referred to as "life and financial solutions"). This segment provides software
products, product support, professional services and outsourcing primarily to
the US life insurance and related financial services markets.
4. International. This segment provides software products, product support,
professional services and outsourcing to the property and casualty and life
insurance markets primarily in Europe, Asia, Australia and Canada.
11
<PAGE>
Information about the Company's operations for the three and nine months ended
September 30, 2000 and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- -------------------
2000 1999 2000 1999
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS
Property and casualty. . . . . . $ 54,241 $ 66,298 $158,744 $207,445
Claims.. . . . . . . . . . . . . 7,122 7,734 20,504 17,357
Life and financial solutions . . 49,374 51,837 144,086 141,001
--------- ---------- --------- ---------
Total US revenues. . . . . . . 110,737 125,869 323,334 365,803
International. . . . . . . . . . 29,509 42,919 105,328 136,806
--------- ---------- --------- ---------
Total revenues . . . . . . . . $140,246 $ 168,788 $428,662 $502,609
========= ========== ========= =========
INCOME (LOSS) FROM OPERATIONS
Property and casualty. . . . . . $ 7,631 $ (66,836) $ 17,056 $(29,658)
Claims.. . . . . . . . . . . . . (1,586) (250) (4,587) 5,352
Life and financial solutions . . 3,749 (1,527) 1,216 17,338
Corporate and US administrative. (11,869) (12,129) (59,116) (28,361)
--------- ---------- --------- ---------
Total US operating loss. . . . (2,075) (80,742) (45,431) (35,329)
--------- ---------- --------- ---------
International. . . . . . . . . . (5,736) (24,996) (13,900) (17,196)
International administrative . . (1,583) (1,952) (5,278) (5,594)
--------- ---------- --------- ---------
Total international. . . . . . (7,319) (26,948) (19,178) (22,790)
--------- ---------- --------- ---------
Operating loss . . . . . . . . (9,394) (107,690) (64,609) (58,119)
Equity in earnings of
unconsolidated affiliates. . . 227 320 938 609
Minority interest. . . . . . . . 62 (14) 101 (94)
Other income and expenses. . . . (8,700) (3,325) (16,102) (7,130)
Tax benefit. . . . . . . . . . . (7,415) (40,261) (14,253) (23,249)
--------- ---------- --------- ---------
Net loss . . . . . . . . . . . $(10,390) $ (70,448) $(65,419) $(41,485)
========= ========== ========= =========
</TABLE>
NOTE 5. SPECIAL CHARGES AND ACCOUNTING CHANGES
The Company considers special charges to be unusual events or transactions
related to continuing business activities. Accounting changes include changes
in accounting principles and estimates that require a cumulative catch-up
adjustment in accordance with Accounting Principles Board Opinion No. 20,
"Accounting Changes".
Third Quarter 2000:
The Company's results for the 2000 third quarter include pre-tax net
special charges of approximately $17.5 million of which $15.0 million have or
will be paid in cash.
Restructuring and other charges include $6.5 million of severance related
to a reduction in force announced in the 2000 third quarter, and $2.2 million of
expenses associated with responding to the Federal Trade Commission regarding
the proposed merger with CSC and the CSC and shareholder lawsuits.
Other costs and expenses includes a $3.7 million charge due to a single
international customer's accounts receivable and accrued revenue balances as a
result of the customer's deteriorating financial condition and corresponding
inability to meet agreed payment schedules.
12
<PAGE>
During the 2000 third quarter the Company sold the banking division's
mortgage origination software business to a third party. The Company continues
negotiating the sale of the remainder of the banking division's operations.
Special charges include the banking division operating loss of $1.1 million on
revenues of $3.0 million. Other costs and expenses include an additional $0.8
million loss on disposal of the banking division's mortgage loan origination
software business assets.
Depreciation and amortization of property, equipment and capitalized
software costs includes $0.3 million of accelerated amortization of capitalized
software development costs. In accordance with the Company's accounting policies
and Statement of Financial Accounting Standards No. 86, these costs were
determined in the 2000 third quarter to be unrecoverable.
Selling, general and administrative expenses include approximately $0.2
million of brand expenses associated with changing the name of the Company (see
Note 7, "Change of Company's Name").
Merger termination charges include $0.9 million of additional expenses
resulting from the Company's termination of the merger agreement with a
subsidiary of Welsh, Carson, Anderson & Stowe VIII, L.P. ("WCAS") (see Note 6,
"Proposed Merger").
Interest expense and other charges includes $1.5 million of amortization of
credit facilities fees paid in the 2000 first quarter to amend the Company's
existing credit facilities and $0.5 million of accrued interest expense on a
note payable to CSC who advanced the Company the funds necessary to pay the
termination fee which arose from the terminated merger agreement with WCAS in
the 2000 second quarter.
First nine months of 2000:
The Company's results for the first nine months of 2000 include pre-tax net
special charges and accounting changes of approximately $71.8 million of which
$57.8 million have or will be paid in cash.
Merger termination charges of $25.3 million represent fees and expenses
resulting from the Company's termination of the merger agreement with WCAS (see
Note 6, "Proposed Merger").
Restructuring and other charges include $15.0 million of largely severance
related to reductions in force announced during the period, and $9.5 million in
legal fees and expenses related to the resolution of a dispute with a customer,
responding to the Federal Trade Commission regarding the proposed merger with
CSC, and to the shareholder and CSC litigation.
During the 2000 second quarter, management committed to a plan to
restructure the operations of the United Kingdom ("UK") division of its
international segment. The plan, among other things, entailed reductions in
staff and space, and the indefinite suspension of development and decreased
marketing efforts related to a software product which resulted in $7.3 million
of accelerated amortization to write-off this product.
13
<PAGE>
During the 2000 third quarter the Company sold the banking division's
mortgage origination software business to a third party. The Company continues
negotiating the sale of the remainder of the banking division's operations.
Special charges include the banking division operating loss of $9.5 million on
revenues of $8.7 million. In addition, $1.0 million of accelerated amortization
was charged to write-off a related software product, and other costs and
expenses includes the recovery of banking division accounts receivable of $1.3
million previously reserved as a special charge in the 1999 fourth quarter and a
$0.8 million loss on disposal of the banking division's mortgage loan
origination software business assets. The net pre-tax impact of these banking
division items is $10.0 million.
The Company recognizes certain revenue under the percentage of completion
method of accounting ("POC") in accordance with Statement of Position 81-1.
During the 2000 second quarter, management increased the estimated profit margin
on a significant contract accounted for under POC which resulted in a cumulative
adjustment of $1.5 million of additional professional services & ITO
("Information Technology Outsourcing") revenue partially offsetting special
charges.
Other costs and expenses includes a $3.7 million charge due to a single
international customer's accounts receivable and accrued revenue balances as a
result of the customer's deteriorating financial condition and corresponding
inability to meet agreed payment schedules.
Selling, general and administrative expenses include approximately $2.3
million of brand expenses associated with changing the name of the Company (see
Note 7, "Change of Company's Name").
The Company recognizes amortization expense related to software products on
the revenue basis if that is faster than the straight-line method. In addition
to the above mentioned software write-offs in the U.K. and banking divisions,
revenue based amortization resulted in approximately $1.3 million more
amortization expense in the first nine months of 2000 than would have been
recognized under the straight-line method.
Investment income includes special gains of $5.3 million resulting from the
sale of the Company's minority interest in several companies.
Interest expense and other charges includes $3.6 million of amortization of
credit facilities fees paid in the 2000 first quarter to amend the Company's
existing credit facilities and $0.5 million of accrued interest expense on a
note payable to CSC who advanced the Company the funds necessary to pay the
termination fee which arose form the terminated merger agreement with WCAS in
the 2000 second quarter.
Third Quarter 1999:
The Company's operating results for the 1999 third quarter include $126.7
million in special charges of which $100.4 million are non-cash. These non-cash
charges result from a revaluation of capitalized software costs in light of an
increasingly rapid pace of change in technology, changes in market forecasts,
and the write-down of certain intangibles largely related to past international
acquisitions. Cash charges of $26.5 million resulted from restructuring charges
incurred as the Company eliminated costs through reductions in force and space
requirements, and charges incurred in connection with the settlement of the
Liberty Life litigation and resolution of disputes with customers.
Depreciation and amortization of property, equipment and capitalized
software costs includes approximately $94.3 million of accelerated amortization
of capitalized software development costs. In accordance with the Company's
accounting policies and Statement of Financial Accounting Standards No. 86,
these costs were determined in the 1999 third quarter to be unrecoverable.
14
<PAGE>
Amortization of goodwill and other intangibles includes approximately $6.1
million of impairment charges related primarily to past international
acquisitions. These impairment charges were determined in the 1999 third quarter
in accordance with the Company's accounting policies and Statement of Financial
Accounting Standards No. 121.
Restructuring and other charges includes approximately $12.6 million of
cash charges paid or to be paid as a result of initiatives taken by the Company
in the 1999 third quarter to eliminate costs through worldwide reductions in
force and space requirements. The remaining $9.6 million of cash charges relate
to the settlement of the Liberty Life litigation.
Other costs and expenses include approximately $3.7 million of costs to
resolve disputes with customers.
Employee compensation and benefits includes approximately $0.6 million of
expatriate taxes.
The 1999 third quarter special charges are partially offset by the banking
division's operating income of $0.2 million on revenues of $5.8 million. During
the 2000 third quarter the Company sold the banking division's mortgage
origination software business to a third party. The Company continues
negotiating the sale of the remainder of the banking division's operations.
First nine months of 1999:
Special charges for the first nine months of 1999 include the third quarter
1999 special charges mentioned above and banking division operating income of
$0.9 million on revenues of $15.1 million.
NOTE 6. PROPOSED MERGER
On June 20, 2000, the Company announced that it and CSC entered into an
Agreement and Plan of Merger which, among other things, provided for a CSC
tender offer to acquire the Company's outstanding shares at a purchase price of
$16 per share in cash. On June 28, 2000, the Company filed its
Solicitation/Recommendation Statement on Schedule 14D-9 related to CSC's tender
offer. As a result of receiving a second request for information from the
Federal Trade Commission concerning the proposed merger, CSC has extended the
tender offer until November 24, 2000.
As a result of entering the Agreement and Plan of Merger with CSC, the
Company was required to pay a $19.0 million fee and to pay up to $5.0 million in
expenses for terminating its previously proposed merger with WCAS. The cash
required to pay this fee was loaned to the Company by CSC.
NOTE 7. CHANGE OF COMPANY'S NAME
Following an earlier announcement of plans to change the Company's name,
the Company began doing business as Mynd Corporation ("Mynd") on May 1, 2000.
The Company's name was officially changed by filing an amendment in the
Company's Articles of Incorporation on September 27, 2000, following approval of
the proposed name change by a vote of the shareholders at the annual
shareholder's meeting also held on September 27, 2000.
15
<PAGE>
MYND CORPORATION
(FORMERLY 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/A for the year ended December 31, 1999.
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>
2000 vs. 1999
Percent
Percentage of Revenues Increase (Decrease)
---------------------- ------------
Three Nine Three Nine
Months Ended Months Ended
September 30, September 30, Months Months
-------------- -------------- Ended Ended
2000 1999 2000 1999 September 30,
----- ------ ------- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Licensing . . . . . . . . . . . . . 20.1% 22.2% 18.8% 23.1% (25)% (30)%
Services. . . . . . . . . . . . . . 79.9 77.8 81.2 76.9 (15) (10)
------ ------- ------- ------
100.0 100.0 100.0 100.0 (17) (15)
------ ------- ------- ------
Operating expenses
Cost of revenues
Employee compensation and benefits 49.1 46.6 52.1 45.5 (12) (2)
Computer & communication expenses. 9.7 7.5 9.6 7.2 8 13
Depreciation & amortization
of property, equipment &
capitalized software costs. . . . 10.2 64.3 12.0 28.2 (87) (64)
Other costs & expenses . . . . . . 11.5 9.0 8.9 6.4 6 19
Selling, general &
administrative expenses . . . . . 16.8 17.3 18.3 16.6 (19) (6)
Amortization of goodwill and
other intangibles . . . . . . . . 2.6 5.9 2.5 3.3 (64) (35)
Restructuring & other charges . . . 6.1 13.2 5.8 4.4 (61) 11
Merger termination charges. . . . . 0.7 - 5.9 - - -
------ ------- ------- ------
106.7 163.8 115.1 111.6 (46) (12)
------ ------- ------- ------
Operating loss . . . . . . . . . . . (6.7) (63.8) (15.1) (11.6) (91) 11
Equity in earnings of unconsolidated
affiliates. . . . . . . . . . . . 0.2 0.2 0.2 0.1 (29) 54
Investment income. . . . . . . . . . 0.2 0.1 1.5 0.1 29 847
Interest expense and other charges . (6.4) (2.1) (5.2) (1.5) 153 188
------ ------- ------- ------
Loss before tax benefit. . . . . . . (12.7) (65.6) (18.6) (12.9) (84) 23
Tax benefit. . . . . . . . . . . . . (5.3) (23.9) (3.3) (4.6) (82) (39)
------ ------- ------- ------
Net loss . . . . . . . . . . . . . . (7.4)% (41.7)% (15.3)% (8.3)% (85)% 58%
====== ======= ======= ======
</TABLE>
16
<PAGE>
THREE MONTH COMPARISON
REVENUES
Licensing
---------
In licensing the Company's products, customers generally obligate
themselves to a non-refundable initial license charge and a monthly license fee
payable over a specified period of time, which is usually six years.
The monthly license charge entitles the customer, over the contract period,
to use the licensed product and to receive product support and enhancements.
<TABLE>
<CAPTION>
Three Months
Ended September 30,
----------------------
2000 1999 Change
----- ----- ------
(Dollars in millions)
<S> <C> <C> <C>
Initial charges . . . . . . . $11.4 $19.2 (41)%
Monthly charges . . . . . . . 16.7 18.1 (8)
------ ------
28.1 $37.3 (25)%
====== ======
Percentage of total revenues. 20.1% 22.2%
------ ------
</TABLE>
Initial licensing
Initial license revenues decreased $7.8 million for the 2000 third quarter
compared with the 1999 third quarter, with the following decreases by business
segment: property and casualty down 11% ($0.8 million); claims down 13% ($0.4
million); life and financial solutions down 69% ($3.4 million); and
international down 78% ($3.2 million). Property and casualty includes
recognition of $4.3 million of initial license revenue related to a license
agreement executed in the 1999 fourth quarter.
The Company believes that during the 2000 third quarter, uncertainty
concerning the Company's future ownership, including the proposed merger with
CSC, adversely affected customers' decisions to license software from the
Company. Management anticipates that the adverse effect on customers' decisions
will continue until the uncertainty is resolved.
Initial license charges for the third quarter of 2000 included right-to-use
licenses to existing customers of $0.2 million. This compares to $2.0 million in
right-to-use licenses for the third quarter of 1999. Right-to-use licenses
represent the acquisition by certain customers of the right-to-use component of
their remaining monthly license charge obligation, if any, plus the acquisition
of a perpetual right-to-use the product thereafter. Since these types of
licenses represent an acceleration of future revenues, they reduce future
monthly license charges.
The Company entered two non-exclusive remarketing agreements in the 1999
second quarter providing two of the Company's nationally recognized vendors the
right to re-license a product to customers. The Company also renegotiated with
one of these vendors an extension to its long-term license agreement for
operating software used in the Company's data center. These agreements were
affected by the Company's adoption of Staff Accounting Bulletin 101 as of
17
<PAGE>
December 31, 1999. Consequently, the $3.5 million of initial license revenue was
adjusted in the 1999 fourth quarter and is being recognized ratably over the
terms of the respective agreements. Initial license revenue includes $0.3
million of this revenue in the 2000 third quarter.
Set forth below is a comparison of initial license revenue by segment for
the three months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months
Monthly licensing Ended September 30,
---------------------
2000 1999 Change
----- ----- ------
(Dollars in millions)
<S> <C> <C> <C>
Property and casualty . . . . . $ 5.9 $ 7.0 (16)%
Claims. . . . . . . . . . . . . 1.3 1.2 8
Life and financial solutions. . 4.9 5.0 (2)
International . . . . . . . . . 4.6 4.9 (6)
------ ------
$ 16.7 $18.1 (8)%
====== ======
Percentage of total revenues. 11.9% 10.7%
------ ------
</TABLE>
Services
---------
The Company's services revenue consists primarily of professional Services
& Information Technology Outsourcing ("ITO") and Business Process Outsourcing
("BPO"). Services revenue is derived from professional support services, which
include implementation and integration assistance, consulting and education
services and outsourcing services.
18
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended September
-----------------------
Services 2000 1999 Change
------- ------ ------
(Dollars in millions)
<S> <C> <C> <C>
Professional services & ITO . . $ 86.5 $111.3 (22)%
BPO . . . . . . . . . . . . . . 25.3 19.5 30
Other . . . . . . . . . . . . . 0.3 0.6 (50)
------- -------
$112.1 $131.4 (15)%
======= =======
Percentage of total revenues. 79.9% 77.8%
------- -------
</TABLE>
Professional services & ITO
Professional services & ITO revenues decreased $24.8 million for the 2000
third quarter compared with the 1999 third quarter, with the following decreases
by business segment: property and casualty down 28% ($10.9 million); claims down
15% ($0.5 million); life and financial solutions down 7% ($2.5 million); and
international down 33% ($10.9 million). Weak initial licensing activity in 1999
and the first nine months of 2000 negatively impacted professional services &
ITO revenue for all segments. In addition, life and financial solutions was
substantially affected by the decline in its Banking division operations while
property and casualty was affected by the migration of ITO customers from
mainframe Series II processing to AS/400 Point processing.
Set forth below is a comparison of professional services & ITO revenue by
segment for the three months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months
Professional services & ITO Ended September 30,
----------------------
2000 1999 Change
----- ------ ------
(Dollars in millions)
<S> <C> <C> <C>
Property and casualty. . . . $28.7 $ 39.6 (28)%
Claims . . . . . . . . . . . 2.9 3.4 (15)
Life and financial solutions 32.3 34.8 (7)
International. . . . . . . . 22.6 33.5 (33)
------ -------
$86.5 $111.3 (22)%
====== =======
Percentage of total revenues 61.7% 65.9%
------ -------
</TABLE>
BPO
BPO revenues increased $5.8 million for the 2000 third quarter compared
with the 1999 third quarter, with the following increases by business segment:
property and casualty up 10% ($1.2 million) due largely to the addition of a
significant BPO customer in the 2000 third quarter; life and financial solutions
up 49% ($3.5 million) due primarily to organic growth; and international up 550%
($1.1 million) due to increased processing in South Africa. The claims segment
has no BPO operations.
19
<PAGE>
Set forth below is a comparison of BPO revenue by segment for the three
months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months
BPO Ended September 30,
---------------------
2000 1999 Change
----- ----- ------
(Dollars in millions)
<S> <C> <C> <C>
Property and casualty. . . . $13.3 $12.1 10%
Claims . . . . . . . . . . . - - -
Life and financial solutions 10.7 7.2 49
International. . . . . . . . 1.3 0.2 550
------ ------
$25.3 $19.5 30%
====== ======
Percentage of total revenues 18.0% 11.6%
------ ------
</TABLE>
OPERATING EXPENSES
COST OF REVENUES
Employee compensation and benefits decreased 12% for the 2000 third quarter
compared with the 1999 third quarter due to the benefit of reductions in force
taken in 1999 and 2000. Domestic employee compensation and benefits decreased
9% ($5.2 million) in the 2000 third quarter compared with the 1999 third
quarter. International employee compensation and benefits decreased 22% ($4.6
million) in the 2000 third quarter compared with the 1999 third quarter.
Computer and communications expenses increased 8% for the 2000 third
quarter compared with the 1999 third quarter due to increases in processing
volumes and data center operating software license fees.
Depreciation and amortization of property, equipment and capitalized
software costs decreased 87% for the 2000 third quarter compared with the 1999
third quarter due to the write-offs or write-downs of certain software in the
1999 third quarter (see Note 5 of Notes to Consolidated Financial Statements).
Excluding these 1999 charges, depreciation and amortization increased 4%
reflecting releases of the Company's products during the last twelve months
related primarily to 1999 acquisitions.
Other operating costs and expenses increased 6% for the third quarter of
2000 compared with the 1999 third quarter due primarily to a decrease in the
amount of development costs capitalized and an increase in the amounts charged
for uncollectible accounts. These were largely offset by the benefit of space
reductions in prior quarters and lower consulting and travel expenses in the
2000 third quarter. Excluding special charges and change in accounting estimate,
other operating costs and expenses decreased 13%.
20
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased 19% for the 2000
third quarter compared with the 1999 third quarter due in part to the reduction
in force and decreased costs associated with the Company's lower revenues offset
by brand expenses associated with changing the Company's name. As a percentage
of revenues, selling, general and administrative expenses decreased from 17.3%
in the 1999 third quarter to 16.8% in the 2000 third quarter.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
Amortization of goodwill and other intangibles decreased 64% for the 2000
third quarter compared with the 1999 third quarter due to $6.1 million of 1999
third quarter impairment charges related primarily to past international
acquisitions (see Note 5 of Notes to Consolidated Financial Statements).
Excluding these 1999 charges, amortization of goodwill and other intangibles
decreased 8%.
RESTRUCTURING AND OTHER CHARGES
Restructuring and other charges includes approximately $6.5 million of cash
charges paid or to be paid as a result of initiatives taken by the Company in
the 2000 third quarter for a world-wide reduction in force of approximately 6%
of its full time staff as well as $9.5 million for the CSC and shareholder
lawsuits, settlement of a dispute with a customer and expenses associated with
responding to the Federal Trade Commission regarding the proposed merger with
CSC.
OPERATING LOSS
The 2000 third quarter operating loss of $9.4 million includes net special
charges of approximately $15.5 million compared to the 1999 third quarter
operating loss of $107.7 million which includes net special charges of $126.7
million (see Note 5 of Notes Financial to Consolidated Statements for special
charges). Before special charges, the 2000 third quarter operating income
decreased 67% compared with the 1999 third quarter.
21
<PAGE>
Set forth below is a comparison of operating income (loss) by segment for the
three months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months
OPERATING INCOME (LOSS) Ended September 30,
------------------------
2000 1999 Change
------- ------- ------
(Dollars in millions)
<S> <C> <C> <C>
Property and casualty. . . . $ 7.6 (66.8) 111%
Claims . . . . . . . . . . . (1.6) (0.3) (433)
Life and financial solutions 3.8 (1.5) 353
Corporate. . . . . . . . . . (11.9) (12.1) 2
International. . . . . . . . (7.3) (27.0) 73
------- --------
$ (9.4) $(107.7) 91%
======= ========
</TABLE>
Property and casualty segment operating income increased $74.4 million or
111% due primarily to the write-offs or write-downs of software in the 1999
third quarter and other special charges. Before special charges and accounting
changes, operating income was $10.8 million and $20.5 million for the three
months ended September 30, 2000 and 1999, respectively. The decrease in
operating income is due primarily to a $11.0 million decline in professional
services & ITO revenue.
Claims segment operating loss increased $1.3 million to a loss of $1.6
million in the 2000 third quarter due to lower licensing and professional
services & ITO revenue and higher operating expenses. Before special charges,
operating loss was $0.8 million and $0.3 million for the three months ended
September 30, 2000 and 1999, respectively.
Life and financial solutions segment operating income increased $5.3
million or 353% due primarily to 1999 third quarter charges relating to a
litigation settlement partially offset by 2000 third quarter Banking division
losses. Before special charges, operating income was $6.4 million and $7.9
million for the three months ended September 30, 2000 and 1999, respectively.
Notwithstanding the Company's reduction in force, the related decrease in
expenses lagged behind the decline in revenues resulting in lower margins in its
property and casualty and life segments.
International segment operating loss decreased $19.7 million or 73%
primarily due to the write-off and write-down of software and intangibles in the
1999 third quarter. Before special charges and accounting changes, operating
loss was $2.8 million and $0.7 million for the three months ended September 30,
2000 and 1999, respectively.
A significant portion of both the Company's revenues and operating income
is derived from initial licensing agreements received as part of the Company's
software licensing activities. Because a substantial portion of initial
licensing revenues are recorded at the time new systems are licensed, there can
be significant fluctuations from quarter to quarter in 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.
22
<PAGE>
Set forth below is a comparison of initial license revenues for the last
eight quarters expressed as a percentage of total revenues of each of the
periods presented:
<TABLE>
<CAPTION>
2000 1999 1998
-------------------- ----------------------------- ------
3rd 2nd 1st 4th 3rd 2nd 1st 4th
----- ------ ----- ----- ----- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dollars in Millions)
Initial license revenues. $11.4 $9.5 $9.1 $8.7 $19.2 $26.8 $17.5 $27.4
% of total revenues . . . 8.1% 6.8% 6.1% 6.1% 11.4% 15.4% 11.0% 16.0%
</TABLE>
The increasing rate of change in the insurance and banking industries
coupled with the rapid evolution of eCommerce technology and the volatility of
initial license revenues, as illustrated by the above table, is leading the
Company to consider new business models that place less emphasis on initial
license revenue and place more emphasis on transaction based revenue. The
Company expects this transition to occur gradually over the next several years
and will likely affect the amount and timing of revenue recognized in the
Company's financial statements.
OTHER INCOME AND EXPENSES
Investment income increased 29% ($0.1 million) in the 2000 third quarter
compared with the 1999 third quarter.
Interest expense and other charges is comprised primarily of interest
expense on borrowings under the Company's credit facilities which increased $3.3
million for the 2000 third quarter compared with the 1999 third quarter,
principally due to higher interest rates and higher levels of borrowed funds
under the Company's credit agreements. The nominal interest rate applicable to
borrowings under the Company's credit facilities during the third quarter of
2000 ranged from 9.4% to 10.5% compared to a range of 5.4% to 5.9% in the 1999
third quarter. Interest expense and other charges includes $1.5 million of
amortization expense for credit facilities fees paid in the 2000 first quarter
to amend the Company's credit agreements and $0.5 million of accrued interest
expense related to the $19.0 million note payable to CSC.
INCOME TAXES
The effective income tax rate (income taxes expressed as a percentage of
pre-tax income) was 41.6% and 36.4% for the third quarters of 2000 and 1999,
respectively. The effective rate for the three months ended September 30, 2000
is not comparable to the three months ended September 30, 1999 due primarily to
certain merger related expenses and the establishment of a valuation allowance
for certain deferred tax assets. The valuation allowance was established due to
the uncertain realization of those assets in light of the Company's operating
performance in the 2000 third quarter.
23
<PAGE>
NINE MONTH COMPARISON
REVENUES
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
----------------------
Licensing 2000 1999 Change
----- ----- ------
(Dollars in millions)
<S> <C> <C> <C>
Initial charges. . . . . . . $30.0 $ 63.5 (53)%
Monthly charges. . . . . . . 50.6 52.3 (3)
------ -------
$80.6 $115.8 (30)%
====== =======
Percentage of total revenues 18.8% 23.1%
------ -------
</TABLE>
Initial licensing
Initial license revenues decreased $33.5 million for the first nine months
of 2000 compared with the first nine months of 1999, with the following
decreases by business segment: property and casualty down 67% ($16.2 million)
due primarily to right-to-use agreements included in the first nine months of
1999; claims down 28% ($2.9 million) due primarily to remarketing agreements
included in the first nine months of 1999; life and financial solutions down 51%
($7.1 million) with minimal Banking division initial licenses in 2000 compared
with strong initial licenses in the first nine months of 1999; and international
down 48% ($7.3 million) reflecting weak 2000 initial licensing in Europe.
Property and casualty includes recognition of $4.4 million of initial license
revenue for the first nine months of 2000 related to a license agreement
executed in the 1999 fourth quarter.
The Company believes that several factors negatively affected initial
licensing activity in 2000. Lingering customer Y2K concerns and uncertainty
surrounding the Company's credit agreements and the delayed filing of the
Company's 1999 annual report affected initial licensing during the 2000 first
quarter. The WCAS merger agreement and its subsequent termination upon entering
into the merger agreement with CSC affected the 2000 second quarter. Continuing
uncertainty concerning the Company's ownership effected the 2000 third quarter
as the Company and CSC have responded to an extended review by the Federal Trade
Commission.
Initial license charges for the first nine months of 2000 include
right-to-use licenses to existing customers of $0.7 million compared with $13.7
million for the first nine months of 1999. Right-to-use licenses represent the
acquisition by certain customers of the right-to-use component of their
remaining monthly license charge obligation, if any, plus the acquisition of a
perpetual right-to-use the product thereafter. Since these types of licenses
represent an acceleration of future revenues, they reduce future monthly license
charges. The Company expects the occurrence of right-to-use licenses to be
minimal in the future.
Initial license charges for the first nine months of 1999 include the first
license of the Company's new workplace injury claims management tool, Claims
Outcome Advisor, which was licensed in conjunction with the purchase of
Legalgard and $2.0 million of licenses to a life insurance company that was the
24
<PAGE>
former owners of FAS which the Company acquired at the end of the 1999 second
quarter (see Note 2 of Notes to Consolidated Financial Statements regarding
Legalgard and FAS).
Two remarketing agreements for COA, totaling $3.5 million, are included in
initial licensing revenues for the first nine months of 1999. These
non-exclusive agreements provide two of the Company's nationally recognized
vendors the right to re-license COA to the self-insured market. The Company also
renegotiated with one of these vendors an extension to its long-term license
agreement for operating software used in the Company's data center. These
agreements were affected by the Company's adoption of Staff Accounting Bulletin
101 as of December 31, 1999. Consequently, the $3.5 million of initial license
revenue was adjusted in the 1999 fourth quarter and is being recognized ratably
over the terms of the respective agreements. Initial license revenue includes
$1.9 million of this revenue in the first nine months of 2000.
The increasing rate of change in the insurance and banking industries
coupled with the rapid evolution of eCommerce technology and the volatility of
initial license revenues is leading the Company to consider new business models
that place less emphasis on initial license revenue and place more emphasis on
transaction based revenue. The Company expects this transition to occur
gradually over the next several years and will likely affect the amount and
timing of revenue recognized in the Company's financial statements.
Set forth below is a comparison of initial license revenue by segment for
the nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Nine Months
Initial licensing Ended September 30,
----------------------
2000 1999 Change
------ ------ ------
(Dollars in millions)
<S> <C> <C> <C>
Property and casualty. . . . $ 8.0 $24.2 (67)%
Claims . . . . . . . . . . . 7.3 10.2 (28)
Life and financial solutions 6.7 13.8 (51)
International. . . . . . . . 8.0 15.3 (48)
------ ------
$30.0 $63.5 (53)%
====== ======
Percentage of total revenues 7.0% 12.6%
------ ------
</TABLE>
Monthly licensing
Monthly license charges decreased $1.7 million for the first nine months of
2000 compared with the first nine months of 1999 with the following increases or
decreases by business segment: property and casualty down 17% ($3.6 million) due
to weak 1999 and 2000 first nine months licensing and the effect of right-to-use
licenses; claims up 231% ($3.0 million); life and financial solutions was
relatively unchanged due to a decline in the Banking division being offset by
increases in other areas; and international down 6% ($0.9 million).
25
<PAGE>
Set forth below is a comparison of monthly licensing revenue by
segment for the nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Nine Months
Monthly licensing Ended September 30,
----------------------
2000 1999 Change
----- ----- ------
(Dollars in millions)
<S> <C> <C> <C>
Property and casualty. . . . $18.2 $21.8 (17)%
Claims . . . . . . . . . . . 4.3 1.3 231
Life and financial solutions 14.7 14.9 (1)
International. . . . . . . . 13.4 14.3 (6)
------ ------
$50.6 $52.3 (3)%
====== ======
Percentage of total revenues 11.8% 10.4%
------ ------
</TABLE>
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
------------------------
Services 2000 1999 Change
------ ------ ------
(Dollars in millions)
<S> <C> <C> <C>
Professional services & ITO. $271.3 $335.2 (19)%
BPO. . . . . . . . . . . . . 73.4 48.8 50
Other. . . . . . . . . . . . 3.4 2.8 21
------- -------
$348.1 $386.8 (10)%
======= =======
Percentage of total revenues 81.2% 76.9%
------- -------
</TABLE>
Professional services & ITO
Professional services & ITO revenues decreased $63.9 million for the first
nine months of 2000 compared with the first nine months of 1999, with the
following decreases or increase by business segment: property and casualty down
25% ($31.2 million); claims up 53% ($3.1 million); life and financial solutions
down 7% ($7.2 million) due in part to a decline in the Banking division; and
international down 27% ($28.6 million). The decreases are principally due to
weak initial licensing activity during 1999 and the first six months of 2000.
Property and casualty was adversely affected by the migration of ITO customers
from mainframe Series II processing to AS400 Point processing. Also,
international was adversely affected by the loss of a significant ITO customer
in the 1999 third quarter.
In the first nine months of 2000, the international segment's revenue
includes a $1.5 million cumulative catch-up adjustment based on a change in
accounting estimate associated with a significant contract accounted for under
POC. The property and casualty segment's 1999 nine month revenues include $1.6
million for professional services billed and collected in connection with the
settlement of a dispute with a customer who has terminated its relationship with
the Company. Amounts paid by the Company in connection with the resolution of
this dispute were covered by insurance and existing legal reserves and had no
impact on the Company's operating results.
26
<PAGE>
Set forth below is a comparison of professional services & ITO revenue by
segment for the nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Nine months
Professional services & ITO Ended September 30,
------------------------
2000 1999 Change
------- ------ ------
(Dollars in millions)
<S> <C> <C> <C>
Property and casualty. . . . $ 92.8 $124.0 (25)%
Claims . . . . . . . . . . . 8.9 5.8 53
Life and financial solutions 91.9 99.1 (7)
International. . . . . . . . 77.7 106.3 (27)
------- -------
$271.3 $335.2 (19)%
======= =======
Percentage of total revenues 63.3% 66.7%
------- -------
</TABLE>
BPO
BPO revenues increased $24.6 million for the first nine months of 2000
compared with the first nine months of 1999, with the following increases by
business segment: property and casualty up 7% ($2.4 million); life insurance
and financial solutions up 133% ($17.5 million) due primarily to organic growth;
and international up $4.7 million due to increased processing in Europe and
South Africa. The claims segment has no BPO operations.
Set forth below is a comparison of BPO revenue by segment for the nine
months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Nine months
BPO Ended September 30,
---------------------
2000 1999 Change
------- ------ ------
(Dollars in millions)
<S> <C> <C> <C>
Property and casualty. . . . $ 37.4 $35.0 7%
Claims . . . . . . . . . . . - - -
Life and financial solutions 30.7 13.2 133
International. . . . . . . . 5.3 0.6 783
-------- ------
$ 73.4 $48.8 50%
======== ======
Percentage of total revenues 17.1% 9.7%
-------- ------
</TABLE>
OPERATING EXPENSES
COST OF REVENUES
Employee compensation and benefits decreased 2% for the first nine months
of 2000 compared with the first nine months of 1999 due primarily to reductions
in force in 1999 and 2000 being partially offset by the increase in benefit
expense due to the acceleration of health claims paid as a result of the
reduction in force. Domestic employee compensation and benefits in the first
nine months of 2000 increased 2% ($4.0 million) compared with the first nine
months of 1999. International employee compensation and benefits decreased 14%
($9.3 million) for first nine months of 2000 compared with the first nine months
of 1999.
27
<PAGE>
Computer and communications expenses increased 13% for the first nine
months of 2000 compared with the first nine months of 1999 due to an increase in
processing volumes and data center operating software license fees.
Depreciation and amortization of property, equipment and capitalized
software costs decreased 64% for the first nine months of 2000 compared with the
first nine months of 1999 due to the write-off or write-down of certain software
in the 1999 third quarter being partially offset by 2000 first and second
quarter software write-offs or write-downs (see Note 5 of Notes to Consolidated
Financial Statements). Excluding these charges, depreciation and amortization
decreased 9% reflecting the benefit of the above mentioned special charges.
Other operating costs and expenses increased 19% for the first nine months
of 2000 compared with the first nine months of 1999 due to a decrease in the
amount of development costs capitalized and an increase in the amounts charged
for uncollectible accounts. These were partially offset by the benefit of space
reductions in prior quarters and lower consulting and travel expenses in the
2000 third quarter. Excluding special charges and change in accounting estimate,
other operating costs and expenses decreased 3%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased 6% for the first
nine months of 2000 compared with the first nine months of 1999 due to
reductions in force and decreased costs associated with the Company's lower
revenues partially offset by $2.3 million of brand expenses incurred in the
first nine months of 2000 associated with changing the Company's name. As a
percentage of revenues, selling, general and administrative expenses increased
from 16.6% in the first nine months of 1999 to 18.3% in the first nine months of
2000.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
Amortization of goodwill and other intangibles decreased 35% for the first
nine months of 2000 compared with the first nine months of 1999, principally due
to the benefit of 1999 third quarter impairment charges related primarily to
past international acquisitions (see Note 5 of Notes to Consolidated Financial
Statements). Before special charges, amortization of goodwill and other
intangibles increased 3%.
RESTRUCTURING AND OTHER CHARGES
Restructuring and other charges include approximately $15.2 million of cash
charges paid or to be paid as a result of initiatives taken by the Company in
the first nine months of 2000 for a worldwide reduction in force of
approximately 700 employees and $9.5 million for the CSC and shareholder
lawsuits, settlement of a dispute with a customer and expenses associated with
responding to the Federal Trade Commission regarding the proposed merger with
CSC.
28
<PAGE>
MERGER TERMINATION CHARGES
Merger termination charges of $25.3 million were a result of the Company's
termination of the WCAS merger (see Note 6 of Notes to Consolidated Financial
Statements).
OPERATING (LOSS) INCOME
The first nine months of 2000 results produced an operating loss of $64.6
million, which includes net special charges and accounting changes of $73.0
million. The first nine months of 1999 results produced an operating loss of
$58.1 million, which includes net special charges and accounting changes of
$126.0 million. See Note 5 of the Notes to the Consolidated Financial Statements
for further explanation of these special charges and accounting changes. Before
these special charges and accounting changes, the first nine months of 2000
resulted in operating income of $8.4 million compared with operating income of
$67.9 million in the first nine months of 1999.
Set forth below is a comparison of operating income (loss) by segment for
the periods ending September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Nine Months
OPERATING INCOME (LOSS) Ended September 30,
-----------------------
2000 1999 Change
------ ------ ------
(Dollars in millions)
<S> <C> <C> <C>
Property and casualty. . . . $ 17.1 $(29.7) 158%
Claims . . . . . . . . . . . (4.6) 5.4 (185)
Life and financial solutions 1.2 17.3 (93)
Corporate. . . . . . . . . . (59.1) (28.4) (108)
International. . . . . . . . (19.2) (22.7) 15
------- -------
$(64.6) $(58.1) (11)%
======= =======
</TABLE>
Property and casualty segment operating income increased $46.8 million or
158% primarily due to the write-off or write-down of software in the 1999 third
quarter and other charges being partially offset by special charges and
accounting changes in the first nine months of 2000. Before special charges and
accounting changes, operating income was $24.3 million and $57.6 million for the
nine months ended September 30, 2000 and 1999, respectively. The decrease in
operating income was principally attributable to a $19.9 million decrease in
licensing revenue and a $31.3 million decrease in professional services & ITO
revenue.
Claims segment operating income decreased $10.0 million to a loss of $4.6
million principally due to a $2.9 million decrease in initial license charges
and operating costs growing faster than revenues. Before special charges,
operating (loss) income was $(3.7) million and $5.4 million for the nine months
ended September 30, 2000 and 1999, respectively.
Life and financial solutions segment operating income decreased $16.1
million or 93% principally due to Banking division losses of $9.5 million and a
decrease in initial license charges of $7.1 million. Before special charges,
operating income was $17.1 million and $26.0 million for the nine months ended
September 30, 2000 and 1999, respectively.
29
<PAGE>
International segment operating loss decreased $3.5 million to a loss of
$19.2 million primarily due to the write-off or write-down of software and
intangibles in the 1999 third quarter being partially offset by special charges
and accounting changes for the first nine months of 2000. Before special charges
and accounting changes, operating (loss) income was $(5.2) million and $3.5
million for the nine months ended September 30, 2000 and 1999, respectively.
Notwithstanding the Company's reduction in force, the related decrease in
expenses lagged behind the decline in revenues resulting in lower margins in its
property and casualty, life and international segments.
A significant portion of both the Company's revenues and operating income
is derived from initial licensing agreements received as part of the Company's
software licensing activities. Because a substantial portion of initial
licensing revenues are recorded at the time new systems are licensed, there can
be significant fluctuations from quarter to quarter in 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.
The increasing rate of change in the insurance and banking industries
coupled with the rapid evolution of eCommerce technology and the volatility of
initial license revenues is leading the Company to consider new business models
that place less emphasis on initial license revenue and place more emphasis on
transaction based revenue. The Company expects this transition to occur
gradually over the next several years and will likely affect the amount and
timing of revenue recognized in the Company's financial statements.
OTHER INCOME AND EXPENSES
Investment income includes $5.3 million of gain on sale of investments in
the first nine months of 2000.
Interest expense and other charges is comprised primarily of interest
expense on borrowings under the Company's credit facilities which increased
$10.0 million for the first nine months of 2000 compared with the first nine
months of 1999, principally due to higher interest rates on higher levels of
borrowed funds under the Company's credit agreements. The nominal interest rate
applicable to borrowings under the Company's credit facility during the first
nine months of 2000 ranged from 7.4% to 10.5% compared to a range of 5.2% to
5.9% for the same period in 1999. Interest expense and other charges includes
$3.5 million of amortization expense for credit facilities fees paid in the 2000
first quarter to amend the Company's credit agreements and $0.5 million of
accrued interest expense related to the $19.0 million note payable to CSC.
30
<PAGE>
INCOME TAXES
The effective income tax rate (income taxes expressed as a percentage of
pre-tax income) was 17.9% and 35.9% for the first nine months of 2000 and 1999,
respectively. The effective rate for the nine months ended September 30, 2000
is not comparable to the nine months ended September 30, 1999 due primarily to
certain merger related expenses and the establishment of a valuation allowance
for certain deferred tax assets. The valuation allowance was established due to
the uncertain realization of those assets in light of the Company's operating
performance in 2000.
31
<PAGE>
<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES
September 30, December 31,
2000 1999
--------------------------------------------------------
<S> <C> <C>
(Dollars in millions)
Cash and equivalents . . $ 19.9 $ 17.7
Current assets . . . . . 184.7 212.0
Current liabilities. . . 343.7 76.0
Working capital. . . . . (159.0) 136.0
Current portion of debt. 271.0 4.0
Long-term debt . . . . . 0.0 227.0
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
-----------------------------------------------------------
(Dollars in millions)
<S> <C> <C>
Cash provided by operations. . . . . . $ 8.1 $ 60.3
Cash used by investing activities. . . (42.3) (151.0)
Cash provided by financing activities. 36.3 93.6
</TABLE>
The Company's total debt, net of cash, at September 30, 2000 was $251.1
million, an increase of approximately $12.7 million from June 30, 2000.
Historically, the Company has used cash from operations for the development and
acquisition of new products, capital expenditures, acquisition of businesses and
repurchases of the Company's stock. For the third quarter of 2000, compared
with the third quarter of 1999 however, the Company significantly decreased
expenditures in all these areas and expects these expenditures during 2000 to
continue at amounts lower than 1999.
As of September 30, 2000, the Company had a $180.0 million line of credit
of which $180.0 million was outstanding. Availability under this credit line
will be reduced to $125 million on April 1, 2001 and will expire on July 1,
2001. The Company's $70.0 million term loan, all of which was outstanding at
September 30, 2000, matures on January 31, 2001. CSC has provided the Company a
line of credit up to $30.0 million for operational working capital needs. No
funds were outstanding on the CSC line of credit as of September 30, 2000. On
the Agreement and Plan of Merger, CSC has advanced to the Company the cash to
pay the $19.0 million termination fee due to WCAS upon the termination of the
WCAS merger agreement. CSC has also agreed to advance up to $5.0 million for
related expenses. The funds for expenses have not yet been advanced. Any
amounts due CSC mature on July 3, 2001.
32
<PAGE>
On September 29, 2000, the Company further amended both the $180.0 million
line of credit and $70.0 million term loan agreements, as amended in July 2000.
The affects of these amendments were to bring the Company into compliance with
the defined Consolidated Adjusted Cash Flow and the Minimum Tangible Net Worth
covenants. That amendment provides for the exclusion from the Consolidated
Adjusted Cash Flow covenant of up to $10.0 million in expenses due to the
Company's August 2000, reduction in force. In addition, the amendment reduced
the required minimum amount of Consolidated Adjusted Cash Flow for the quarter
ended September 30, 2000 from $30.0 million to $10.0 million. The amendment
also reduced the required level of Minimum Consolidated Tangible Net Worth as of
September 30, 2000, from $196.7 million to $126.7 million until October 31,
2000. Under the terms of this amendment, credit available under the $180.0 line
of credit was temporarily reduced to $175.0 million. On October 31, 2000, the
agreements were amended again to reduce the required level of Minimum
Consolidated Tangible Net Worth as of October 31, 2000 to $126.7 million until
November 24, 2000.
Future credit availability under the Company's amended credit agreements is
dependent upon the Company achieving improvements in its operating performance.
In light of the uncertainties surrounding future performance and the Company's
current debt position, the Company is exploring alternative means to reduce its
debt, some of which would be subject to approval by CSC.
Significant expenditures anticipated for the remainder of 2000, excluding
new product development are as follows: acquisition of data processing and
communications equipment, support software, office furniture, fixtures and
equipment ($3.0 million) and costs relating to the continued enhancement of
existing software products ($11.0 million).
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's operating results and financial condition may 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 and financial services industries. Significant
changes in the regulatory or market environment of these industries could impact
demand for the Company's software products and services. Additionally, there is
significant competition for the Company's products and services, and there can
be no assurance that the Company's current products and services will remain
competitive, or that the Company's development efforts will produce products
with the cost and performance characteristics necessary to remain competitive.
Furthermore, the market for the Company's products and services is characterized
by rapid changes in technology and the emergence of the Internet as a viable
insurance distribution channel. The Company's success will depend on the level
of market acceptance of the Company's products, technologies and enhancements,
and its ability to introduce such products, technologies and enhancements to the
market on a timely and cost effective basis, and maintain a labor force
sufficiently skilled to compete in the current environment.
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.
33
<PAGE>
The timing and amount of the Company's revenues are subject to a number of
factors, such as the timing of customers' decisions to enter into large license
agreements with the Company, which make estimation of operating results prior to
the end of a quarter or year extremely uncertain.
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. Amounts affected by these estimates include, but are not
limited to, the estimated useful lives, related amortization expense and
carrying values of the Company's intangible assets and the net realizable value
of capitalized software development costs and accrued reserves established for
contingencies such as litigation and restructuring activities. Changes in the
status of certain matters or facts or circumstances underlying these estimates
could result in material changes to these estimates, and actual results could
differ from these estimates.
A significant portion of both the Company's revenues and its operating
income is derived from initial licensing agreements received as part of the
Company's software licensing activities. Because a substantial portion of these
revenues are recorded at the time systems are licensed, there can be significant
fluctuations from quarter-to-quarter and year-to-year 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.
The Company believes that during the second and third quarters of 2000,
uncertainty concerning the Company's future ownership, including the proposed
merger with CSC, adversely affected customers' decisions to license software
from the Company. Management anticipates that this adverse effect will continue
until the uncertainty is resolved.
The Year 2000 has caused an unprecedented level of investment in systems
and remediation services that may adversely affect customers' decisions to
invest in new application software. In addition, the Company believes that
system evaluations and decision processes are being affected by uncertainties
related to the Internet and its emergence as a viable insurance distribution
channel is causing a re-evaluation of the traditional methods of distribution
for insurance products. The Company also believes that in order for insurance
companies to capitalize on this new distribution method they will be required to
redesign their business models and related support systems. The issues raised by
the emergence of the Internet and related technology requirements will be
distracting and confusing for many insurance companies and complicate the
process of transitioning the insurance industry to modern architecture.
Therefore, customer uncertainty as to their Internet and enterprise business
strategies may extend sales cycles for large enterprise systems. The above
factors limit the Company's ability to accurately predict licensing and services
demand.
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.
34
<PAGE>
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 above and in the Company's filings with the
Securities and Exchange Commission. These and other factors may cause actual
results to differ materially from those anticipated.
35
<PAGE>
PART II
OTHER INFORMATION
MYND CORPORATION
(FORMERLY POLICY MANAGEMENT SYSTEMS CORPORATION)
ITEM 1. LEGAL PROCEEDINGS.
See Note 3, Contingencies, of Notes to Consolidated Financial Statements,
which is incorporated by reference in this Item.
ITEMS 2 AND 3 are not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Stockholders, held on September 27, 2000,
the Company's stockholders approved: (i) the election of three directors, Alfred
R. Berkeley, III (24,727,319 for and 646,636 withheld), Donald W. Feddersen
(24,727,319 for and 646,636 withheld) and Richard G. Trub (24,726,466 for and
647,489 withheld) to serve a term of three years; (ii) the approval of an
Amendment to the Company's Articles of Incorporation to change the Company's
name to Mynd Corporation (25,237,869 for, 121,569 against and 14,517 abstain);
(iii) the ratification of the selection of PricewaterhouseCoopers, LLP as
independent auditors (25,310,083 for, 51,829 against and 12,043 abstain).
The following directors' terms continued through the 2000 Annual Meeting of
Stockholders: Dr. John Palms, John P. Seibels, Joseph D. Sargent, and G. Larry
Wilson.
ITEM 5 is 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.
The Company did not file any reports on Form 8-K during the quarter ended
September 30, 2000.
36
<PAGE>
MYND CORPORATION
(FORMERLY 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.
MYND CORPORATION
----------------
(Registrant)
Date: November 14, 2000 /S/ Timothy V. Williams
---------------------------
Timothy V. Williams
Executive Vice President
(Chief Financial Officer)
37
<PAGE>
POLICY MANAGEMENT SYSTEMS CORPORATION
EXHIBIT INDEX
TO FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2000
Exhibit
-------
Number
-------
2. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION
1. Agreement and Plan of Merger between Politic Acquisition Corporation
and Policy Management Systems Corporation dated March 30, 2000 (filed
as an exhibit to Form 8-K dated March 30, 2000 and is incorporated
herein by reference)
2. Amended and Restated Agreement and Plan of Merger between Politic
Acquisition Corporation and Policy Management Systems Corporation
dated as of April 27, 2000 (filed as an exhibit to Form S-4,
Registration Statement, dated April 29, 2000 and is incorporated
herein by reference)
3. Agreement and Plan of Merger among Computer Sciences Corporation,
Patriot Acquisition Corporation and Policy Management Systems
Corporation dated June 20, 2000 (filed as an exhibit to Schedule
14-D9/A dated July 19, 2000 and is incorporated herein by reference)
3. ARTICLES OF INCORPORATION AND BY-LAWS
1. Bylaws of the Company, as amended through September 2, 1999
incorporating all amendments thereto subsequent to July 19, 1994
(filed as an Exhibit to Form 10-Q for the quarter ended September 30,
1999, and is incorporated herein by reference)
2. ARTICLES OF INCORPORATION OF THE COMPANY, AS AMENDED THROUGH SEPTEMBER
27, 2000, INCORPORATING ALL AMENDMENTS THERETO SUBSEQUENT TO OCTOBER
31, 1994 (FILED HEREWITH)
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
1. 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)
2. 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)
1
<PAGE>
10. MATERIAL CONTRACTS
1. 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)
2. 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)
3. 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)
4. 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)
5. 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)
6. 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)
7. 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)
8. 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)
9. 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)
10. 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)
11. 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)
12. 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)
13. 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)
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14. 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)
15. 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)
16. 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)
17. 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)
18. 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)
19. 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)
20. 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)
21. 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)
22. Employment Agreement Form dated November 7, 1996 for Messrs. 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)
23. 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)
24. Stock Option/Non-Compete Form Agreement for named executive officers
together with schedule identifying particulars for each executive
officer (filed as an Exhibit to Form 10-Q for the quarter ended March
31, 1997 and is incorporated herein by reference)
25. Form of Amendment No. 1 to the Employment Agreements with Messrs.
Morrison and Williams, together with schedule identifying particulars
for each executive officer (filed as an Exhibit to Form 10-Q for
Quarter ended June 30, 1997 and is incorporated herein by reference)
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26. Form of Employment Agreements with Messrs. Wilson and Bailey, together
with schedule identifying particulars for each executive officer
(filed as an Exhibit to Form 10-Q for Quarter ending September 30,
1997 and is incorporated herein by reference)
27. Credit Agreement dated as of August 8, 1997 among Policy Management
Systems Corporation, the Guarantors Party hereto, Bank of America
National Trust and Savings Association and the Other Financial
Institution Party Hereto (filed as an Exhibit to Form 10-Q for Quarter
ending September 30, 1997 and is incorporated herein by reference)
28. 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 the Form 10-Q for the
quarter ended March 31, 1998, and is incorporated herein by reference)
29. Policy Management Systems Corporation Restricted Stock Ownership Plan
(filed as an Exhibit to Form 10-Q for Quarter ended September 30, 1998
and is incorporated herein by reference)
30. Form of Restricted Stock Award Agreement dated August 11, 1998 with
Messrs. Berkeley, Feddersen, Palms, Sargent, Seibels and Trub (filed
as an Exhibit to Form 10-Q for Quarter ended September 30, 1998 and is
incorporated herein by reference)
31. Employment Agreement with Michael W. Risley dated February 23, 1999,
effective November 10, 1998 (filed as an Exhibit to Form 10-K for the
year ended December 31, 1998 and is incorporated herein by reference)
32. Form of Restricted Stock Award Agreement dated March 1, 1999 with
Messrs. Berkeley, Feddersen, Palms, Sargent, Seibels and Trub (filed
as an Exhibit to Form 10-Q for Quarter ending March 31, 1999 and is
incorporated herein by reference)
33. Form of Restricted Stock Award Agreement for named executive officers
together with schedule identifying particulars for each named
executive officer (filed as an Exhibit to Form 10-Q for Quarter ending
March 31, 1999 and is incorporated herein by reference)
34. 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 Quarter ending
June 30, 1999 and is incorporated herein by reference)
35. Stock Option/Non-Compete Form Agreement with Michael W. Risley dated
May 11, 1999 (filed as an Exhibit to Form 10-Q for Quarter ending June
30, 1999 and is incorporated herein by reference)
36. Form of 1999 Bonus Plan for named executive officers together with
schedule identifying particulars for each named executive officer
(filed as an Exhibit to Form 10-Q for Quarter ending June 30, 1999 and
is incorporated herein by reference)
37. Promissory Note dated July 21, 1999 between Policy Management Systems
Corporation and First Union National Bank (filed as an Exhibit to Form
10-Q for Quarter ending September 30, 1999 and is incorporated herein
by reference)
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38. Modification Number One dated October 15, 1999 to the Promissory Note
between Policy Management Systems Corporation and First Union National
Bank dated July 21, 1999 (filed as an exhibit to Form 10-K for the
year ended December 31, 1999 and is incorporated herein by reference)
39. Modification Number Two dated October 28, 1999 to the Promissory Note
between Policy Management Systems Corporation and First Union National
Bank dated July 21, 1999 (filed as an exhibit to Form 10-K for the
year ended December 31, 1999 and is incorporated herein by reference)
40. Stock Option/Non-Compete Form Agreement dated May 11, 1999 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, 1999 and is incorporated herein by reference)
41. Stock Option/Non-Compete Form Agreement dated August 9, 1999 with Mr.
Harald J. Karlsen (filed as an exhibit to Form 10-K for the year ended
December 31, 1999 and is incorporated herein by reference)
42. Stock Option/Non-Compete Form Agreement dated November 8, 1999 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, 1999 and is incorporated
herein by reference)
43. Form of Restricted Stock Award Agreement dated February, 1999 for Mr.
Michael D. Gantt (filed as an exhibit to Form 10-K for the year ended
December 31, 1999 and is incorporated herein by reference)
44. Change in Control Severance Pay Plan for Select Employees dated
October 22, 1996 together with schedule identifying particulars for
Michael D. Gantt and Harald J. Karlsen (filed as an exhibit to Form
10-K for the year ended December 31, 1999 and is incorporated herein
by reference)
45. Term Loan Agreement between Policy Management Systems Corporation, the
Guarantors Party, Bank of America, N.A. and other financial
institutions in the amount of $70 million dated November 5, 1999
(filed as an exhibit to Form 10-K for the year ended December 31, 1999
and is incorporated herein by reference)
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46. Form of Restricted Stock Award Agreement dated March 1, 2000 with
Messrs. Berkeley, Feddersen, Palms, Sargent and Trub with schedule
identifying particulars for each named Director (filed as an exhibit
to Form 10-Q for the Quarter ended March 31, 2000 and is incorporated
herein by reference)
The Schedule for 46 contained the following:
Named Director Number Granted
--------------- ---------------
Al Berkeley 1,491
Don Feddersen 1,491
John Palms 1,491
Joe Sargent 1,491
Richard Trub 1,491
47. First Amendment to the Credit Agreement dated as of November 5, 1999,
between Policy Management Systems Corporation, Bank of America, N.A.
and the other financial institutions thereto Director (filed as an
exhibit to Form 10-Q for the Quarter ended March 31, 2000 and is
incorporated herein by reference)
48. Second Amendment to the Credit Agreement dated as of February 10, 2000
between Policy Management Systems Corporation, Bank of America, N.A.
and the other financial institutions thereto (filed as an exhibit to
Form 10-Q for the Quarter ended March 31, 2000 and is incorporated
herein by reference)
49. Third Amendment to the Credit Agreement dated as of March 30, 2000
between Policy Management Systems Corporation, Bank of America, N.A.
and the other financial institutions thereto (filed as an exhibit to
Form 10-Q for the Quarter ended March 31, 2000 and is incorporated
herein by reference)
50. Fourth Amendment to the Credit Agreement dated as of April 24, 2000
between Policy Management Systems Corporation, Bank of America, N.A.
and the other financial institutions thereto (filed as an exhibit to
Form 10-Q for the Quarter ended March 31, 2000 and is incorporated
herein by reference)
51. First Amendment to Term Loan Agreement dated as of February 10, 2000
between Policy Management Systems Corporation, Bank of America, N.A.
and the other financial institutions thereto (filed as an exhibit to
Form 10-Q for the Quarter ended March 31, 2000 and is incorporated
herein by reference)
52. Second Amendment to Term Loan Agreement dated as of March 30, 2000
between Policy Management Systems Corporation, Bank of America, N.A.
and the other financial institutions thereto (filed as an exhibit to
Form 10-Q for the Quarter ended March 31, 2000 and is incorporated
herein by reference)
53. Third Amendment to Term Loan Agreement dated as of April 24, 2000
between Policy Management Systems Corporation, Bank of America, N.A.
and the other financial institutions thereto (filed as an exhibit to
Form 10-Q for the Quarter ended March 31, 2000 and is incorporated
herein by reference)
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54. Security Agreement dated as of April 28, 2000, among Policy Management
Systems Corporation, certain of its subsidiaries, and Bank of America,
N.A., as Administrative Agent (filed as an exhibit to Form 10-Q for
the Quarter ended March 31, 2000 and is incorporated herein by
reference)
55. Pledge Agreement dated as of April 28, 2000, between Policy Management
Systems Corporation, certain of its subsidiaries, and Bank of America,
N.A., as Administrative Agent (filed as an exhibit to Form 10-Q for
the Quarter ended March 31, 2000 and is incorporated herein by
reference)
56. Mortgage Agreement dated as of April 28, 2000, between Policy
Management Systems Corporation and Bank of America, N.A., as
Administrative Agent (filed as an exhibit to Form 10-Q for the Quarter
ended March 31, 2000 and is incorporated herein by reference)
57. Form of Employee Stock Option/Non Compete Agreement dated April 3,
2000 with schedule identifying particulars for each named officer
(filed as an exhibit to Form 10-Q for the Quarter ended June 30, 2000
and is incorporated herein by reference)
The Schedule for 57contained the following:
OFFICERS OPTIONS RECEIVED
-------- -----------------
David T. Bailey 35,000
Michael D. Gantt 35,000
Harald J. Karlsen 25,000
Stephen G. Morrison 35,000
Michael W. Risley 35,000
Timothy V. Williams 35,000
G. Larry Wilson 75,000
58. Form of Memorandum regarding Grant of 15,000 Stock Options dated April
5, 2000 with schedule identifying particulars for each director (filed
as an exhibit to Form 10-Q for the Quarter ended June 30, 2000 and is
incorporated herein by reference)
The Schedule for 58 contained the following:
DIRECTORS
---------
Alfred R. Berkeley, III
Donald W. Feddersen
Dr. John M. Palms
Joseph D Sargent
John P. Seibels
Richard G. Trub
59. Consent and Waiver dated June 19, 2000 relating to the Credit
Agreement between Policy Management Systems Corporation, the
Guarantors, Bank of America, N.A., and the other financial
institutions thereto (filed as an exhibit to Form 10-Q for the Quarter
ended June 30, 2000 and is incorporated herein by reference)
60. Consent, Waiver and Amendment dated June 19, 2000 relating to the Term
Loan Agreement between Policy Management Systems Corporation, the
Guarantors, Bank of America, N.A., and the other financial
institutions thereto (filed as an exhibit to Form 10-Q for the Quarter
ended June 30, 2000 and is incorporated herein by reference)
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61. Consent and Waiver dated June 20, 2000 relating to the Credit
Agreement between Policy Management Systems Corporation, the
Guarantors, Bank of America, N.A., and the other financial
institutions thereto (filed as an exhibit to Form 10-Q for the Quarter
ended June 30, 2000 and is incorporated herein by reference)
62. Consent and Waiver dated June 20, 2000 relating to the Term Loan
Agreement between Policy Management Systems Corporation, the
Guarantors, Bank of America, N.A., and the other financial
institutions thereto (filed as an exhibit to Form 10-Q for the Quarter
ended June 30, 2000 and is incorporated herein by reference)
63. Consent, Waiver and Fifth Amendment to Credit Agreement dated July 14,
2000 between Policy Management Systems Corporation, the Guarantors,
Bank of America, N.A., and the other financial institutions thereto
(filed as an exhibit to Form 10-Q for the Quarter ended June 30, 2000
and is incorporated herein by reference)
64. Consent and Waiver dated July 14, 2000 relating to the Term Loan
Agreement between Policy Management Systems Corporation, the
Guarantors, Bank of America, N.A., and the other financial
institutions thereto (filed as an exhibit to Form 10-Q for the Quarter
ended June 30, 2000 and is incorporated herein by reference)
65. Fifth Amendment to Term Loan Agreement dated as of August ___, 2000
between Policy Management Systems Corporation, Bank of America, N.A.,
the Guarantors, and the other financial institutions thereto (filed as
an exhibit to Form 10-Q for the Quarter ended June 30, 2000 and is
incorporated herein by reference)
66. Sixth Amendment to the Credit Agreement dated as of August __, 2000
between Policy Management Systems Corporation, Bank of America, N.A.,
the Guarantors, and the other financial institutions thereto (filed as
an exhibit to Form 10-Q for the Quarter ended June 30, 2000 and is
incorporated herein by reference)
67. Subordination Agreement dated June 20, 2000 between Computer Sciences
Corporation, Bank of America, N.A. and Policy Management Systems
Corporation (filed as an exhibit to Form 10-Q for the Quarter ended
June 30, 2000 and is incorporated herein by reference)
68. Promissory Note dated June 20, 2000 by Policy Management Systems
Corporation in favor of Computer Sciences Corporation (filed as an
exhibit to Form 10-Q for the Quarter ended June 30, 2000 and is
incorporated herein by reference)
69. Working Capital Promissory Note dated August 3, 2000 by Policy
Management Systems Corporation in favor of Computer Sciences
Corporation (filed as an exhibit to Form 10-Q for the Quarter ended
June 30, 2000 and is incorporated herein by reference)
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70. FORM OF 2000 BONUS PLAN FOR NAMED EXECUTIVE OFFICERS TOGETHER WITH
SCHEDULE IDENTIFYING PARTICULARS FOR EACH NAMED EXECUTIVE OFFICER
(FILED HEREWITH)
71. P LEDGE AGREEMENT DATED AUGUST 3, 2000 BETWEEN POLICY MANAGEMENT
SYSTEMS CORPORATION AND BANK OF AMERICA, N.A. (FILED HEREWITH)
72. SIXTH AMENDMENT TO TERM LOAN AGREEMENT DATED AS OF SEPTEMBER 29, 2000
BETWEEN MYND CORPORATION (FORMERLY KNOWN AS POLICY MANAGEMENT SYSTEMS
CORPORATION), BANK OF AMERICA, N.A., THE GUARANTORS, AND THE OTHER
FINANCIAL INSTITUTIONS THERETO (FILED HEREWITH)
73. SEVENTH AMENDMENT TO THE CREDIT AGREEMENT DATED AS OF SEPTEMBER 29,
2000 BETWEEN MYND CORPORATION (FORMERLY KNOWN AS POLICY MANAGEMENT
SYSTEMS CORPORATION), BANK OF AMERICA, N.A., THE GUARANTORS, AND THE
OTHER FINANCIAL INSTITUTIONS THERETO (FILED HEREWITH)
74. SEVENTH AMENDMENT TO TERM LOAN AGREEMENT DATED AS OF OCTOBER 31, 2000
BETWEEN MYND CORPORATION (FORMERLY KNOWN AS POLICY MANAGEMENT SYSTEMS
CORPORATION), BANK OF AMERICA, N.A., THE GUARANTORS, AND THE OTHER
FINANCIAL INSTITUTIONS THERETO (FILED HEREWITH)
75. EIGHTH AMENDMENT TO THE CREDIT AGREEMENT DATED AS OF OCTOBER 31, 2000
BETWEEN MYND CORPORATION (FORMERLY KNOWN AS POLICY MANAGEMENT SYSTEMS
CORPORATION), BANK OF AMERICA, N.A., THE GUARANTORS, AND THE OTHER
FINANCIAL INSTITUTIONS THERETO (FILED HEREWITH)
27. FINANCIAL DATA SCHEDULE
A. Filed herewith
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