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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-4379
CONVERGYS CORPORATION
An Ohio I.R.S. Employer
Corporation No. 31-1598292
201 East Fourth Street, Cincinnati, Ohio 45202
Telephone Number 513 723-7000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Shares (no par value) New York Stock Exchange
Series A Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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At February 26, 1999, there were 152,117,096 common shares outstanding.
At February 26, 1999, the aggregate market value of the voting shares
owned by non-affiliates was $2,597,694,823.
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's annual report to security holders for the
fiscal year ended December 31, 1998 (Parts I, II and IV)
(2) Portions of the registrant's definitive proxy statement dated March 12, 1999
issued in connection with the annual meeting of shareholders (Part III)
TABLE OF CONTENTS
PART I
ITEM PAGE
---- ----
1. Business......................................................... 1
2. Properties....................................................... 13
3. Legal Proceedings................................................ 13
4. Submission of Matters to a Vote of the Security Holders.......... 13
PART II
5. Market for the Registrant's Common Equity and Related Security
Holder Matters................................................... 16
6. Selected Financial Data.......................................... 16
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 16
7a. Quantitative and Qualitative Disclosure about Market Risk........ 16
8. Financial Statements and Supplementary Data...................... 16
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................... 16
PART III
10. Directors and Executive Officers of Registrant................... 16
11. Executive Compensation........................................... 16
12. Security Ownership of Certain Beneficial Owners and Management... 16
13. Certain Relationships and Related Transactions................... 16
PART IV
14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.. 17
See page 14 for Executive Officers of the Registrant.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR CAUTIONARY STATEMENT
This report and the documents incorporated by reference herein contain
"forward-looking" statements, as defined in the Private Securities Litigation
Reform Act of 1995, that are based on current expectations, estimates and
projections. Statements that are not historical facts, including statements
about the beliefs and expectations of Convergys Corporation (the Company) are
forward-looking statements. These statements discuss potential risks and
uncertainties and, therefore, actual results may differ materially. You are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date on which they were made. The Company undertakes no
obligation to update any forward-looking statements, whether as a result of new
information, future events or otherwise.
Important factors that may affect these projections or expectations include,
but are not limited to: changes in the overall economy; changes in competition
in markets in which the Company operates; changes in the regulatory environment
in which the Company's customers operate; changes in the demand for the
Company's services; failure of the Company to achieve Year 2000 compliance; and
consolidation within the industries in which the Company's customers operate.
PART I
ITEM I. BUSINESS
GENERAL
Convergys Corporation (the Company) is a leading provider of outsourced
information and customer management solutions. The Company focuses on developing
long-term strategic relationships with clients in customer-intensive industries
including telecommunications, cable, cable telephony, satellite broadcasting,
Internet services, utilities, technology, financial services, consumer products,
healthcare and direct marketing. The breadth of the Company's service offerings
enables it to serve as the interface for all phases of a client's billing or
customer management needs. By providing value-added solutions through long-term
relationships, the Company has developed a large base of recurring revenues with
its largest clients.
The Company serves its client base through its two operating subsidiaries: (i)
Information Management Group (IMG), which provides outsourced billing and
information services; and (ii) Customer Management Group (CMG), which provides
outsourced marketing and customer support services to large companies. For
certain clients, IMG and CMG jointly provide a full range of billing and
customer management solutions. The Company's strategy is to more fully integrate
the strengths of IMG and CMG to provide next generation customer management
solutions -- customer relationship management.
Historically, the business of the Company was conducted through two subsidiaries
of Cincinnati Bell Inc. (CBI), Cincinnati Bell Information Systems Inc. (CBIS)
and MATRIXX Marketing Inc. (MATRIXX). Following a plan of distribution announced
on April 27, 1998, the Company was formed as a wholly-owned subsidiary of CBI on
May 8, 1998. In July 1998, CBI contributed the outstanding shares of CBIS and
MATRIXX to the Company and CBIS and MATRIXX became the IMG and CMG,
respectively. CBI also contributed to the Company its 45% limited partnership
interest in a cellular communications services provider in southwestern Ohio and
northern Kentucky (the Cellular Partnership). On August 13, 1998 approximately
10% of the common shares of the Company were issued to the public and on
December 31, 1998, the remaining shares held by CBI were distributed to CBI
shareowners.
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The Company is incorporated under the laws of Ohio and has its principal
executive offices at 201 East Fourth Street, Cincinnati, Ohio 45202 (telephone
number (513) 723-7000.)
INDUSTRY OVERVIEW
Due to a broad combination of factors, including advances in technology,
globalization and deregulation, many markets are experiencing increased
competition. As a result, billing and customer management solutions, which
utilize software based information processing systems and services to identify,
attract and retain customers, have become a strategic imperative for companies
seeking to remain competitive. Technological advances, such as relational
databases and predictive behavior software, are making it possible for companies
to analyze their customers' behavior and design products or marketing programs
which address specific customer needs or tendencies. Convergys is the only
company in its industry to realize the value of combining and customizing
billing and customer service operations to provide end-to-end solutions that
deliver true competitive advantage for its clients. In addition, particularly in
highly competitive industries such as telecommunications, it is critical to have
robust systems and software that enable companies to respond rapidly to changes
in the market. However, such system requirements are increasing the costs and
complexity of maintaining in- house billing and customer management systems.
Additionally, with rapid technological change, companies are facing increased
pressure to either invest heavily in technology or seek an outsourcing solution
to deliver high quality billing and customer management. Many companies lack the
in-house expertise to efficiently collect, analyze and respond to the types of
information that can be captured with each customer interaction, which has
resulted in outsourcing of billing and customer management solutions as a
strategic management tool.
The Company believes that the growth of customer management outsourcing will
continue as companies focus on their core competencies and seek to benefit from
the advantages that outsourcing companies can provide, including: (i) expertise
to target, acquire and retain customers effectively; (ii) cost savings resulting
from economies of scale achieved by operating large data processing facilities
or customer service centers; (iii) technologically advanced systems and software
which enable rapid competitive response; and (iv) improved time-to-market for
new products, services or marketing programs.
COMPETITIVE STRENGTHS
The Company believes that it has developed strengths that position it to compete
effectively for outsourcing opportunities. These competitive strengths include
its:
FOCUS ON STRATEGIC RELATIONSHIPS WITH TARGETED INDUSTRY LEADERS
The Company has developed strategic relationships with leading companies in the
telecommunications, technology, financial services and consumer product
industries. Such relationships have enabled the Company to become an integral
component of its clients' customer management processes, often including
participation in the clients' internal planning and operating meetings.
Long-term strategic relationships enable the Company to grow as its clients
grow, develop significant industry-specific expertise and establish recurring
revenue streams. The Company's success in establishing these strategic
relationships is reflected in the nature of its relationships with its major
clients. IMG's top seven clients, with relationships averaging over ten years,
each provided at least $24 million in revenues in 1998. CMG's top ten clients,
with relationships averaging over six years, each provided at least $13 million
in revenues in 1998.
BREADTH OF VALUE-ADDED SERVICES
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The Company provides a broad array of information and customer management
services including dedicated customer service, technical support, sales account
management and high volume consumer response, coupled with support services such
as market research, database management, interactive voice response and Internet
capabilities. By bundling these capabilities, the Company can serve as a single
source solution for the entire range of a client's billing and customer
management needs. The Company attempts to differentiate itself by providing best
in class performance in each of these areas and addressing the most complex
billing and customer management needs.
SIZE AND SCALE TO DELIVER COST-EFFECTIVE SOLUTIONS AND HANDLE LARGE PROGRAMS
As the leading provider of outsourced information and customer management
solutions in North America, the Company leverages its purchasing power and
spreads its significant research and development expenditures over a large
client base, thereby enabling it to develop and deliver cost-effective
solutions. Today its data centers produce over one million bills each day and
the Company fields more than one million calls each day from its more than 30
call centers and approximately 16,000 workstations. The Company has the size and
breadth of experience to design, develop and implement large-scale, complex
information and customer management solutions that provide superior value to its
clients.
TECHNOLOGICAL EXPERTISE
With approximately 2,000 software professionals, the Company can provide
significant technical resources to develop customized solutions for its clients.
The Company spent nearly $82 million on existing and new technologies and
systems in 1998, and intends to continue its commitment to research and
development in order to enhance its ability to offer clients innovative design,
development and implementation of complex, scalable customer management
solutions.
GROWTH STRATEGY
The Company's growth strategy is designed to capitalize on the fundamental
trends supporting billing and customer management outsourcing while leveraging
the Company's competitive strengths to further its market leadership.
EXPANDING EXISTING CLIENT RELATIONSHIPS
The majority of the Company's existing clients operate in industries marked by
some or all of the following trends: high growth, deregulation, converging
technologies, intense competition and increasing customer service needs. The
Company believes that these market trends will continue to provide significant
growth opportunities with its existing client base. These clients have
historically represented the bulk of the Company's internal growth. The
Company's strategy is to develop long- term strategic partnerships with targeted
market leaders and to expand its existing relationships as its clients continue
to grow within their own markets, both domestically and internationally,
outsource additional customer management functions and develop new products and
services to take to existing and new markets. Additionally, there are
opportunities to cross-sell IMG and CMG solutions to clients, as well as
opportunities to sell multiple services to multiple divisions within each
client.
LEVERAGING INDUSTRY EXPERIENCE TO DEVELOP NEW RELATIONSHIPS
By focusing on long-term strategic relationships within targeted industries, the
Company has
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developed industry expertise and an in-depth understanding of the customer
management needs of companies serving those industries. The Company focuses on
developing additional relationships in its targeted industries, particularly
with companies that have large in-house billing or call center operations or
are pursuing additional opportunities as certain markets converge (such as
communications and broadband services). The Company believes that the
combination of its industry expertise, size and technology position it to
compete effectively for these new outsourcing opportunities.
DEVELOPING NEW SOLUTIONS TO PROVIDE SUPERIOR VALUE
The Company's significant ongoing investment in technology is designed to
increase the value of a client's information and customer management processes.
In addition to continuing to advance the solutions currently offered separately
by IMG and CMG, the Company is developing next generation customer management
solutions that combine the software and information services capabilities of IMG
with CMG's expertise in strengthening clients' relationships with their
customers. This integrated approach to customer relationship management enables
our clients to expand and enhance the value of their customer base.
ENTERING COMPLEMENTARY MARKETS
The Company will pursue opportunities in industries that have large customer
bases and, as a result of deregulation or new technologies, will require greater
focus on billing and customer management. For example, the Company believes that
deregulation, which led to substantially increased competition in the
telecommunications sector, is likely to have a similar effect on the utility
industry and will create opportunities for outsourced customer management
services. In December 1998, IMG announced its plans to provide comprehensive,
outsourced billing and customer care solutions to the utilities and energy
services market.
PURSUING INTERNATIONAL GROWTH
The Company presently provides its billing and customer management solutions in
selected international markets and believes significant growth opportunities
exist outside North America. The Company intends to leverage its relationships
with large international companies. The Company believes that these clients will
be better served by a single provider capable of delivering information and
customer management solutions in multiple geographic markets. In addition, the
Company intends to expand its client base outside North America.
PURSUING STRATEGIC ACQUISITIONS AND ALLIANCES
Building upon a history of growth through acquisitions (26 acquisitions in the
past thirteen years), the Company will pursue additional acquisition and
alliance opportunities. The Company believes that consolidation in its industry
will continue and the Company expects to pursue acquisitions and alliances that
expand its client base, add new capabilities or enable it to accelerate
international expansion. In the first quarter of 1998, the Company acquired
American Transtech, Inc. and the Canadian assets of AT&T's Canadian customer
care business (Transtech) from AT&T. Associated with this acquisition, the
Company entered into an eight-year contract to provide customer care, sales
management, and technical support services for both business and residential
customers.
PRODUCTS AND SERVICES
IMG
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IMG serves clients principally by providing and managing complex billing and
information services primarily delivered through IMG data centers. IMG's billing
solutions address all segments of the communications industry, including
wireless, wireline, cable, broadband and Internet services. These solutions
consist of data processing services, professional and consulting services and
licensed software. IMG software and data processing capabilities enable it to
activate services, capture usage information, calculate billing charges,
consolidate billing for multiple service or equipment features and enable
clients to use such data to target customers for new or expanded service or
product offerings. IMG's professional and consulting services include its
customization of software at its clients' requests to create, modify and enhance
billing and other related customer support solutions. On a more limited basis,
IMG also licenses its software to address the needs of those clients (mostly in
the cable and broadband services market) who prefer to conduct their billing and
information services in their own data centers.
During 1998, over 62% of IMG's revenues were generated from recurring monthly
payments from its clients based upon the number of subscribers or bills
processed by IMG. Professional and consulting services for software maintenance
and enhancements, a majority of which are based on hourly fees for work
performed, accounted for approximately 24% of IMG's 1998 revenues. IMG's
remaining revenues resulted from licensing fees for software and other
miscellaneous services.
IMG's experience and size result in significant time to market, service and cost
advantages for clients. These advantages include rapid introduction of new
services, predictable costs, information management expertise, access to
advanced technology without high capital expenditures and a partner focused on
billing and customer management solutions. IMG's leading market share in
wireless bill processing is driven by its ability to develop software and
systems capable of addressing the complexity of wireless billing and delivering
cost-effective solutions. Billing for wireless services is extremely complex for
a number of reasons including:
MULTITUDE OF PRICING PLANS--Each wireless carrier offers hundreds of
pricing plans to subscribers. Those pricing plans are often tailored
individually to cover peak and non-peak per minute rates and minutes of
usage included in the monthly rate plan. Wireless providers demand the
flexibility to be able to change subscriber rates quickly in response
to competition.
ROAMING CHARGES--Wireless phone users roam between markets served by
different carriers. When roaming, different rates and surcharges apply
to usage. Roaming also frequently involves entering multiple tax
jurisdictions and the tax rates vary by locale. Billing software must
accurately determine roaming and tax charges.
ABILITY TO IMPLEMENT STRATEGIC MARKETING PROGRAMS--Competition in the
wireless industry has resulted in a myriad of promotional activities
that complicate billing. For example, a wireless provider may offer
free wireless-to-wireless calls, free weekend calling or introductory
pricing packages that lapse after a given period of time. Capturing
rate plan data and applying customer usage data accurately is critical
to wireless providers and their subscribers.
MULTIPLE SERVICES FOR A SUBSCRIBER--Each subscriber may utilize
different features such as voice mail, call waiting, and voice
activated dialing. In addition, a subscriber may utilize more than one
service, such as wireless phone and paging services. The ability to
consolidate such services on one monthly bill and allowing for
discounting the bundle of services is increasingly viewed as a
competitive requirement.
GROWTH OF WIRELESS SERVICE--The number of wireless subscribers in the
U.S. has grown at an
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average rate of approximately 37% over the past five years. In
addition, minutes of usage per subscriber are expected to increase.
As a result, wireless billing systems must have the capability to
handle dynamic growth.
In addition to processing bills in its data centers, IMG performs a significant
amount of professional and consulting work for certain of its clients to tailor
solutions to each client's marketing objectives and regulatory requirements. For
example, IMG developed real-time software that has made it possible to offer
wireless service with monthly account limits to customers that otherwise might
not have received credit authorization (frequently referred to in the wireless
industry as pre-pay services.) The billing software enables a wireless provider
to notify customers as they approach approved monthly spending limits.
Subscribers then have the option of reducing usage until the next monthly period
or until they make a payment, frequently over the phone with a credit card, to
re-activate the limit.
IMG has leveraged its billing expertise in the wireless communications market to
enter into contracts in 1998 which will grow its U.S. cable television billing
market share to 30% and the Company is further expanding its billing solutions
in the broadband services market. During 1997, IMG entered into a strategic
relationship with Wiztec, which added billing and customer management
capabilities in the direct broadcast satellite marketplaces. In March 1999, IMG
increased its ownership of Wiztec to 70%. In addition, IMG has another strategic
relationship to provide billing and customer management for Internet service
providers.
IMG's solutions for wireline based carriers include a range of billing,
information services and network management solutions. Wireline clients served
by IMG in 1998 included Cincinnati Bell Telephone (CBT), and, on a more limited
basis, AT&T, PTT Netherlands, Swisscom, British Telecom and Telenor.
CMG
CMG creates comprehensive, outsourced customer management solutions for its
clients utilizing its advanced information systems capabilities, human resource
management skills and industry experience. In 1998, approximately 79% of CMG's
revenues were related to dedicated services and 21% of its revenues were related
to traditional teleservices. While traditional teleservices programs require
similar technological capabilities, systems scale and human resource expertise
as dedicated services, they are generally short-term and require less experience
within the client's industry.
CMG's dedicated services include:
CUSTOMER SERVICE--CMG handles customer contacts which range from
initial product information requests to customer retention initiatives.
These customer service calls involve a variety of activities including
gathering and analyzing customer information; describing product
features, capabilities and options; activating customer accounts or
renewing service; processing a product or service sale; and resolving
complaints and billing inquiries.
TECHNICAL SUPPORT--CMG answers technical support inquiries for
consumers and business customers. Technical support ranges from simple
product installation or operating assistance for a variety of software
and hardware products to highly complex issues such as systems
networking configuration or software consultation.
SALES ACCOUNT MANAGEMENT--For certain of its clients' business
customers, CMG serves as a telephone based sales force that can provide
more frequent and cost-effective account coverage than would be
possible with a traditional in-field sales force. CMG is responsible
for managing the entire customer relationship including obtaining
current orders, increasing
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purchase levels, introducing new products, implementing product
initiatives and handling all inquiries related to products, shipments
and billing.
When developing a dedicated services solution, CMG devotes significant resources
to understand a client's unique customer management needs and collaborates to
design a customized solution utilizing CMG's broad array of services. The
solution design typically addresses the client's desired level and types of
customer interaction, anticipated call volumes, personnel hiring and training
requirements and technological requirements (including the interface between a
client's and CMG's systems).
CMG's ability to deliver value-added solutions depends on its advanced
technology platforms and human resource management expertise. Sophisticated call
routing, computer telephony integration, logical call scripting and a Graphical
User Interface design, interactive voice response, relational database skills,
Internet capabilities and real-time call monitoring are all important elements
of CMG's technology platform and permit efficient and cost-effective customer
management. Large customer management solutions are labor intensive and, as a
result, one of CMG's core competencies is its ability to hire, train and
minimize turnover among its customer service representatives. Each customer
service representative receives extensive up-front training covering general
customer service skills and in-depth product or service training. Given the wide
range of services provided by CMG personnel, many programs are staffed with
representatives possessing specialized skills applicable to a client's industry
and customer base, such as multi-lingual fluency or technological training. As
the central interface for all customer interactions, CMG gathers data and by
utilizing its database technology, CMG can analyze such data to provide valuable
feedback to its clients, such as (i) identifying potential customers, (ii)
identifying a client's most profitable customers thereby permitting targeted
retention and loyalty programs, (iii) assessing usage data to enable clients to
develop targeted products and services and (iv) identifying cross-selling
opportunities for its clients.
CMG generally receives a fee based on staffing hours for the customer service
representatives assigned to a program. Per hour charges for dedicated services
are usually higher than charges for traditional teleservices due to the higher
level of value-added activity associated with dedicated services. Supplemental
revenues can sometimes be earned depending on service levels or achievement of
certain sale targets. Additional fees are charged for service enhancements or
system upgrades requested by clients. Since dedicated services require CMG to
become an integral part of a client's customer management function, these
services are generally provided pursuant to multi-year contracts.
INTEGRATED CUSTOMER MANAGEMENT SOLUTIONS
IMG and CMG are combining their strengths to provide next generation customer
management solutions - customer relationship management. These solutions are
designed to increase the lifetime value, satisfaction and loyalty of its
clients' customer relationships. They utilize advanced technologies and analyze
multiple sources of customer-specific information (demographics, previous
purchase and service history, propensity to buy additional products and
services) and provide targeted, action-oriented information to a customer
service representative who can proactively contact the customer or be more
effective when a customer calls.
CLIENTS
IMG
IMG generally has long-term relationships and multi-year contracts with its
clients. In many cases, IMG is the client's exclusive provider of billing
services or the contract requires the client to fulfill minimum annual
commitments. IMG billing and customer management solutions process billing
information for
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monthly customer statements for approximately 30% of U.S. cellular subscribers.
IMG provided customer usage data collection, rating and bill generation for
nearly 70% of the U.S. PCS industry in 1998. IMG's customers include three of
the largest PCS providers, Sprint PCS, PrimeCo Personal Communications and AT&T
Wireless, with whom the Company has multi-year contracts. Combined, these
clients serve customers in 49 of the top 50 U.S. metropolitan areas, often with
more than one client serving the same metropolitan area. Over the past five
years, subscriber growth in domestic wireless cellular services has averaged
approximately 37% per year.
IMG has leveraged its billing expertise in the wireless communications market to
grow its cable television industry billing market share to 30% during 1998, and
the Company is further expanding its billing solutions in the broadband services
market. IMG' solutions also support bundled telephone and entertainment services
provided by cable television system operators in the U.S. and Europe.
CMG
CMG principally focuses on developing long-term strategic outsourcing
relationships with large clients in the telecommunications, technology,
financial services and consumer products industries. CMG focuses on clients in
these industries because of the complexity of services required, the anticipated
growth of their businesses and their continuing need for customer management
solutions. CMG provides a full range of customer management services to clients
including AT&T, Sprint PCS, DIRECTV-Registered Trademark-, American Express,
Procter & Gamble and Microsoft. The Company provides technical support services
to leading technology companies such as Gateway International and CISCO.
SALES AND MARKETING
The Company has a direct sales force and sales support organization of
approximately 275 sales and marketing personnel, focused on the leading
companies in its target industries in both North America and Europe. The Company
uses a consultative approach to client sales and generally focuses its marketing
efforts at the senior executive levels where decisions are made with respect to
outsourcing critical billing and customer management functions. Once a client
has made the decision to outsource, the Company works closely with the client to
identify current and prospective needs and develop a solution, typically
customized, designed to address those needs and reduce the client's capital
investment and overall costs.
The Company's strategic relationships with clients are primarily conducted
pursuant to multi-year contracts which vary by client and generally contain
annual revenue commitments or exclusivity provisions, annual rate adjustments
based upon consumer price index increases, performance benchmarks,
renewal/extension options, limited termination provisions or renewal periods and
exit payments in the event of an early termination.
OPERATIONS
The Company operates three data centers in Orlando and Jacksonville, Florida,
and Cincinnati, Ohio, comprising approximately 150,000 square feet of space.
Approximately 76,000 terminals are connected via 40 external networks to the
Company's data centers. Over 400 data center operations and production support
employees service the Company's data centers.
The Company's technologically advanced data centers provide twenty-four hour per
day, seven days a week availability (with redundant power and communication
feeds and emergency power back-up supplied by diesel generators) and are
designed to withstand most environmental disasters. Over 30 million bills are
processed on a monthly basis from the Company's mainframe and open systems
facilities which can process over 3,400 million instructions per second (MIPS),
store over 16 terabytes
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(trillion bytes) of information and provide back-up capacity in the unlikely
event that any one data center becomes inoperative.
The Company operates more than 30 call centers with twenty-four hours per day,
seven days a week availability, averaging 66,000 square feet per center and over
16,000 available production workstations. These call centers handled more than
400 million customer calls during 1998.
The capacity of the Company's data center and call center operations coupled
with the scalability of the Company's billing and customer management systems
enable the Company to meet initial and on- going needs of large scale and
rapidly growing projects. By employing the scale and efficiencies of common
application platforms, the Company is able to provide client specific
enhancements and modifications without incurring all the costs of a custom
application. This allows the Company to position itself as a low cost
value-added provider of billing and customer support solutions.
TECHNOLOGY, RESEARCH & DEVELOPMENT
The Company intends to continue to emphasize the design, development and
deployment of scalable, customer management systems to increase its market
share, both domestically and internationally. The Company intends to pursue this
objective by continuing its substantial investment in expanding and enhancing
its customer management solutions. During 1998, the Company spent $81.9 million
for research and development to advance the functionality, flexibility and
scalability of its solutions portfolio.
The Company's Precedent 2000 billing solution employs advanced systems,
client/server technology for real-time customer activations, inquiries and
adjustments, call detail collection and rating, and on-demand bill processing.
Its three-tier distributed processing architecture utilizes advanced technology
for ease of information access, as well as an intuitive Graphical User Interface
for streamlined customer service that provides quick response and resolution.
The Company continues to invest research and development spending in Precedent
2000. In 1999, some of this investment will be to add Global System for Mobile
(GSM) capabilities to Precedent 2000.
The Company's technical capabilities are comprehensive, ranging from OS/390
COBOL based batch processing to open systems to client/server based real-time
processing applications. The Company is also investing in (i) object-oriented
analysis, design and programming technologies to achieve reuse, higher quality,
and faster time to market, and (ii) new development tools, such as Java, to
capitalize on advancements in the software industry.
The Company's call centers employ advanced technology that integrates digital
switching, intelligent call routing and tracking, proprietary workforce
management systems, proprietary software systems, interactive voice response
techniques, computer telephony integration and relational database management
systems. This technology enables the Company to improve its call handling and
personnel scheduling thereby increasing its efficiency and enhancing the quality
of the services it delivers to its clients and their customers. The Company also
provides services using electronic media such as e-mail and the Internet.
The Company's intellectual property consists primarily of proprietary software
systems protected under copyright law and trademarks and service marks
registered in the U.S. Patent and Trademark Office. The Company also has
patents, granted and pending, covering certain advanced interactive voice
response inventions.
PERSONNEL AND TRAINING
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The Company considers its employees to be a key component of its success.
Therefore, the Company is continually refining its systematic approach to
hiring, training and managing qualified personnel.
The Company offers extensive training, including leadership and management
seminars, for its personnel, including managers, customer service
representatives and software professionals. The Company conducts extensive
market, product and technology specific training for its customer service
representatives designed to make them proficient in representing a specific
client's products and services. In addition, the Company conducts extensive
technical training for its software development staff on topics ranging from
introductory systems development through application specific expertise.
COMPETITION
The industries in which the Company competes are extremely competitive. The
Company's competitors include (i) existing clients and potential clients with
substantial resources and the ability to provide billing and customer management
solutions internally, (ii) other billing software and/or services companies such
as Alltel Corporation, Amdocs, CSG Systems International, LHS Group and Saville
Systems, (iii) other teleservices companies, such as APAC Teleservices Inc.,
SITEL Corporation, Inc., Sykes International, TeleTech Holdings, Inc. and West
Teleservices Corporation and (iv) systems integration companies, such as
American Management Systems, Andersen Consulting, EDS and SEMA Group. In
addition, niche providers or new entrants could capture a segment of the market
by developing new systems or services that could impact the Company's market
potential.
The Company believes that the principal competitive factors in its industry are
service quality, sales and marketing skills, the ability to develop customized
solutions, cost of services and technological expertise. The Company
differentiates itself from its competitors based on its size and scale, service
quality, breadth of services provided, industry and client focus, financial and
technical resources, cost of services and business reputation.
YEAR 2000
The Company initiated a program in 1995 to identify and address issues
associated with the ability of its date-sensitive information and business
systems and equipment to recognize the Year 2000 properly. Given its reliance on
its information and business systems, the Company's Year 2000 efforts have
primarily focused on information technology systems. The Company incurred $29.1
million in expenses during 1998 in order to prepare for the Year 2000 and $9.9
million in1997. The Company estimates its Year 2000 expenses in 1999 will be in
a range of $10 to $15 million. Approximately 40% of the Company's 1998 Year 2000
spending was paid to third-party service providers.
A steering committee chaired by the Company's Chief Executive Officer and
composed of upper-level management personnel, has set the direction for, and
monitored the activity of, Convergys' Year 2000 Program Management Office.
The Program Management Office's responsibility is to make Convergys Year 2000
compliant. The Program Management Office is also communicating with vendors
and clients with which the Company's systems interface or upon whom the
Company's systems rely to determine their progress toward Year 2000
compliance. Additionally, senior management reports on the Company's progress
toward Year 2000 compliance at each meeting of the Company's Board of
Directors.
IMG has adopted a repair strategy to modify its existing systems for the Year
2000. IMG's assessment, remediation and testing phases of the project are
substantially complete and IMG is in the process of completing implementation
procedures. IMG's goal is for data centers, software and other information
technology systems to be Year 2000 compliant and tested by June 30, 1999.
CMG has also adopted a strategy that includes both repair and replacement of
current systems. CMG
10
has completed the assessment and remediation phases of its plan and is
substantially complete with regard to systems testing. Implementation efforts
are currently underway. CMG's goal is for software, telecom equipment and
other information technology systems to be Year 2000 compliant and tested by
June 30, 1999.
The Company maintains business continuity plans to limit disruptions to its
operations. As part of its Year 2000 efforts, the Company has updated these
plans to address Year 2000 issues. The Company has obtained Year 2000 compliance
statements from all significant vendors. Although the Company anticipates
minimal business disruption as a result of the century change, if the Company
were to be unsuccessful in preparing for the Year 2000, this could have a
material adverse impact on the Company. Such impact could include the inability
of IMG to process bills and other transactions for its clients in a timely
manner, which could lead to the incurrence of contractual penalties. Similarly,
this could include disruptions to CMG's ability to handle client call volumes
appropriately, which could also lead to contractual penalties. The failure of
one of the Company's significant clients or vendors (in particular, utilities or
telecommunication services providers) to prepare for the Year 2000 successfully
could have a material adverse impact on the Company.
EMPLOYEES
The Company currently has over 33,000 employees in more than eight countries.
This total includes approximately 8,000 individuals at Transtech that were
previously provided by employment service agencies. During 1998, these
individuals were transferred to permanent employee status. The Company believes
that the impact of this movement to permanent employee status will be to improve
efficiency and reduce staffing costs.
PROPERTIES
The Company leases space for offices, data centers and call centers on
commercially reasonable terms. Domestic facilities are located in Arizona,
California, Colorado, Florida, Georgia, Illinois, Missouri, Nebraska, North
Carolina, Ohio, Oklahoma, Tennessee, Texas, Utah, Washington, Washington, D.C.,
and Wisconsin. International facilities are located in Brussels, Belgium, Paris,
France, Bristol, London, Newcastle Upon Tyne, and Southampton, England, Winnipeg
and Halifax, Canada, Bern, Switzerland, Linkoping and Stockholm, Sweden and
Utrecht, The Netherlands. In addition, the Company owns its operations and data
center located in Jacksonville, Florida.
The Company believes that its facilities and equipment are adequate and have
sufficient productive capacity to meet its current needs.
CELLULAR TELEPHONE SERVICE LIMITED PARTNERSHIP INTEREST
The Company has a 45% limited partnership interest in the Cellular Partnership,
which operates a cellular telecommunications business in central and
southwestern Ohio and northern Kentucky. The population of the territory served
by the Cellular Partnership is in excess of 5 million persons and the Company's
proportionate share of this cellular market represents approximately 2.3 million
POPs. The Company accounts for the partnership interest under the equity method
of accounting. In 1998, the Company's equity in earnings of the Cellular
Partnership was $25.1 million and the Company received no distribution of
Cellular Partnership earnings.
Ameritech Mobile Phone Service of Cincinnati, Inc. is the general partner and a
limited partner in the Cellular Partnership with a combined partnership interest
of approximately 53%; 360 Communications Investment Company has a 1.2% limited
partnership interest; and GIT-Cell, Inc. has a 0.7% limited partnership
interest. The Cincinnati SMSA Limited Partnership Agreement authorizes the
general
11
partner to conduct and manage the business of the Partnership. Limited partners
are entitled to their percentage share of income and cash distributions and
shall meet capital calls or suffer a dilution of their interests. They may, if
acting unanimously, replace a general partner who withdraws from the Cellular
Partnership. All partners have the right to approve a transfer of a limited
partner's Cellular Partnership interest to unaffiliated parties and have a right
to purchase a limited partnership interest proposed to be transferred at the
offered price.
12
ITEM 2. PROPERTIES
The property of the Company is principally computer and communications equipment
and software that does not lend itself to description by character and location
of principal units. Other property of the Company is principally buildings and
leasehold improvements. The gross investment in property and equipment, and
related accumulated depreciation, in millions of dollars, at December 31, 1998
was as follows:
Land $ 6.2
Buildings 47.8
Leasehold improvements 54.3
Equipment 226.2
Software 136.2
Construction in progress and other 27.9
-------
Total 498.6
Less: Accumulated depreciation 248.8
-------
Net property and equipment $ 249.8
=======
IMG and CMG lease office space in various cities (see properties paragraph in
Item 1. for a detailed listing) on commercially reasonable terms. Upon the
expiration or termination of any such leases, these companies could obtain
comparable office space. IMG also leases some of the computer hardware, computer
software and office equipment necessary to conduct its business pursuant to
short term leases.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth quarter of
the fiscal year covered by this report.
13
EXECUTIVE OFFICERS OF THE REGISTRANT (DURING 1998)
The names, ages and positions of the executive officers of the Company are as
follows:
NAME AGE TITLE
- ---- --- -----
(as of 3/31/99)
Charles S. Mechem, Jr. (a,b) 68 Chairman of the Board
James F. Orr (a,b) 53 President and Chief Executive
Officer
William D. Baskett III 59 General Counsel and Secretary
Steven G. Rolls (c) 44 Chief Financial Officer
Robert J. Marino 52 President of IMG
David F. Dougherty 43 President of CMG
Brian C. Henry 42 Chief Operating Officer of IMG
Ronald E. Schultz 44 Chief Operating Officer of CMG
Cheryl N. Campbell 50 V.P. Public Relations
Thomas A. Cruz 51 V.P. Human Resources
and Administration
Robert P. Komin 36 V.P. Finance and Treasurer
Michael J. Randall 57 Chief Technical Officer of IMG
Andre S. Valentine 35 V.P. and Controller
(a) Member of the Board of Directors
(b) Member of the Executive Committee
(c) Elected Chief Financial Officer of the Company on June 1, 1998
Officers are elected annually but are removable at the discretion of the Board
of Directors.
14
CHARLES S. MECHEM, JR., Chairman of the Board of the Company since May 8, 1998;
Chairman of the Board of Cincinnati Bell Inc. (CBI) 1996-1998; Commissioner
Emeritus, Ladies Professional Golf Association ("LPGA"); Commissioner of the
LPGA, 1991-1995; Chairman of the United States Shoe Corporation, 1993-1995.
Director of Mead Corporation, Ohio National Life Insurance Company, J.M. Smucker
Company, Firstar Corporation and its subsidiary, Firstar Bank, N.A.
JAMES F. ORR, Chief Executive Officer of the Company since May 8, 1998; Chief
Operating Officer of CBI, 1996-1998; Executive Vice President of CBI and
President and Chief Executive Officer of IMG, 1995-1996; Chief Operating Officer
of IMG, 1994.
WILLIAM D. BASKETT III, General Counsel and Secretary of the Company since May
8, 1998; General Counsel and Chief Legal Officer of CBI 1993-1998; Partner of
Frost & Jacobs 1970-1997.
STEVEN G. ROLLS, Chief Financial Officer of the Company since June 1, 1998; Vice
President and Controller of The BF Goodrich Company, 1993-1998; CFO of the
Aerospace Segment of BF Goodrich, 1989-1993.
ROBERT J. MARINO, President of IMG since 1996; Chief Operating Officer of IMG,
1995-1996; President - Northeast Region of Nextel, 1993-1995.
DAVID F. DOUGHERTY, President of CMG since 1995; Senior Vice President and Chief
Operating Officer U.S. Operations of CMG, 1993-1994.
BRIAN C. HENRY, Chief Operating Officer of IMG since April 1998; Executive Vice
President and Chief Financial Officer of CBI, 1993-1998.
RONALD E. SCHULTZ, Chief Operating Officer of CMG since 1996; Managing Director
of II Ventures, 1990-1994.
CHERYL N. CAMPBELL, Vice President Public Relations of the Company since May 8,
1998; Vice President of Public Relations of CBI, 1997-1998; Vice President of
Corporate Communications and Public Affairs of Cincinnati Bell Telephone (CBT),
1996-1997; Vice President of Regulatory Affairs of CBT, 1995-1996; Director of
Docket Management and Regulatory Affairs of CBT, 1993-1995
THOMAS A. CRUZ, Vice President Human Resources and Administration of the Company
since May 8, 1998; Corporate Vice President of Human Resources and
Administration of CBI, 1997-1998; Senior Vice President of Human Resources and
Administration of IMG, 1993-1997.
ROBERT P. KOMIN, Vice President Finance and Treasurer of the Company since May
8, 1998; Vice President Finance and Planning of CBI, 1996-1998; Director of
Finance and Planning of CBI, 1995-1996; Product Marketing Manager of Rogue Wave
Software, 1994-1995.
MICHAEL J. RANDALL, Chief Technical Officer of IMG since 1996; Vice President
Corporate Operations Systems of Compaq Computer Corporation, 1995-1996;
Corporate Vice President Information Systems of Marion Merrell Dow, 1992-1995.
ANDRE S. VALENTINE, Vice President and Controller of the Company since September
1, 1998; Controller and Chief Accounting Officer of CBI, February 1, 1998 to
September 1, 1998; Director of Corporate Accounting of CBI, 1997-1998; Business
Assurance Manager at Coopers & Lybrand L.L.P., 1990-1997.
15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS.
Convergys Corporation (symbol: CVG) common shares are listed on the New York
Stock Exchange. As of February 26, 1999, there were approximately 23,000 holders
of record of the 152,117,096 outstanding Common Shares of the Company. The high
and low sales prices of its common shares each quarter since the Company's
initial public offering are listed below:
QUARTER 1ST 2ND 3RD 4TH
- -----------------------------------------------------------------------
1998 High $ --- $ --- $17.438 $23.750
Low $ --- $ --- $11.375 $ 9.625
The Company did not declare any dividends during 1998 and does not anticipate
doing so in the near future.
ITEMS 6 THROUGH 8.
The Selected Financial Data, Management's Discussion and Analysis of Financial
Condition and Results of Operations, Quantitative and Qualitative Disclosure
About Market Risk and Financial Statements and Supplementary Data required by
these items are included in the registrant's annual report to security holders
for the fiscal year ended December 31, 1998, included in Exhibit 13 and are
incorporated herein by reference pursuant to General Instruction G (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disagreements with accountants on any accounting or financial disclosure or
auditing scope or procedure occurred during the period covered by this report.
PART III
ITEMS 10 THROUGH 13.
Information regarding executive officers required by Item 401 of Regulation S-K
is furnished in a separate disclosure in Part I of this report under the caption
Executive Officers of the Registrant since the registrant did not furnish such
information in its definitive proxy statement prepared in accordance with
Schedule 14A.
The other information required by these items is included in the registrant's
definitive proxy statement dated March 12, 1999, in the second paragraph on page
2, the accompanying notes on page 2 and the Section 16 paragraph on page 2, the
information under Election of Directors on pages 5 through 7, the information
under Share Ownership of Directors and Officers on page 4, the information under
Executive Compensation on pages 11 through 15. The foregoing is incorporated
herein by reference pursuant to General Instruction G (3).
16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
PAGE
----
(1) Consolidated Financial Statements:
Report of Management................................................ *
Report of Independent Accountants................................... *
Consolidated Statements of Income and Comprehensive Income.......... *
Consolidated Balance Sheets......................................... *
Consolidated Statements of Cash Flows............................... *
Consolidated Statements of Shareowners' Equity...................... *
Notes to Financial Statements....................................... *
(2) Financial Statement Schedules:
Report of Independent Accountants................................... 23
II - Valuation and Qualifying Accounts............................. 24
Financial statements and financial statement schedules other than that
listed above have been omitted because the required information is
contained in the financial statements and notes thereto, or because such
schedules are not required or applicable.
...............................
* Incorporated herein by reference to the appropriate portions of the
registrant's annual report to security holders for the fiscal year ended
December 31, 1998. (See Part II)
17
(3) Exhibits
(Exhibits identified in parenthesis below, on file with the Securities and
Exchange Commission ("SEC"), are incorporated herein by reference as exhibits
hereto.
EXHIBIT NUMBER
- --------------
3.1 Amended Articles of Incorporation of the Company. (Exhibit 3.1 to
Registration Statement No. 333-53619.)
3.2 Regulations of the Company. (Exhibit 3.2 to Registration Statement
No. 333-53619.)
10.1 Plan of Reorganization and Distribution Agreement by and between the
Company and CBI. (Exhibit 10.1 to Registration Statement
No. 333-53619.)
10.2 Employee Benefits Agreement by and between the Company and CBI.
(Exhibit 10.2 to Registration Statement No. 333-53619.)
10.3 Services Agreement by and between the Company and CBI. (Exhibit 10.3
to Registration Statement No. 333-53619.)
10.4 Tax Separation and Allocation Agreement by and between the Company
and CBI. (Exhibit 10.4 to Registration Statement No. 333-53619.)
10.5* Convergys Corporation 1998 Long Term Incentive Plan. (Exhibit 10.5
to Registration Statement No. 333-53619.)
10.5.1* December 31, 1998 Amendment to Convergys Corporation 1998 Long Term
Incentive Plan.
10.6* Convergys Corporation Deferred Compensation Plan for Non-Employee
Directors.
10.7* Convergys Corporation Executive Deferred Compensation Plan.
(Exhibit 4.3 to Registration Statement No. 333-69633.)
10.7.1* January 1, 1999 Amendment to Convergys Corporation Executive Deferred
Compensation Plan.
10.8* Employment Agreement between the Company and James F. Orr and
December 16, 1998 Amendment to Employment Agreement.
10.9* Employment Agreement between the Company and William D. Baskett III
and December 16, 1998 Amendment to Employment Agreement.
18
10.10* Employment Agreement between the Company and Steven G. Rolls and
December 16, 1998 Amendment to Employment Agreement.
10.11* Employment Agreement between the Company and Robert J. Marino and
December 16, 1998 Amendment to Employment Agreement.
10.12* Employment Agreement between the Company and David F. Dougherty
and December 16, 1998 Amendment to Employment Agreement.
10.13* Convergys Corporation Employment Agreement with Brian C. Henry.
10.14* Convergys Corporation Employment Agreement with Ronald E. Schultz
and November 1, 1998 Amendment to Employment Agreement.
10.15* Convergys Corporation Supplemental Executive Retirement Plan.
10.16* Rights Agreement dated November 30, 1998 between Convergys Corporation
and The Fifth Third Bank. (Exhibit 4.1 to Form 8-A12B filed
December 23, 1998, File No. 001-14379.)
13 Portions of the Company's annual report to security holders for the
year ended December 31, 1998, as incorporated by reference including
the Selected Financial Data, Report of Management, Report of
Independent Accountants, Management's Discussion and Analysis and
Consolidated Financial Statements.
21 Subsidiaries of the Company. (Exhibit 21 to Registration Statement No.
333-53619.)
23 Consent of PricewaterhouseCoopers LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
...............................
* Management contract or compensatory plan required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K.
The Company will furnish, without charge, to a security holder upon request, a
copy of the documents, portions of which are incorporated by reference (Annual
Report to security holders and proxy statement), and will furnish any other
exhibit at cost.
19
(b) Reports on Form 8-K.
Form 8-K, date of report, November 24, 1998, reported the distribution
ratio and record date for the previously announced distribution of
Convergys from Cincinnati Bell Inc.
Form 8-K, date of report, December 4, 1998, reported the adoption of a
rights agreement between Convergys and The Fifth Third Bank, as rights
agent.
Form 8-K, date of report, December 31, 1998, reported the completion of
the spin-off of Convergys from Cincinnati Bell Inc.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CONVERGYS CORPORATION
March 29, 1999 By /s/ STEVEN G. ROLLS
---------------------------------------
Steven G. Rolls
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
Principal Executive Officer;
President, Chief Executive
JAMES F. ORR* Officer and Director
- --------------------------
James F. Orr
Principal Financial Officer;
STEVEN G. ROLLS* Chief Financial Officer
- --------------------------
Steven G. Rolls
Principal Accounting Officer;
Vice President and
ANDRE S. VALENTINE* Controller
- --------------------------
Andre S. Valentine
JOHN F. BARRETT* Director
- --------------------------
John F. Barrett
JUDITH G. BOYNTON* Director
- --------------------------
Judith G. Boynton
GARY C. BUTLER* Director
- --------------------------
Gary C. Butler
ROGER L. HOWE* Director
- --------------------------
Roger L. Howe
21
SIGNATURE TITLE DATE
- --------- ----- ----
STEVEN C. MASON* Director
- -------------------------
Steven C. Mason
CHARLES S. MECHEM, JR.* Chairman of the Board
- ------------------------- and Director
Charles S. Mechem, Jr.
JAMES F. ORR* Director
- -------------------------
James F. Orr
BRIAN H. ROWE* Director
- -------------------------
Brian H. Rowe
*By /s/ STEVEN G. ROLLS March 29, 1999
---------------------
Steven G. Rolls
as attorney-in-fact and on his behalf
as Chief Financial Officer
22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareowners of Convergys Corporation:
Our report on the consolidated financial statements of Convergys Corporation has
been incorporated by reference in this Form 10-K from page 30 of the 1998 annual
report to shareholders of Convergys Corporation. In connection with our audits
of such consolidated financial statements, we have also audited the related
financial statement schedule on page 24 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cincinnati, Ohio
February 18, 1999
23
CONVERGYS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Millions of Dollars)
- -------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------------
ADDITIONS
(1) (1) (2)
BALANCE AT CHARGED BALANCE
BEGINNING CHARGED TO OTHER AT END
DESCRIPTION OF PERIOD TO EXPENSE ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- --------- ---------- -------- ---------- ---------
YEAR 1998
- ---------
Allowance for
Doubtful Accounts $ 6.4 $ 4.2 $3.2(a) $ 4.0(b) $ 9.8
Deferred Tax Asset
Valuation Allowance $ 21.0 --- --- --- $21.0
Restructuring Reserve $ 24.9 --- --- $11.8 $13.1
YEAR 1997
- ---------
Allowance for
Doubtful Accounts $ 6.5 $ 4.5 $0.5(a) $ 5.1(b) $ 6.4
Deferred Tax Asset
Valuation Allowance $ 21.0 --- --- --- $21.0
Restructuring Reserve --- $35.0 --- $10.1 $24.9
YEAR 1996
- ---------
Allowance for
Doubtful Accounts $ 13.6 $ 1.7 $(5.6)(a) $ 3.2(b) $ 6.5
Deferred Tax Asset
Valuation Allowance $ 21.0 --- --- --- $21.0
Restructuring Reserve --- --- --- --- ---
(a) Includes amounts previously written off which were credited directly to
this account when recovered, acquired reserves and other adjustments.
(b) Primarily includes amounts written off as uncollectible.
24