In July 1998, the Company turned over operation of its Blythewood, South Carolina data center to Lockheed Martin. This data center has 3 mainframe and 6 mid range computers, which have over 8 terabytes of disk storage and are capable of processing over 841 million instructions per second and 2,731 commercial processing workloads, respectively. The Company is currently utilizing 77% of the mainframe capacity and 95% of mid-range capacity.
The Company's data center in Sydney, Australia has 4 midrange computers with over 150 gigabytes of disk storage and is capable of 190 commercial processing workloads. The Company is currently utilizing 80% of this capacity.
The Company considers special charges described below unusual events or unusual transactions related to continuing business activities.
The results of operations in 1998 include $13.3 million of special charges. These pre-tax charges include $3.7 million related to the acquisition of TLG and $9.6 million for the impairment of capitalized software development costs which resulted from certain technology related issues and changes in the Company's strategy (see "Special Charges" under Management's Discussion and Analysis).
The results of operations in 1996 include a net special credit of $3.4 million. This credit resulted from a pre-tax gain of $9.4 million related to the recovery of previously incurred litigation costs and a pre-tax charge of $6.0 million related to other litigation.
Because a significant portion of initial licensing revenues is recorded at the time new systems are licensed, there can be significant fluctuations in revenue from period to period. Set forth below is a comparison of initial license revenues by segment for 1999, 1998 and 1997:
The Company's services revenue consists primarily of Professional Services & ITO and BPO. Services revenue is derived from professional support services, which include implementation and integration assistance, consulting and education services and outsourcing services.
Employee compensation and benefits for 1999 increased 15% compared to 1998. The Company's acquisitions in 1999 and late 1998 (see Note 2 of Notes to Consolidated Financial Statements) accounted for approximately one half ($19.2 million) of the increase with the remainder attributable principally to higher salaries and related costs associated with the growth in professional services and BPO staffing. These increases are somewhat offset by the transfer of certain employee costs to computer and communication expenses as a result of the Company's data center outsourcing agreement with Lockheed Martin Corporation ("Lockheed Martin"). Had these employee costs not been transferred, 1999 employee compensation and benefits would have increased 16% by comparison to 1998. Compensation and benefits increased 7% ($5.8 million) internationally and 19% ($35.6 million) domestically.
Computer and communications expenses for 1999 increased 33% compared to 1998, due primarily to the data center outsourcing agreement with Lockheed Martin that the Company entered into at the beginning of the third quarter of 1998 and increased data center operating software license fees. As a result of the data center outsourcing agreement, certain costs previously included in employee compensation and benefits are now included in computer and communications expense. Had these employee costs not been transferred, 1999 computer and communications expenses would have increased 4% by comparison to 1998.
Depreciation and amortization of property, equipment and capitalized software costs for 1998 increased 23% compared to 1997 principally due to impairment charges of capitalized software development costs described below under "Special Charges and Accounting Changes." Excluding these charges, depreciation and amortization increased 7% principally due to higher amortization expense resulting from various releases of the Company's internally developed software products. As a percentage of revenue, depreciation and amortization expense before special charges remained relatively unchanged from 1998 to 1997.
Other costs and expenses for 1999 increased 132% compared with 1998. The acquisitions in 1999 and late 1998 (see Note 2 of Notes to Consolidated Financial Statements) contributed to an $11.3 million increase in other costs and expenses. The remainder is primarily attributable to decreased capitalization of software development costs and rent on new facilities. The Company reserved for uncollectible accounts of $12.4 million associated with its life and financial solutions business, primarily related to $8.3 million of accounts receivable from the Banking Division, and one property and casualty customer (see Note 3 to Consolidated Financial Statements).
Selling, general and administrative expenses for 1998 increased 10% compared to 1997. As a percentage of revenue, these expenses declined to 17% from 18% in 1997.
Amortization of goodwill and other intangibles for 1998 increased 8% compared to 1997, principally due to the amortization of costs associated with the acquisition of TLG and the Lockheed Martin outsourcing arrangement.
For the purposes of this analysis, the Company considers special charges to be unusual events or unusual transactions related to continuing business activities.
In the fourth quarter of 1999, the Company recorded special charges of approximately $26.6 million primarily related to its Banking Division. During this quarter and continuing into the first quarter of 2000, rising interest rates caused significant declines in mortgage loan originations and reduced profits for mortgage loan originators. Many existing and prospective customers of the Company's Banking Division to reevaluate their loan origination system projects and requirements. Consequently, the Company established reserves of approximately $8.3 million for accounts receivable and accrued revenue as a result of disputes with several significant Banking Division customers. The Company is in continuing dialogue with these customers and is in various stages of negotiations or resolution concerning these disputes. Furthermore, given the Company's estimate that interest rates will not decrease in the near term, the forecast of new licenses of the LoanXchange product was revised resulting in a $16.3 million write-off of Banking Division software. In addition, in the 1999 fourth quarter, the Company decreased the carrying value of several smaller software products by approximately $1.8 million (see Note 6 to the consolidated financial statements relative to these last two items).
As a result of 1999 fourth quarter changes in estimates related to two long-term services agreements accounted for under the percentage of completion method of accounting, the Company recorded a cumulative catch-up adjustment in the fourth quarter of 1999 of $8.4 million. The adjustment has been recorded as a reduction in Services revenues.
During 1999 third quarter, the Company commenced assessments of all major aspects of its business based upon the increasing rate of change in technology in its marketplace including among other things the Internet and the rapid adoption of eCommerce. In addition, the Company also initiated a number of international and domestic restructuring and cost reduction initiatives. This assessment included various international and domestic intangibles and capitalized software costs.
On September 23, 1999, the Company and Liberty Life Insurance Company and certain of its affiliates ("Liberty") entered into a confidential settlement agreement of previously disclosed litigation. As a part of the settlement, both the Company and Liberty agreed to release the other from all claims asserted and the lawsuit was dismissed. As a result of the settlement, the Company recorded a cash charge of approximately $9.6 million.
The results of operations in 1998 include $13.3 million of special charges. These pre-tax charges include $3.7 million related to the acquisition of TLG and $9.6 million for the impairment of capitalized software development costs which resulted from certain technology related issues and changes in the Company's strategy (see Note 6 of Notes to Consolidated Financial Statements).
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 has lead the Company to consider new business models that place less emphasis on initial license revenue in favor of recurring 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. The speed of this transition will be dependent upon the impact on revenues and the resulting impact on the Company's cash flows and debt levels.
The effective income tax rate (income taxes expressed as a percentage of pre-tax income or loss) on continuing operations including special charges and accounting changes was 36.4%, 39.7% and 37.4% for the years ended December 31, 1999, 1998, and 1997, respectively. The effective income tax rate on continuing operations before special charges and accounting changes was 37.2%, 37.8%, and 37.2% for the years ended December 31, 1999, 1998, and 1997, respectively.
For additional information on the discontinued operations, see Note 12 of Notes to Consolidated Financial Statements.
In June 1998, Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued, effective for fiscal years beginning after June 15, 1999, with earlier adoption encouraged. SFAS 133 requires companies to record derivative instruments on the balance sheet as assets and liabilities, measured at fair value. Gain or losses resulting from changes in the values of those derivatives are accounted for depending on the use of the derivative. The Company does not enter into derivative instruments except occasionally to hedge the foreign currency exchange and interest rate risk of specific projected transactions. The Company was not holding any derivative instruments at December 31, 1999 and 1998.
As of December 31, 1999, the Company had the following credit facilities: a $200 million line of credit expiring in 2002 that had $155 million outstanding; a $70 million term loan that matures on July 15, 2000; and a $5 million uncommitted line of credit that had $4 million outstanding. Because of the large net loss in the fourth quarter, the Company was in violation of one of the financial covenants of both the line of credit and the term loan. Amendments of the related agreements were executed in February and March 2000 that return the Company to compliance with these covenants. Additionally, the amendments include an extension of the term loan maturity to January 31, 2001 and, among other things, an increase in the interest rate payable on the term loan and line of credit, a security agreement covering the Company's assets and a restriction on the Company's ability to make acquisitions and certain similar investments and repurchases of the Company's common stock. Total funds available under the line of credit will be reduced to $180 million until April 1, 2001 at which time it will decrease to $125 million; the maturity has also been shortened to July 2001.
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.
The Year 2000 has caused an unprecedented level of investment in systems and remediation services that may adversely affect customers' decision 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.
To date, the Company has not experienced any note worthy system or application failures during the Year 2000 transition periods. Although some incidents were identified, a large percentage of the issues related to date and time stamps that contained erroneous values in the year field presented on reports or on-line screens. Of the few remaining issues not fitting this description, resolutions were either implemented in an expedient and efficient manner or procedures designed to mitigate customer impacts were adopted.
On January 1, 1999, certain member countries of the European Union established fixed conversion rates between their existing sovereign currencies and the euro and agreed to adopt the euro as their common legal currency on that date. It is also possible that some of the non-participating countries may also choose to convert to the euro at a later date. During the January 1, 1999 to December 31, 2001 transition period participating countries may conduct transactions in either their legacy currency or the euro. On January 1, 2002, new euro-denominated bills and coins will be issued, and by July 1, 2002, all legacy currency bills and coins will be withdrawn, finalizing the conversion to the euro.
The Company's operations have not proven to be significantly seasonal, though as with many companies in the software business, the fourth quarter historically tends to be the strongest quarter annually. Quarterly revenues and net income can be expected to vary at times. This is attributable principally to the timing of customers entering into license agreements with the Company. The Company is unable to control the timing of these decisions.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, cash flows and changes in stockholders' equity and comprehensive income present fairly, in all material respects, the financial position of Policy Management Systems Corporation and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
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. Actual results could differ from those estimates. Financial statement line items that include significant estimates include the allowance for uncollectible receivables, accrued revenues, accrued restructuring charges, goodwill and other intangibles, net, capitalized software and costs, net, and income tax balances.
The Company's revenues are generated primarily by licensing software systems and providing outsourcing and professional services to the global insurance and related financial services industries. All revenues are recorded in accordance with Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2") and Statement of Position 81-1, "Accounting for Performance of Construction-Type and Certain Product-Type Contracts" ("SOP 81-1").
Software systems are licensed under standard nonexclusive and nontransferable agreements, which generally have a noncancelable minimum term of six years and provide for an initial license charge and a monthly license charge. The initial license charge represents the grant of a right to use the software system currently available at the time the license is signed. It is recognized as revenue upon receipt of a contractual obligation and delivery of the software system provided the fee is fixed, determinable and probable of collection. The monthly license charge, which covers the right to use the product during the term of the agreement, also provides access to Maintenance, Enhancements and Services Availability ("MESA"). Under the maintenance provisions of MESA, the Company provides telephone support and error correction to current versions of licensed systems. Under the enhancement provisions of MESA, the Company will provide unspecified enhancements to the licensed systems, which the Company may deliver from time to time to licensees of those systems, if and when they become generally available. The monthly license charge is recognized as revenue on a monthly basis throughout the term of the MESA provision of the license agreement. Services Availability allows customers access to professional services, other than maintenance and enhancements, which are provided under separate arrangements during the MESA term. Customers can acquire perpetual rights to use the Company's software either at the time of the original license or at subsequent periods during the license term by paying additional license fees provided for in the contract. These fees are recognized as revenue when the perpetual rights are granted.
Debt securities included in the Company's investment portfolio for which there is a positive intent and ability to hold to maturity are carried at amortized cost. Debt securities that may be sold prior to maturity and all marketable equity securities are classified as available-for-sale and carried at fair value. The fair value is estimated based on quoted market prices for those or similar investments. Net unrealized gains and losses, determined on the specific identification method, on securities classified as available-for-sale are carried as a separate component of accumulated other comprehensive income.
The provision for income taxes and corresponding balance sheet accounts are determined in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). Under FAS 109, the deferred tax liabilities and assets are determined based on temporary differences between the basis of certain assets and liabilities for income tax and financial reporting purposes. These differences are primarily attributable to differences in the recognition of depreciation and amortization of property, equipment and intangible assets and certain software development costs and revenues.
The local currencies of the Company's foreign subsidiaries have been determined to be their functional currencies. Assets and liabilities of foreign subsidiaries are translated into United States dollars at current exchange rates and resulting translation adjustments are included as a separate component of accumulated other comprehensive income. Revenue and expense accounts of these operations are translated at average exchange rates prevailing during the year. Transaction gains and losses, which were not material, are included in the results of operations of the period in which they occur.
Certain prior year amounts have been reclassified to conform to current year presentation.
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 System, a proprietary software system. The Company intends to continue growing Legalgard's existing services business and developing the technology acquired.
In December 1998, the Company acquired CAF Systemhaus fur Anwendungsprogrammierung GmbH ("CAF"), headquartered in Gilching, Germany, and related entities for approximately $7.0 million. CAF's Visual Project Modeling Systems ("VP/MS") are designed to allow insurance companies to easily design and implement computer code to administer new insurance products with reduced programming cost and time-to market.
Depreciation and amortization charged to expense was $29.1, $26.4, and $27.6 million for the years ended December 31, 1999, 1998 and 1997, respectively.
Amortization charged to expense was $20.5, $10.8 and $10.6 million for the years ended December 31, 1999, 1998 and 1997, respectively. During 1999, the Company recorded $13.1, $29.6 and $10.4 million of intangible assets related to the acquisitions of Legalgard, DORN and FAS, respectively. During 1998, the Company recorded $20.4 and $2.6 million of intangible assets related to the acquisitions of TLG and CAF, respectively.
A summary of capitalized software costs is as follows (in thousands):
Interest cost incurred was $10.6, $2.9 and $3.7 million for the years ended December 31, 1999, 1998 and 1997, respectively. Interest cost capitalized was $0.2, $0.8 and $0.1 million during 1999, 1998 and 1997, respectively.
Also, under the above-described amendments, the term loan will mature on January 31, 2001. Borrowings under the term loan bear interest payable at per annum rates based upon LIBOR plus increasing spreads over the term of the loan from 2.75% to 4.75%. Additionally, the Company pays a per annum fee on the aggregate amount of the term loan commitment of .50% and further fees of 1%, 1.25% and 1.5% of the amounts outstanding at July 15, October 15, and December 15, 2000, respectively.
In June 1998, a Data Processing Services Agreement was completed between the Company and Lockheed Martin Corporation ("Lockheed Martin"). Under its terms, the Company turned over operations of its Blythewood, South Carolina, data center to Lockheed Martin on July 1, 1998. The agreement sets forth an annual fee for each of the ten years of the agreement, payable in monthly installments. The amount was determined based on baseline resources, however, it will be adjusted for over or under usage of resources, inflation, and benchmarking results. The Company also made deposits of $2.6 million and a $2.0 million in 1999 and 1998, respectively. These amounts will reduce future payments beginning in June 2003. The baseline payments are as follows (in thousands):
The Company occupies leased facilities under various operating leases expiring through 2014. The leases for certain facilities contain options for renewal and provide for escalation of annual rentals based upon increases in the lessors' operating costs. Rent expense under leases for facilities was $17.2, $12.8 and $10.0 million for the years ended December 31, 1999, 1998 and 1997, respectively.
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 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, attorney's 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 has been set for trial in December 2000. 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 March 10, 2000, 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, commenced a purported class action against the Company, its Chairman and three members of the Administrative Committee of the Company's 401(k) Retirement Savings Plan. The action 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.
Although the Company's time to respond to this complaint has yet to occur, the Company believes the claims are without merit and intends to mount a vigorous defense to the allegations.
An analysis of the income tax provision is as follows (in thousands):
Actual current tax liabilities are lower than tax expenses reflected above for 1999, 1998 and 1997 by $1.7, $16.9 and $2.0 million, respectively, for the stock option deduction benefit recorded as a credit to stockholders' equity.
Certain foreign subsidiaries of the Company have net operating loss carryforwards at December 31, 1999 totaling approximately $23.4 million, which may be used to offset future taxable income. The foreign carryforwards have no expiration period. The Company has a valuation allowance of $1.4 million at December 31, 1999, related to certain of the foreign net operating losses that it does not anticipate utilizing.
In February 1999, the Company created a Stock Employee Compensation Trust (the "SECT"). The purpose of the SECT is to purchase shares of the Company's common stock on the open market, which will be released to fund various compensation related plans as necessary. The SECT is a non-qualified grantor trust whose financial statements are consolidated with the Company's. Shares in the trust will be presented in the manner of treasury stock, as a reduction of stockholder's equity. During 1999, the SECT purchased 257,564 shares.
The Company offers the Policy Management Systems Corporation 401(k) Retirement Savings Plan to eligible employees. The Company matches 100% of the first 3% of salary contributed by the participant and matches 50% of the next 3% of salary contributed by the participant. Subject to limits imposed by the Internal Revenue Service, the Internal Revenue Code and the Plan, participants may also make additional before-tax and after-tax contributions that are not subject to matching contributions by the Company. Participants have several options as to how their contributions and vested Company contributions are invested. Non-vested and current Plan year Company contributions are invested in common stock of the Company. The Company's contribution on behalf of participating employees was $7.1, $5.3 and $3.8 million for the years ended December 31, 1999, 1998 and 1997, respectively.
Under the Plan, annual retainers for directors and annual bonuses for officers are paid partially in cash and partially in restricted stock. Generally, for those directors and officers who have achieved their annual targeted percentages of ownership, annual retainers or any annual bonuses will be paid 50% in cash and 50% in restricted stock (with a 50% addition to the stock portion to adjust value for restrictions). For directors and officers who have not achieved their annual targeted percentage of ownership, annual retainers or any annual bonuses will be paid 100% in restricted stock (with only a 25% addition to adjust value for restrictions). Directors and officers may elect not to participate in the Plan after having achieved 100% of the stock ownership guidelines applicable to their positions. In addition, other managers who receive an annual bonus may elect to participate in a manner similar to officers who are at guideline. Shares issued under the Plan generally vest ratably over five years. The aggregate number of shares of common stock that may be issued pursuant to all awards under the Plan is 500,000 shares. During 1999 and 1998, 47,730 and 1,836 shares respectively were issued under the Plan. Also during 1999, 367 shares vested and 1,913 shares were forfeited.
Options granted under the 1999 Plan have exercise prices at 100% of market value at date of grant and generally become exercisable at the rate of 25% per year beginning one year from the date of grant.
Options granted under the 1989 Plan have exercise prices at 100% of market value at date of grant and generally become exercisable either at the rate of 20%, 25% or 33 1/3% per year beginning one year from date of grant.
Participants in the 1993 Plan have exercise rights as a percentage of market value at date of grant as follows: 1993 - 105%; 1994 - 104%; 1995 - 103%; 1996 - 102%; 1997 - 101%; and 1998 - 100%. Options granted under the Plan in 1993 became exercisable as follows: 25% on January 1, 1995; 25% on January 1, 1997; and 50% on January 1, 1999. For individuals who were selected to participate in the Plan, the number of options granted and what percentage becomes exercisable on the above dates are determined according to formulas described in the Plan.
Option activity under all of the stock option plans is summarized as follows:
The following table summarizes information about fixed options outstanding at December 31, 1999:
Licensing revenues in 1997 include $1.8 million of initial license agreements with the purchaser of the discontinued property and casualty information services segment.
The Company sold its life information services segment in May 1998 for $23.8 million, net of selling expenses, resulting in a gain of $3.0 million, pretax and a gain of $0.1 million, net of tax. The difference in gain for tax purposes primarily results from the inability to deduct goodwill related to the sale for tax purposes. The operations of this segment are presented as discontinued operations in the accompanying Consolidated Statements of Operations. See Note 13 for income from operations of the discontinued segment.
On August 31, 1997, the Company completed the sale of substantially all of the assets of its property and casualty information services segment for cash proceeds of $2.9 million. The Company retained the working capital of this business (approximately $14.3 million). This transaction produced a non-recurring gain of $1.7 million. Also, during the third quarter of 1997, the Company abandoned a related business. As a result, the Company recorded a non-recurring charge of $1.8 million, principally related to capitalized software.
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.
5. Life information services. This segment provided information services, principally physician reports and medical histories, to US life insurers. It was sold in May 1998.
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.
As a result of 1999 fourth quarter changes in estimates related to two long-term services agreements accounted for under the percentage of completion method, the Company recorded a cumulative catch-up adjustment in the fourth quarter of 1999 of $8.4 million. The adjustment has been recorded as a reduction in Services revenues. In March 2000, certain business conditions and a new agreement led to the international adjustment of $5.3 million while the domestic adjustment of $3.1 million was a result of customer notification of the exercise of an early termination by convenience clause.
On January 21, 2000, the Company announced its intent to change the name of the Company to Mynd Corporation. Approval requires a two-thirds vote of the shareholders at the annual shareholders meeting scheduled for May 9, 2000. If approved by shareholders, the Company will formally change its legal name with relevant authorities including the New York Stock Exchange. Meanwhile, management intends to proceed with a campaign to promote acceptance and awareness of the new name.