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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

Commission file number 1-14379

CONVERGYS CORPORATION

201 East Fourth Street, Cincinnati, Ohio 45202
Telephone Number (513) 723-7000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

At January 31, 2003, there were 173,551,485 common shares outstanding, of which 17,767,457 were held in Treasury.

The aggregate market value of the voting shares owned by non-affiliates of the registrant as of June 28, 2002 was $3,242,469,318.

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 o

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.o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule12b-2 of the Securities Act of 1934). Yes x No o

___________________________________________
DOCUMENTS INCORPORATED BY REFERENCE

(1)           Portions of the registrant’s definitive proxy statement dated March 10, 2003, issued in connection with the annual meeting of shareholders (Part III)

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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, are forward-looking statements. Sometimes these statements will contain words such as “believes,” “expects,” “intends,” “should,” “will,” “plans” and other similar words. 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 expressly states that it has no current intention of updating 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: the consequence of terrorist attacks and the responses of the United States and other nations to such attacks; the loss of a significant client; difficulties in completing or integrating acquisitions; 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 clients operate; changes in the demand for the Company’s services; changes in technology that impact both the markets served and the types of services offered; and, consolidation within the industries in which the Company’s clients operate.

Part I

Item 1.             Business

General

Convergys Corporation (the Company or Convergys) is a global leader in the provision of outsourced, integrated billing, employee and customer care software and services. Convergys focuses on developing long-term strategic relationships with clients in employee- and customer-intensive industries including telecommunications, cable, broadband, direct satellite broadcasting, Internet services, technology, financial services and government. The Company serves its clients through its two segments: (i) the Information Management Group (IMG), which provides outsourced billing and information services and software; and (ii) the Customer Management Group (CMG), which provides outsourced marketing, customer support services and employee care services. The Company has developed a large base of recurring revenues by providing value-added billing and customer management solutions for its clients, generally under long-term contracts.

The Company was formed in May 1998 as a wholly owned subsidiary of Cincinnati Bell Inc. (CBI). In July 1998, CBI contributed to the Company the two reporting segments described in the preceding paragraph and the 45% interest in Cincinnati SMSA Limited Partnership, a provider of cellular telecommunications business in central and southwestern Ohio and northern Kentucky (the Cellular Partnership). On August 13, 1998, approximately 10% of

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the common shares of the Company were issued to the public. On December 31, 1998, the remaining shares held by CBI were distributed to CBI shareholders.

The Company files annual, quarterly, special reports and proxy statements with the SEC. These filings are available to the public over the Internet on the SEC’s Web site at http://www.sec.gov and at http://www.convergys.com. You may also read and copy any document the Company files with the SEC at its public reference facilities in Washington, D.C. You can also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. You can also inspect reports, proxy statements and other information about Convergys at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.

Pursuant to Rule 12b-23 under the Securities Exchange Act of 1934, as amended, the industry segment and geographic information included in Item 8, Note 15 of Notes to Financial Statements, are incorporated herein by reference in partial response to this Item 1.

Industry Overview

Recently, the communications, technology and financial services markets have experienced increased competition as a result of several factors including advances in technology, globalization and deregulation. As a result, billing, customer management and employee care solutions, which utilize software-based information systems and services to identify, attract, bill and retain customers and care for employees’ human resource needs, have become a strategic necessity for companies in these industries as they seek to remain competitive.

The communications industry, which includes wireless and wireline telecommunications, cable, cable telephony, broadband, direct satellite broadcasting and xSP (i.e., Internet Service Providers, Network Service Providers), has become increasingly competitive as a result of deregulation, convergence, the development of new technologies and global industry consolidation. Deregulation and the development of new technologies have also created new entrants. Accordingly, these communication companies require flexible and cost-effective information systems to support their operations. As service offerings continue to broaden and competition continues to increase, the requirements of information systems are becoming increasingly complex. Many providers are finding that the commitment of financial and human resources, as well as the time required to develop these systems internally, has become increasingly costly. As a result, many companies are turning to third party vendors, such as Convergys, for their information systems.

The emergence of the Internet and other new technologies has created additional channels for customer support and employee care. Where companies once provided customer support and employee care through paper or telephone-based care centers, these emerging technologies and shifts in consumer preferences now require support to be offered through multi-channel contact centers. These rapid changes in technology, as well as growing

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competition and financial pressures, are making it increasingly difficult for companies, particularly in the communications, technology and financial services industries, to maintain in-house support functions to handle all of their customer management and employee care needs cost-effectively. Companies in these industries as well as many others are increasingly turning to outsourcing providers for customer support and employee care services. In CMG’s multi-channel contact centers, CMG service agents are able to provide customer support and employee care through a full range of Web-enabled services ranging from self-care to chat to click-to-live-agent in addition to telephone-based agent services.

Convergys is unique among its peers in that it offers outsourced billing, customer management and employee care services in end-to-end solutions. It is anticipated that companies will continue to focus on their core competencies and seek to benefit from the advantages that outsourcing can provide. These advantages include: (i) technologically advanced, scalable systems and software which enable rapid competitive response; (ii) cost savings resulting from economies of scale achieved by leveraging investments in technology, data processing facilities and customer service centers; (iii) improved time-to-market for new products/services, whether for existing companies or new entrants; and (iv) expertise to target, acquire and retain customers more effectively.

Although current weakness in the global markets, especially in the telecommunications sector, has caused telecommunication providers to reduce or postpone further investment in their information systems, the market for billing information systems and services is estimated to grow 9% annually over the next three years from $56 billion in 2002 to $73 billion in 2005. Additionally, based on estimates from leading industry analysis groups, including Gartner Dataquest and IDC, the combined spending in billing information systems, customer management and employee care services markets is expected to increase 7% annually from $538 billion in 2002 to $666 billion in 2005. The portion of this combined market that is outsourced is expected to increase 19% annually from $80 billion in 2002 to $134 billion in 2005.

Strategy

Convergys’ strategy for growth is designed to capitalize on the trends in the industries where it focuses: demand and competition in the communications, technology and financial services industries; need for complex, highly scalable communications billing systems; the continuing trend toward outsourcing of billing, customer support and employee care services; a rising trend for a single point provider of outsourced human resource services; and demand for the use of new technologies and new disciplines in providing customer support and employee care services.

Specifics of the strategy include:

Leveraging Industry Leadership Position

Convergys is a global leader in providing complex, highly scalable billing solutions to the communications industry. The Company’s strategy is to use this position to be the billing services provider of choice for wireless, wireline, cable, cable telephony, broadband, direct broadcast satellite and xSP companies. The strategy includes being positioned to provide

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its component-based, next-generation framework to its current clients as they seek to introduce new services, to existing service providers who are not clients that outgrow their current billing systems and to new entrants as they emerge.

With respect to customer care services, Convergys’ strategy is to leverage its leadership position in the industry to provide a growing array of customer support services through its multi-channel contact centers. These services will be focused principally, but not exclusively, on the needs of companies in the communications, technology and financial services industries. Additionally, Convergys remains committed to offering its clients the option of offshore services. As evidenced by the recent expansion of its customer service center in India, the Company will continue to be at the forefront in identifying new labor markets and operating contact centers in locations around the globe based on client demand.

With respect to employee care services, Convergys seeks to leverage its core strengths in operating complex software and in integrating employee contact technologies and services to provide clients with a more cost-effective single point of contact for outsourced human resource services. These services include health and welfare administration, defined benefit and defined contribution administration, payroll administration and payroll processing, recruiting and staffing administration, personnel and learning administration.

Pursuing International Growth

The Company believes that developments in the international communications market position Convergys for significant international growth for IMG. Historically, international revenues have accounted for less than 10% of the Company’s revenues. However, as deregulation in the international market leads to increased competition and industry consolidation, Convergys believes that the demand for its highly scalable, complex billing systems will increase. Additionally, despite a delay caused by current global weakness, the global communications industry is on the verge of deploying the next-generation (third) of cellular technology (known as 3G). 3G provides enhanced capabilities, primarily high-speed data along with existing wireless voice services. Service providers will require more advanced billing systems to be able to bill for the broad range of wireless data and Internet services that can be provided via 3G. Convergys is investing in its systems’ capabilities, particularly its global, end-to-end, wireless billing system, Atlys, and in its international sales and marketing efforts to realize this market potential. In addition to Europe, Convergys is expanding its presence in the Asian Pacific region, Latin America and the Middle East.

Deploying Aggressive Sales and Marketing Efforts

Convergys continues to invest in its sales and marketing efforts to realize fully its market potential. The Company’s sales force is structured to serve existing clients effectively and to capture new clients both domestically and internationally. Similarly, in recent years, Convergys has been implementing a marketing and business development plan with the goals of increasing the Company’s visibility in the vertical markets it serves, leading the Company’s product development efforts and pursuing technology-based alliances to meet market needs. The Company’s plan for raising its visibility includes a market-focused

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advertising campaign, regular briefings and personal visits with clients, prospects and industry analysts, speaking engagements, articles and white papers, and continual improvement of the Company’s Web site. Marketing is leading the Company’s product development efforts by driving its product strategy roadmap and by defining the features and functionality to be incorporated in the Company’s products and services. The Company’s business development plan is focused on pursuing technology-based alliances in which the alliance partners’ technological capabilities are integrated into and delivered as an integral part of the Company’s offering.

Pursuing Strategic Acquisitions and Alliances

Convergys has a history of enhancing internal growth through acquisitions. Additionally, the Company continues to pursue alliances with leading technology and systems integration companies to expand the market leadership of its solutions and the Company’s distribution channels. The Company believes that consolidation in its industry will continue and that the Company will continue to pursue acquisitions and alliances that expand its client base, add new capabilities, enable it to accelerate its product development efforts or continue its geographic expansion.

Products and Services

IMG

IMG serves clients principally by providing and managing complex billing and information software that addresses all segments of the communications industry, including wireless, wireline, cable, cable telephony, broadband, direct broadcast satellite and xSP. IMG’s component-based, next-generation framework supports the creation of billing and customer care solutions ranging from a single module to the combination of modules into application suites to a complete, end-to-end billing system. Its global, three-tiered billing product portfolio gives its clients a flexible migration path to expand their billing and customer care systems without loss of their initial investment. IMG’s clients can upgrade if, and when, their economic models point to the need for additional capabilities. IMG’s three-tiered family of products includes:

End-to-End Products

End-to-end products address the broad range of convergent billing and customer care functionality for well-defined market segments such as wireless, cable/broadband and xSP. End-to-end products are full-featured, with built-in business logic and business rules that map the product to the needs of a particular target segment. The end-to-end products are offered with a unique, core-custom option that allows operators to modify the products to meet their specific requirements, while still being able to take advantage of IMG-funded product upgrade release plans. Convergys’ end-to-end software systems include:

Atlys®

Atlys is a comprehensive, end-to-end billing and customer care solution that supports the needs of wireless network operators competing in a global wireless voice and data market. Atlys possesses many key advantages that enable

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operators to realize fast time to market for new services and a greater return on their overall investment. Some of Atlys’ key advantages are the following:

•          Atlys supports both voice and data services, while still supporting the specific business rules unique to wireless.

•          The architecture supports open interface capabilities through Application Programming Interfaces (APIs), giving operators added flexibility.

•          Atlys supports real-time processing through the entire customer care business process—from mediation to activation, to rating and billing.

•          Atlys provides operators the flexibility of supporting pre- and post-paid subscribers on a single database.

ICOMS

The Integrated Communications Operations Management System (ICOMS) solution is designed specifically for the broadband convergent video, high-speed data and telephony market. It incorporates the power and flexibility of Convergys’ industry-proven cable television subscriber management system with the market-leading integrated support of high-speed data and wireline telephony. The net result is a convergent solution uniquely designed to meet cable and broadband operators’ subscriber, billing and operations management requirements. The ICOMS solution provides broadband operators with control and flexibility to sharpen their competitive edge, expand market penetration, increase revenues, decrease costs and differentiate themselves from their competition. Because ICOMS is designed specifically for the cable television, high-speed data and cable telephony markets, broadband operators can serve all three of these markets with a single billing solution. The operator gains efficiencies and decreases costs by eliminating redundant processing and the required maintenance of multiple systems. With a single billing system, the operator can maintain all of its customer data in a single database. This provides the operator with a unified view of its customer, thus enhancing marketing opportunities, reducing errors and streamlining customer service processes.

WIZARD®

The WIZARD solution is designed to serve new-generation multimedia operators including direct broadcast satellite, direct-to-home, cable, and cable telephony providers, by allowing them to extend their offerings to support the new convergent era that includes voice, video and data services. To address this rapidly evolving industry, WIZARD combines a comprehensive customer service system component and advanced billing and rating capabilities.

Catalys®

Catalys, IMG’s proven billing and customer care solution for the Internet marketplace, helps Internet service providers tackle industry-wide challenges such as controlling costs, accelerating revenue growth and supporting dynamic business models. It also assists them in better differentiating their products and services,

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maximizing the value of each customer interaction, and expanding their business strategically and with agility. Catalys helps to control operational costs by minimizing installation timeframes. Catalys also supports robust customer care capabilities with multiple modes of access (customer service representatives, self-care, interactive voice response and personal digital assistants) thereby lowering overall call center contact costs and maximizing usage of more cost-efficient contact methods.

Application Suites

For providers that require complex system enhancements or replacements to address convergent services needs with broad functionality, IMG offers application suites. These suites may be pre-integrated to provide cost-effective, add-on functionality or may be custom-configured using standard APIs to meet client-specific needs when an out-of-the-box solution is not the best fit. Further, IMG’s application suites contain industry-specific business rules that ensure the proper interoperation of the modules. Like IMG’s application modules, these suites have well-defined APIs and can be rapidly deployed in existing operations support systems (OSS). Convergys IP Suite helps service providers realize the revenue potential of true convergence by supporting the introduction of next-generation services. The Convergys Settlement Suite provides convergent service providers with the ability to manage partner relationships by supporting contractual agreements with content and merchant settlement partners.

Application Modules

In cases where a service provider desires to implement a modular approach to its OSS, or needs to upgrade or replace a specific part of its OSS capability with a convergent software solution, Convergys offers a variety of application modules. Convergys application modules support distinct business functions with robust performance and well-documented APIs, and are designed to be easily integrated into a client’s existing OSS environment or with IMG application suites and end-to-end products. For example, the highly flexible and convergent rating and billing application module, Geneva™ Active Revenue Management, reduces time to market and achieves cost efficiencies through highly configurable applications rather than time-consuming or costly customizations. Some other key features of Geneva include the following:

•          Convergent Pre-Pay — Allows pre- and post-paid accounts to be integrated on a single database, enabling a single view of customers (e.g., a family group) with mixed pre- and post-paid accounts, improving customer loyalty and reducing operational costs.

•          Real-time, credit-card style, pre-transaction authorization against both pre-paid and post-paid accounts -- This is supported by Geneva’s carrier grade real-time functionality, which delivers robust failure recovery and load-balancing to guarantee the immediacy and high availability of service needed by volume operators in the e/m-commerce world.

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•          Catalog partitioning — Enables operators to support separate pricing and product catalogs for each branded service provider within a single instance of Geneva.

•          Comprehensive settlement capabilities — In addition to content settlement, Geneva also supports voice and IP interconnect as well as mobile roaming agreements, making it uniquely placed to support retail, wholesale and partner billing from a single instance.

Other examples of Convergys’ application modules include Convergys Mediation Manager, which collects and correlates raw billing data from a variety of networks and service nodes for use by service providers’ OSS, and Convergys Activation Manager, which provides an activation gateway that isolates clients’ billing functions from network complexities. Using IMG modules, clients can build upon their initial investments with Convergys to enhance continually their OSS capabilities.

IMG provides its software products in one of three delivery modes: outsourced, licensed or build-operate-transfer (BOT). In the outsourced delivery mode, IMG provides the billing services by running its software in one of its world class data centers. In the licensed delivery mode, the software is licensed to clients who prefer to perform billing and customer care internally. Finally, the BOT delivery mode entails IMG implementing and initially running its software in the client’s data center with the option of transferring the operation of the center to the client at a future date.

In addition to the end-to-end products described above, the Company also provides outsourced billing services using legacy applications (i.e., Macrocell, Cellware, Cablemaster®) that have been customized to meet specific client needs.

In 2002, 60% of IMG’s revenues were for outsourced data processing services generated from recurring monthly payments from its clients based upon the number of client subscribers or bills processed by IMG in its data centers. Most of IMG's wireless data processing agreements, which are typically 5-year agreements, are priced on a monthly, per subscriber basis. As the number of subscribers processed by our system increases, the average per unit price for our services decrease (i.e. volume discounts). The remainder of IMG's wireless data processing agreements contain per subscriber rate reductions triggered by the passage of time, typically a contract anniversary date. Professional and consulting services for software maintenance and enhancements accounted for approximately 19% of IMG’s 2002 revenues. IMG’s remaining revenues were primarily from software license arrangements and international sales. International revenues consist of a mix of professional and consulting, and license and other revenues.

CMG

CMG provides outsourced customer management and employee care services for its clients utilizing its advanced information systems capabilities, human resource management skills and industry experience.

Customer Management Services

The Company’s customer managerment services include:

Customer Service — CMG handles customer contacts that range from initial product information requests to customer retention initiatives. This involves a variety of activities including gathering and analyzing customer information; describing product

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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 — CMG is responsible for managing the entire customer relationship including obtaining current orders, increasing purchase levels, introducing new products, implementing product initiatives and handling all inquiries related to products, shipments and billing.

CMG delivers these services using a variety of tools including computer telephony integration (CTI), interactive voice response (IVR), advanced speech recognition (ASR) and the Internet through agent-assisted and self-service channels. Phone and Web-based agent-assisted service channels provide for live agent interaction while allowing for immediacy of interaction and the ability of agents, with the required level of expertise, to react to individual customer needs. Self-service channels, including automated telephone-based solutions such as ASR, allow customers to transact business or find their own assistance without the help of a live agent.

Employee Care Services

The Company provides its clients with an outsourcing solution that allows them to deliver world class human resource and payroll services efficiently to their employees (active and retired). The Company’s services support human resource activities that span the lifecycle of an employee, including: recruiting, hiring and staffing; annual benefits enrollment and ongoing benefits administration; defined benefit and defined contribution administration; payroll administration and payroll processing; learning and training; mergers and acquisition support; and general human resource and administration services.

Convergys’ fully integrated Employee Service Centers provide its clients’ employees and managers with a single point of contact to access and process information, ask questions and enroll in various benefit programs. Technologies such as the Internet, ASR, IVR, CTI and knowledge-based management (KBM) help create a virtual human resources department that provides employees and managers the information they need, when they need it. The Company’s employee self-service capabilities enable employees and managers to access their human resource information and perform various transactions 24 hours a day.

CMG generally receives a fee based on staffing hours or number of calls handled by the agent assigned to a program. Supplemental revenues can sometimes be earned depending on service levels or achievement of certain performance measurement targets. These supplemental revenues are recognized by the Company only after it has achieved the required measurement target. Additional fees are charged for service enhancements or system upgrades requested by clients. Fees for employee care services generally are billed on a flat monthly rate or a rate per client employee as the services are rendered.

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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’s billing and customer management software platforms process billing information for monthly customer statements for approximately 38% of U.S. wireless subscribers. In terms of Convergys’ revenues, IMG’s largest wireless clients during 2002 were ALLTEL, AT&T Wireless and Sprint PCS.

IMG provides cable and direct broadcast satellite billing services both domestically and internationally. IMG’s cable billing systems also support bundled telephone and entertainment services provided by cable television system operators in the US and Europe. In terms of Convergys’ revenues, IMG’s largest cable clients during 2002 were AOL Time Warner, Comcast, Cox Communications, RCN, ISH and Telewest.

CMG

CMG principally focuses on developing long-term strategic outsourcing relationships with large clients in the communications, technology and financial services industries for customer management services and large employers in any industry or government for employee care services. CMG focuses on these type of clients because of the complexity of services required, the anticipated growth of their market segments and their increasing need for more cost-effective customer management and employee care services. In terms of Convergys’ revenues, CMG’s largest clients during 2002 were AT&T, AT&T Wireless, Comcast, DIRECTV, SBC Communications and Sprint PCS. CMG’s largest employee care clients were AT&T, Bristol-Myers Squibb, General Electric, Lucent, Marriot, Pfizer and Sodexho. During 2002, the Company announced a 7-year outsourced employee care contract with the State of Florida.

Both of the Company’s segments derive significant revenues from AT&T Wireless and AT&T, which are independent companies. Revenues from AT&T Wireless were 19.7%, 18.2% and 19.1% of the Company’s consolidated revenues for 2002, 2001 and 2000, respectively. Revenues from AT&T were 10.5%, 14.9% and 17.8% of the Company’s consolidated revenues for 2002, 2001 and 2000, respectively.

Operations

The Company operates two billing data centers, one in Orlando, Florida and the other in Cincinnati, Ohio comprising, in total, approximately 150,000 square feet of space. Over 100,000 terminals are connected via 98 external networks to the Company’s data centers. Over 340 data center operations and production support employees service the Company’s data centers.

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The Company’s technologically advanced data centers provide 24 hour per day, 7 day a week availability (with redundant power and communication feeds and emergency power back-up supplied by diesel and turbine generators) and are designed to withstand most natural disasters. Approximately 50 million wireless and cable bills are processed on a monthly basis from the Company’s mainframe and open systems facilities. The facility infrastructure includes approximately 4,500 MIPS (millions of instructions per second) mainframe capacity, over 450 production servers and over 280 terabytes (trillion bytes) of information and provides back-up capacity in the unlikely event that any one data center becomes inoperative.

At December 31, 2002, the Company operated 46 contact centers with 24 hour per day, 7 day a week availability, averaging approximately 79,000 square feet per center with over 27,000 available production workstations.

The capacity of the Company’s data center and contact center operations, coupled with the scalability of its billing and customer management and employee care systems, enable the Company to meet initial and ongoing needs of large-scale and rapidly growing companies and government entities. By employing the scale and efficiencies of common application platforms, the Company is able to provide client-specific enhancements and modifications without incurring many of the costs of a full custom application. This allows the Company to position itself as a value-added provider of billing, customer and employee support products and services.

Technology, Research & Development

The Company intends to continue to emphasize the design, development and deployment of scalable billing, customer management and employee care systems to increase its market share, both domestically and internationally. During 2002, the Company spent $113.7 million for research and development to advance the functionality, flexibility and scalability of its products and services. The result of this investment led to the following recent IMG product enhancements:

Atlys® Release 9.1

Release 9.1 builds on Atlys’ open architecture with additional XML APIs across numerous subsystems. These APIs further enhance Atlys’ ability to interface and communicate with external OSS software and content provider systems and to enhance partner relationship management. Additionally, the latest version expands marketing options for next-generation services since operators can use Atlys’ dynamic event definition to configure new services quickly as they bring next-generation convergent offerings to market. Also, the latest release provides enhanced integrated pre-paid capabilities.

ICOMS Release 5.0

The new version of ICOMS integrates the event-independent capabilities of Convergys’ Geneva™ rating engine for Internet telephony and incorporates powerful new business process tools to provide cable and broadband service providers with enhanced support for new transaction-based offerings. With ICOMS Release 5.0, operators can provision new services more quickly, accurately and cost-effectively. ICOMS’ Provisioning Transaction Manager (PTM) provides an automated, configurable and open standards output to integrate with Convergys Activation Manager for real-time,

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flow-through provisioning, or to share data with third-party provisioning systems. Operators using the latest version of ICOMS also have the ability to support and manage more effectively advanced customer premise equipment (CPE). These devices enable subscribers to enjoy next-generation services such as Internet telephony from the same unit through which they receive video or high-speed Internet service.

WIZARD® Release 7.6

The new version incorporates numerous enhancements that enable cable, satellite and broadband service providers worldwide to support and track their customer premise equipment, care for their subscribers and define bill time discount options more effectively. With WIZARD Release 7.6, operators have the ability to support and manage more effectively the advanced set-top boxes and multimedia terminal adapters that provide their customers ready access to such next-generation services as video-on-demand, gaming, Internet telephony and interactive TV.

Mediation Manager Release 3.0

The latest release includes Mediation Manager’s ability to perform as a charging gateway function (CGF) for GPRS networks and its dynamic event creation. Together, these enhancements enable the rapid and cost-effective introduction of new next-generation offerings with increased flexibility and ease of use.

Activation Manager Release 3.0

The latest release features enhanced GUI that helps operators more easily, quickly and cost-effectively configure their networks and workflow processes.

Convergys IP Suite Release 2.1

This new release of Convergys’ carrier-grade application suite incorporates enhanced activation and mediation modules that strengthen multi-service operators’ ability to deploy advanced enterprise and residential voice, video and data services on their IP-enabled networks.

The Company’s customer management and employee care contact centers employ advanced technology that integrates digital switching, intelligent call routing and tracking, proprietary workforce management systems, case management tools, proprietary software systems, ASR, IVR, CTI, Web-based tools and relational database management systems. This technology enables the Company to improve its call, Web and e-mail handling and personnel scheduling, thereby increasing its efficiency and enhancing the quality of the services it delivers to its clients and their customers and employees.

The Company’s intellectual property consists primarily of proprietary business methods and software systems protected under copyright law, by U.S. and foreign patents and applications, and by registered or pending trademarks and service marks.

The Company owns 12 patents, which protect technology and business methods used both to manage internal systems and processes effectively and to provide customer care and billing services to the Company’s clients. The first of these patents was issued in May

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1998, while the most recent patent was granted in November 2002. These patents have a life of 17 years. Additional applications for U.S. and foreign patents currently are pending.

The Company’s name and logo and the names of its primary software products are protected by trademarks and service marks that are registered or pending in the U.S. Patent and Trademark Office and under the laws of more than 50 foreign countries.

Employees

The Company employs approximately 48,800 people, 44,400 of whom work for CMG, 3,700 of whom work for IMG, with the remainder working in various corporate functions.

Competition

The industries in which the Company operates 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 and employee care capabilities internally; (ii) other billing software and/or services companies such as ADC, Amdocs, CSG Systems, DST Systems, Portal Software and SchlumbergerSema (a unit of Schlumberger Limited); (iii) other customer management companies, such as APAC Customer Services, SITEL, Sykes, TeleTech Holdings and West Teleservices; and (iv) other employee care providers such as Accenture, ADP, EDS, Exult, Fidelity, Hewitt Associates, Mellon Financial Corporation and Towers Perrin. 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 technological expertise, service quality, sales and marketing skills, the ability to develop customized products and services and the cost of services. The Company differentiates itself from its competitors based on its size and scale, advanced technology, service quality, breadth of services provided, industry and client focus, financial resources, cost of services and business reputation.

Cellular Limited Partnership Interest

The Company owns a 45% limited partnership interest in the Cellular Partnership. The population of the territory served by the Cellular Partnership is approximately 5 million persons. The Company accounts for the partnership interest under the equity method of accounting. In 2002, the Company’s equity in earnings of the Cellular Partnership was $6.4 million and the Company received $3.6 million in cash distributions of Cellular Partnership earnings.

Cingular Wireless LLC is the general partner and a limited partner in the Cellular Partnership with a combined partnership interest of approximately 53%. The Cellular Partnership conducts its operations as a part of the Cingular Wireless joint venture between the wireless units of SBC Communications and BellSouth Corporation. The Cellular Partnership Agreement authorizes the general partner to conduct and manage the business of the Partnership. The Company, as a limited partner, does not take part in, or interfere with, the day-to-day management of the Cellular Partnership by the general partner. Limited partners are entitled to their percentage share of income and cash distributions.

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Risks Relating to Convergys and its Business

Client Industry Consolidation and Failure to Retain Clients Could Harm Business

The Company relies on several significant clients for a large percentage of its revenues. The Company’s three largest clients, AT&T Wireless, AT&T and Sprint PCS represented approximately 39% of Convergys’ 2002 revenues. Convergys maintains separate contracts with various operating units within each client. These separate contracts have varying expiration dates, payment provisions, termination provisions and other terms and conditions. Therefore, the Company is not substantially dependent on any particular contract with any particular client. However, the loss of any one of these significant contracts or clients would have a materially adverse effect on the business, results of operations and financial condition of the Company.

Please refer to Item 7 under the heading “Client Concentration” for further information on the IMG relationship with Sprint PCS.

Convergys serves clients and industries that have experienced a significant level of consolidation in recent years. The Company cannot assure that additional consolidating transactions will not occur in which Convergys’ clients acquire additional businesses or are acquired. The loss of any current significant client contract resulting from consolidation activity could have a materially adverse effect on the business, results of operations and financial condition of the Company.

The Lack of Client and Industry Success Could Adversely Affect Operating Results

The Company’s client concentration makes it vulnerable to a reduced need for its services by its client base. Convergys’ revenues are dependent on the success of its clients. If clients are not successful, the amount of business that they outsource may be diminished. Thus, although the Company has signed contracts, many of which contain minimum revenue commitments, to provide services to its clients, there can be no assurance that the level of revenues to be received from such contracts will meet expectations. In addition, several clients, particularly in the communications and technology industries, have experienced substantial price competition. As a result, the Company may face increasing price pressure from such clients, which could negatively affect its operating performance. Furthermore, the recent general economic downturn has produced a slow down in the growth rate at which certain billing and customer management services are outsourced, and such slow down has had an adverse effect on the growth of the business, results of operations and financial condition of the Company.

Difficulties in Completing and Integrating Acquisitions Could Adversely Affect the Company’s Growth Rate

Convergys’ growth has been enhanced through acquisitions of other businesses including their products and licenses. The Company continues to pursue strategic acquisitions. If the Company is unable to make appropriate acquisitions on reasonable terms, whether for cash, Company securities or both, it may be difficult for the Company to achieve the same level of growth as historically achieved.

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In addition, when considering an acquisition, the Company determines whether such acquisition will allow it to achieve certain objectives including, without limitation: operational synergies, reduced costs and expenses, increased revenues, additional clients, increased market share, new products and capabilities and geographic expansion. To the extent that the Company is unable to achieve its planned objectives from an acquisition, such failure may affect its growth rate.

Risks Inherent in Conducting Business Internationally Could Adversely Affect Operating Results

Convergys operates businesses in many countries outside the United States, which are located throughout North and South America, Europe and the Asian Pacific Region, and the Company may expand through start-up operations and acquisitions into additional countries and regions. In addition to the integration issues discussed above, there are certain risks inherent in conducting business internationally, including: exposure to currency fluctuations, longer payment cycles, greater difficulties in accounts receivable collection, difficulties in complying with a variety of foreign laws, unexpected changes in regulatory requirements, difficulties in staffing and managing foreign operations, political instability and potentially adverse tax consequences. There can be no assurance that one or more of such factors will not have a materially adverse effect on the international operations and, consequently, on the business, results of operations and financial condition of the Company.

A Variety of Factors Influence Operating Results and Cause Fluctuations in Such Results

Convergys’ future operating results may vary and reduced levels of earnings could be experienced. Fluctuations in its operating results could result from a variety of factors including: the timing of new product and service announcements by the Company or its competitors, changes in pricing policies by the Company or its competitors, market acceptance of new and enhanced versions of the billing, customer management and employee care solutions of the Company or its competitors, the size and timing of significant contracts, decisions by key clients to curtail or increase outsourcing activities, changes in the Company’s strategy, the introduction of alternative technologies, the effect of acquisitions and the integration thereof and industry and general economic factors. In addition, the businesses of Convergys’ clients are seasonable and vary by quarter. The Company has limited to no control over many of the above factors.

Convergys’ expense levels are based, in part, on its expectations as to future revenues. If the Company loses one or more significant clients, or if the revenues from any such client or clients decline, or if a significant contract is not implemented in the time frame and budget anticipated, its operating results are likely to be adversely affected unless and until it is able to reduce its expenses proportionally or successfully negotiate contracts with new clients to generate additional revenues at a comparable level.

Intense Competition Could Adversely Affect Operating Results

The Company faces significant competition in its markets and it expects that the level of price, product and service competition will continue to increase. The principal competitive factors in the Company’s industry are technological expertise, service quality, sales and

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marketing skills, the ability to develop customized products and services and the cost of services. The Company differentiates itself from its competitors based on its size and scale, advanced technology, service quality, breadth of services provided, industry and client focus, financial resources, cost of services and business reputation. The trend towards international expansion by foreign and domestic competitors and continuous technological changes may bring new and different competitors into the Company’s markets. Depending on the nature of their product and service offerings and pricing practices, as well as the timing and circumstances of their entry into our markets, the Company’s market share could be adversely affected.

War and Terrorist Attacks Could Disrupt Operations

The risks of war and potential terrorist attacks on the Company’s operations cannot be estimated. Although Convergys strives to provide appropriate redundancies and back-ups for its systems and facilities and the Company has instituted internal procedures for crisis management, war and terrorist attacks could disrupt our operations.

Item 2.             Properties

The Company leases space for offices, data centers and contact centers on commercially reasonable terms. Domestic facilities are located in Arizona, California, Colorado, Connecticut, Florida, Georgia, Idaho, Illinois, Kansas, Louisiana, Mississippi, Missouri, Nebraska, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington and Wisconsin. International facilities are located in Belgium, Brazil, Canada, China, England, France, Germany, India, Israel, Italy, Japan, Korea, the Netherlands, Portugal, Singapore, Spain, Switzerland, Taiwan and Thailand. Upon the expiration or termination of any such leases, the Company could obtain comparable office space.

The Company is a party to a financing transaction related to its office complex in Orlando, Florida. Under the terms of the financing transaction, which was structured as a synthetic lease, a special purpose entity (Trust) owns the office complex and leases it to the Company. The Trust serves as a conduit between an unrelated commercial lender and the Company and the only substantive purpose is to lease the office complex to the Company. The Company has not made any equity investments in the Trust; nor has it provided any financing to the Trust; and it does not control the operations of the Trust. Furthermore, no Company employee or director has any ownership interest in the Trust. The owner of record of the Trust has made an initial substantive residual equity capital investment that has been at risk during the entire term of the lease.

The lease had an initial term of three years, with two one-year renewal options. As the initial term expired at the end of 2001, the Company exercised the first one-year renewal option; and in December 2002, the Company exercised the second one-year renewal option. As of December 31, 2002, the assets and liabilities of the Trust were comprised primarily of the office complex and $65 million bank debt used to fund the construction of the office complex. The Company’s lease payment includes a variable interest component, but the Company effectively has converted the variable interest rate to a fixed interest rate of 4.36% through an interest rate swap with a nominal value of $65 million.

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In connection with this transaction, the Company has made a residual value guarantee for the leased property equal to 85% of the financing, or $55 million. The Company believes the fair market value of the leased property is greater than the Company’s guaranteed residual value.

IMG also leases some of the computer hardware, computer software and office equipment necessary to conduct its business. The Company believes that its facilities and equipment are adequate and have sufficient productive capacity to meet its current needs.

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.

Item 3.             Legal Proceedings

None.

Item 4.             Submission of Matters to a Vote of the Security Holders

There were no matters submitted to a vote of security holders in the fourth quarter of 2002.

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Executive Officers of the Registrant

The following information is included in accordance with the provisions for Part III, Item 10.

As of December 31, 2002, the Company’s management committee members were:

   (a)   Member of the Board of Directors and Executive Committee.

Officers are elected annually, but are removable at the discretion of the Board of Directors.

JAMES F. ORR, Chairman of the Board since April 25, 2000; Chief Executive Officer of the Company since 1998; Chief Operating Officer of Cincinnati Bell Inc. (CBI), 1996-1998.

MAUREEN P. GOVERN, Chief Technology Officer of the Company since July 1, 2002; Vice President of Advanced Technology Development, Cellular Infrastructure of Motorola, 1997-2002.

WILLIAM H. HAWKINS II, General Counsel and Secretary of the Company since 2001; Associate General Counsel and Secretary of the Company, 2000-2001; Frost & Jacobs, 1977-2000; Partner of Frost & Jacobs, 1984-2000 (Chairman of Executive Committee, 1997-2000).

DAVID F. DOUGHERTY, Chief Development Officer of the Company since 2000; President of CMG, 1995-2000.

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STEVEN G. ROLLS, Chief Financial Officer of the Company since 1998; Vice President and Controller of The BF Goodrich Company, 1993-1998.

ROBERT J. MARINO, President of IMG since 1996.

STEPHEN L. ROBERTSON, President of Convergys International since June 1, 2002; Executive Vice President of IMG, 1999-2001, President of IMG’s Telecom Solutions Group, 1996-1999.

RONALD E. SCHULTZ, President of CMG since 2000; Chief Operating Officer of CMG, 1995-2000.

On January 21, 2003, Convergys announced several changes to its management committee effective February 1, 2003. Mr. Dougherty became Executive Vice President, Global Information Management; Mr. Rolls became Executive Vice President, Global Customer Management and Employee Care, and will continue his duties as Chief Financial Officer until a successor is named; and Mr. Schultz became Senior Vice President, Business Development. Mr. Marino left the Company effective February 14, 2003. Larry S. Schwarz became President of Convergys Information Management Group, North America. John C. Freker became President of Convergys Customer Management Group. Additionally, Karen R. Bowman, President of Employee Care, and Thomas A. Cruz, Jr., Senior Vice President of Human Resources and Administration, became members of the Company’s management committee.

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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 January 31, 2003, there were 18,134 holders of record of the 173,551,485 outstanding common shares of the Company. The high, low and closing prices of its common shares for each quarter in 2002 and 2001 are listed below: