-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BovNsZYB7QmVuAp3haSk51up+uL7S+bLQsy+sHbysrNc0SS9QJfsQg2G/QDogSKB 1wWW8EEnkf4oTGVa2I01PQ== 0000950133-00-001290.txt : 20000331 0000950133-00-001290.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950133-00-001290 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN MANAGEMENT SYSTEMS INC CENTRAL INDEX KEY: 0000310624 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 540856778 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-09233 FILM NUMBER: 586934 BUSINESS ADDRESS: STREET 1: 4050 LEGATO RD CITY: FAIRFAX STATE: VA ZIP: 22033 BUSINESS PHONE: 7032678000 10-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------- FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - ----- ACT OF 1934 For the Fiscal Year Ended December 31, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ---- EXCHANGE ACT OF 1934 For the Transition Period From: ____________ To: _____________ Commission File No.: 0-9233 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED (Exact name of registrant as specified in its charter) State of Incorporation: Delaware I.R.S. Employer Identification No.: 54-0856778 4050 Legato Road Fairfax, Virginia 22033 (Address of principal executive office) Registrant's Telephone No., Including Area Code: (703) 267-8000 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock Par Value $0.01 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. ____ The aggregate market value of voting stock held by non-affiliates of the Registrant as of March 24, 2000 was $1,734,198,977. As of March 24, 2000, 41,533,071 shares of common stock were outstanding. 2 DOCUMENTS INCORPORATED BY REFERENCE 1. Pursuant to Form 10-K General Instruction G(2), registrant hereby incorporates by reference those portions of the American Management Systems, Incorporated 1999 Financial Report necessary to respond to items 5, 6, 7, 7A and 8 of this Form 10-K. 2. Pursuant to Form 10-K General Instruction G(3), registrant hereby incorporates by reference those portions of the American Management Systems, Incorporated definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 12, 2000 necessary to respond to items 10, 11, 12, and 13 of this Form 10-K. i 3 CONTENTS
Page ---- Part I Item 1. Business..................................................................... 1 Item 2. Properties................................................................... 4 Item 3. Legal Proceedings............................................................ 5 Item 4. Submission of Matters to a Vote of Security Holders.......................... 5 Part II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.............................................. 6 Item 6. Selected Financial Data...................................................... 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................... 6 Item 7A. Quantitative and Qualitative Disclosures About Market Risk................... 6 Item 8. Financial Statements and Supplementary Data.................................. 6 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................................... 6 Part III Item 10. Directors and Executive Officers of the Registrant........................... 8 Item 11. Executive Compensation....................................................... 8 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................................... 8 Item 13. Certain Relationships and Related Transactions............................... 8 Part IV Item 14. Exhibits, Financial Statements and Schedules, and Reports on Form 8-K...................................................... 9
ii 4 PART I ITEM 1. BUSINESS OVERVIEW The business of American Management Systems, Incorporated and its wholly-owned subsidiaries ("AMS" or the "Company") is to partner with clients to achieve breakthrough performance through the intelligent use of information technology. AMS is the premier provider of Next Generation Enterprise business and technology solutions that dramatically improve business performance and create value for our clients. AMS provides a full range of consulting services from strategic business analysis to the full implementation of solutions that produce genuine results, on time and within budget. AMS's suite of eBusiness strategy, management and technology services makes business reinvention possible in Internet time for large organizations. AMS measures success based on the results and business benefits achieved by its clients. AMS is a trusted business partner for many of the largest and most respected organizations in the markets in which it specializes. AMS is a company that transforms organizations into Next Generation Enterprises. A key element of this is establishing an extensive network of strategic alliances, partnerships and joint ventures to provide "best of breed" solutions and to extend AMS's market reach in all of the Company's target markets. Further, the Company is establishing organizations with different business models to leverage the Company's assets in new ways and create additional market value. Each year, approximately 85-90% of the Company's business comes from clients it worked with in previous years. The Company, which operates as one segment, focuses on clients in specific sectors which are referred to as target markets. The Company is targeting high value sectors within these target markets and striving to be the market leader in providing Next Generation Enterprise solutions. Organizations in AMS's target markets -- telecommunications firms; financial services institutions; state and local governments and education organizations; federal government agencies; and other corporate clients -- have a crucial need to exploit the potential benefits of information and systems integration technology. The Company helps clients fulfill this need by continuing to build a professional staff which is composed of experts in the necessary technical and functional disciplines; managers who can lead large, complex systems integration projects; and business and computer analysts who can devise creative solutions to complex problems. The Company is focused on accelerating international growth, and the Company is investing in establishing a strong AMS brand and identity to support the growth. Another significant component of AMS's business is the development of proprietary software products, either with its own funds or on a jointly funded basis with other organizations. These products are principally licensed as elements of custom tailored systems, and, to a lesser extent, as stand-alone applications. The Company expended $102.3 million in 1999, $77.4 million in 1998, and $50.6 million in 1997 for development associated with proprietary software. The Company expensed in the accompanying consolidated financial statements $47.1 million in 1999, $35.4 million in 1998, and $30.7 million in 1997 for research and development associated with proprietary software, including amortization. In 1999, the Company reduced the unamortized costs by $21.8 million representing collections from funding partners, compared to $14.8 million in 1998. As a percentage of revenues, license and maintenance fee revenues were less than 10% during each of the last three years. As part of its growth strategy the Company has formed a cross-target market practice that will focus on delivering high-value, customer-facing Web solutions - including eBill, eCare and eMarketing - tailored to clients in the financial services, telecommunications, government and utilities sectors. These solutions will help firms achieve greater cost savings, deliver improved customer service 1 5 and leverage cross-sell and up-sell opportunities in their markets. The new "eCustomer" practice builds upon the Company's existing, significant eCommerce client base. In 1999, the Company expanded its direct eBusiness revenue to approximately $117 million and its eBusiness related revenue to more than $500 million, both increases of more than 150%. Given the rapidly evolving digital economy and the critical role of eBusiness, AMS has begun to implement a strategy that clearly positions the Company for success in this fast changing environment. The vision driving the strategy is to be the premier provider of Next Generation Enterprise business and technology solutions that dramatically improve business performance. AMS will provide leading edge eBusiness services and solutions to transform both private and public organizations into Next Generation Enterprises - organizations fully utilizing emerging technologies to succeed in the digital economy. In order to serve clients outside of the United States, AMS has expanded internationally by establishing subsidiaries or foreign branches. Exhibit 21 of this Form 10-K provides a complete listing of all twenty-one active AMS subsidiaries (and branches), showing name, year organized or acquired, and place of incorporation. Revenues attributable to AMS's non-US clients were approximately $226.7 million in 1999, $208.4 million in 1998, and $248.6 million in 1997. Additional information on revenues and assets attributable to AMS's geographic areas of operation is provided in Note 12 of the consolidated financial statements appearing in Exhibit 13 of this Form 10-K. Founded in 1970, AMS services clients worldwide. AMS's approximately 9,000 employees serve clients from corporate headquarters in Fairfax, Virginia and from 59 offices worldwide. TELECOMMUNICATIONS FIRMS AMS markets systems consulting and integration services for order processing, customer care, billing, accounts receivable, and collections, both for local exchange and interexchange carriers and for cellular/wireless telephone companies. Much of the Company's work involves developing and implementing customized capabilities using AMS's application software products as a foundation. FINANCIAL SERVICES INSTITUTIONS AMS provides information technology consulting and systems integration services to money center banks, major regional banks, insurance companies, and other large financial services firms. The Company specializes in corporate and international banking, consumer credit management, customer value and global risk management, bank management information systems, and retirement plan systems. STATE AND LOCAL GOVERNMENTS AND EDUCATION AMS markets systems consulting and integration services, and application software products, to state, county, and municipal governments for financial management, tax and revenue management, human resources, social services, public safety and transportation functions, and environmental systems. The Company also markets services and application software products to universities and colleges. FEDERAL GOVERNMENT AGENCIES The Company's clients include civilian and defense agencies and aerospace companies. Assignments require knowledge of agency programs and management practices as well as expertise in computer systems integration. Services provided by AMS include information technology, consulting, operations and maintenance support, large scale systems integration and certain Year 2000 remediation. AMS's work for defense agencies often involves specialized expertise in engineering and logistics. 2 6 OTHER CORPORATE CLIENTS The Company also solves information systems problems for the largest firms in other industries, including health care organizations and firms in the gas and electric utilities industry. AMS has systems integration and operations projects with several large organizations and intends to pursue more. AMS provides technical training and technical consulting services in software technology for large-scale business systems. PEOPLE People are AMS's most important asset and its success depends on its ability to attract, retain and motivate well-qualified people. The Company's largest investment in recent years has been in recruiting, assimilating, and developing its people. AMS recruited and successfully assimilated approximately 2,300 new staff members in 1999, including 475 in Europe. About 35% of the new staff members came from the Company's college and university recruiting program. AMS recruits individuals for a career and hires a balanced mix of recent university graduates and experienced professionals who have demonstrated extraordinary technical, analytical, and/or management skills. A large number have advanced degrees in management, computer science, public policy, or engineering. Individuals are assigned to one of the Company's market-oriented groups to develop expertise in the areas needed for solving its clients' problems. Transfers between these groups occur regularly to meet the shifting needs of clients. Performance, in terms of productivity, quality of work, and creativity in solving problems, determines an individual's advancement. This motivates staff members to increase their knowledge of AMS's clients' businesses and industries, to stay current with the technology most suited to AMS's clients, and to develop the consulting and managerial skills needed to produce results. The Company launched a strategic initiative in 1998 to implement a more integrated, structured career and leadership development program. To drive this program the Company established "AMS University" as the focal point for expanded training and development activities. By linking learning resources directly to the skills required to perform key roles that drive the business, and by structuring a development program that includes required as well as elective courses, the Company believes it can accelerate the development of individual capabilities and the overall capacity of the Company to take full advantage of market opportunities. COMPETITIVE FACTORS AMS's competition comes primarily from the management services units of large public accounting firms and consulting and systems integration firms. In addition, prospective clients may decide to perform projects with their in-house staff. AMS seeks to meet this competition by exploiting its industry-specific knowledge, its expertise with important business functions and with new technologies, its proprietary computer application products, and its experience in managing very large design and implementation projects. Although price is always a factor in clients' decisions, it is typically not the major factor. Other important factors are proven experience, the capabilities of the proposed computer application products, the quality of the proposed staff, and the proposed completion time for the project. 3 7 AMS is significantly expanding its systems integration capabilities by augmenting its delivery expertise and establishing key alliances and partnerships with "best-of-breed" software providers. Combining this expanded delivery capability with AMS's thought leadership consulting provides major market growth opportunities. MARKETING, CONTRACTS, AND SIGNIFICANT CUSTOMERS Marketing is performed principally by the senior staff (executive officers, vice presidents, senior principals, and principals) and by a relatively small number of full-time salespersons for each large market. In the U.S. Government markets, AMS replies selectively to requests for proposals, concentrating on those closely related to previous work done for the same or similar customers. Certain of the Company's software products and computer services are sold by a small group of full-time salespersons and, for those products and services, AMS advertises in trade publications and exhibits at industry conventions. For large systems integration projects, AMS typically contracts for one phase (design, development, or implementation) at a time. Many contracts may be canceled by the customer on short notice with appropriate compensation to the Company for actual work performed. Most contracts with federal government agencies allow for termination for the convenience of the government and for an annual audit. No contracts are subject to renegotiation at the client's option. AMS generally contracts either on the basis of reimbursement of costs plus a fixed fee, a fixed or ceiling price for each phase, unit rates for time and materials used, or services sold at unit prices. In most cases, AMS receives monthly or milestone progress payments. In 1999, the Company worked on projects directly for 112 U.S. Government clients, representing a total of $288.2 million, or 23% of revenues. No other customer accounted for 10% or more of revenues in 1999. ITEM 2. PROPERTIES Headquartered in Fairfax, Virginia, the Company's principal operations occupy approximately 1,208,000 square feet of office space under leases expiring through 2011. The Company also has other long-term lease commitments totaling approximately 606,000 square feet with varying expirations through 2011 at other locations throughout the United States. Additionally, the Company's international staff occupies approximately 255,000 square feet of office space outside of the U.S. at locations under leases expiring through 2006. With regard to its operating environment, the Company maintains and operates a large- and mid-range computing environment at the AMS Data Center in Fairfax, Virginia. In addition to physical and data security, the AMS Data Center facilities include conditioned power, A/C, UPS, and fire suppression. The Company leases its computing equipment including mainframe processors, small and mid-size servers, and communications equipment. The Company believes its facilities and equipment continue to be adequate for its business as currently conducted. 4 8 ITEM 3. LEGAL PROCEEDINGS As previously described in the Company's Forms 10-Q filed May 17, 1999, August 13, 1999 and November 15, 1999, the State of Mississippi sued AMS in April 1999, alleging claims for breach of contract, bad faith breach of contract, and unjust enrichment, and seeks various forms of injunctive relief as well as compensatory damages. On May 24, 1999, AMS filed an answer and counterclaim for payment for certain deliverables accepted by the State, including work in progress. Discovery continues and is expected to be completed by the second quarter of 2000. AMS expects to continue to contest the lawsuit vigorously. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1999. 5 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Market information for the Company's common stock contained in the Company's 1999 Financial Report is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K. ITEM 6. SELECTED FINANCIAL DATA Selected financial data contained in the Company's 1999 Financial Report is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations contained in the Company's 1999 Financial Report are incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The information set forth on pages 12-14 of the Company's 1999 Financial Report, under the captions "Foreign Currency Hedging" and "Notes Payable and Capitalized Lease Obligations," is incorporated herein by reference in accordance with General Instruction G(2) of form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company, together with the reports thereon of Deloitte & Touche LLP and PricewaterhouseCoopers LLP, and the supplementary financial information, contained in the Company's 1999 Financial Report, are incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On July 31, 1998, at the Company's regularly scheduled meetings of its Board of Directors and the Audit Committee of the Board of Directors, the Company accepted the resignation of PricewaterhouseCoopers LLP because of conflicts of interest resulting from the July 1, 1998 merger of Price Waterhouse LLP and Coopers & Lybrand LLP. The Company and Coopers & Lybrand LLP have long-standing business relationships which both parties wish to continue. In view of the independence requirements of the Securities and Exchange Commission regarding the independence of certifying public accountants, the Company and PricewaterhouseCoopers LLP mutually determined that it would be inappropriate for PricewaterhouseCoopers LLP to continue as the Company's accountants. Price Waterhouse LLP was the Company's independent certifying accountants for 28 years. As a result of the 6 10 above circumstances, the Audit Committee and Board of Directors thereupon appointed Deloitte & Touche LLP as the Company's independent certifying accountants for fiscal year 1998. During the fiscal year ended December 31, 1997, the reports of PricewaterhouseCoopers LLP on the annual financial statements have neither contained any adverse opinions or disclaimers of opinions, nor have they been qualified or modified. During such two year period, and through July 31, 1998 there were no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP to make reference to the subject matter of the disagreement in connection with its reports on the financial statements for such years. 7 11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to the directors and executive officers of the Company contained in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 12, 2000, is incorporated herein by reference. The Company's definitive Proxy Statement will be filed within 120 days after the close of the Company's fiscal year in accordance with General Instruction G(3) of Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Information relating to executive compensation contained in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 12, 2000, is incorporated herein by reference. The Company's definitive Proxy Statement will be filed within 120 days after the close of the Company's fiscal year in accordance with General Instruction G(3) of Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information relating to the security ownership of certain beneficial owners and management contained in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 12, 2000, is incorporated herein by reference. The Company's definitive Proxy Statement will be filed within 120 days after the close of the Company's fiscal year in accordance with General Instruction G(3) of Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information relating to certain relationships and related transactions contained under the headings "Principal Stockholders" and "Compensation Committee Interlocks and Insider Participation" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 12, 2000, is incorporated herein by reference. The Company's definitive Proxy Statement will be filed within 120 days after the close of the Company's fiscal year in accordance with General Instruction G(3) of Form 10-K. 8 12 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The consolidated financial statements of American Management Systems, Incorporated and subsidiaries filed are as follows: Consolidated Statements of Operations for 1999 - 1997 Consolidated Balance Sheets as of December 31, 1999 and 1998 Consolidated Statements of Cash Flows for 1999-1997 Consolidated Statements of Changes in Stockholders' Equity for 1999-1997 Consolidated Statements of Comprehensive Income 1999 - 1997 Notes to Consolidated Financial Statements Reports of Independent Accountants 2. FINANCIAL STATEMENT SCHEDULE The financial statement schedule of American Management Systems, Incorporated and subsidiaries filed is as follows: Reports of Independent Accountants on financial statement schedules Schedule II - Valuation and Qualifying Accounts for 1999-1997 All other schedules are omitted because they are not applicable, or the required information is shown in the financial statements or the notes thereto. Individual financial statements of the Company and each of its subsidiaries are omitted because the Company is primarily an operating company, and all subsidiaries included in the consolidated financial statements being filed, in the aggregate, do not have a minority equity interest in and/or indebtedness to any person other than the Company or its consolidated subsidiaries in amounts which together exceed five percent of the total assets as shown by the most recent year-end consolidated balance sheet. 9 13 3. EXHIBITS The exhibits to the Annual Report on Form 10-K of American Management Systems, Incorporated filed are as follows: 3. Articles of Incorporation and By-laws 3.1 Second Restated Certificate of Incorporation of the Company (incorporated herein by reference to the Company's 1995 Annual Report on Form 10-K, filed on April 1, 1996). 3.2 Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 2 to the Company's Registration Statement on Form 8-A filed on August 4, 1998). 3.3 By-Laws of the Company, as amended and restated February 27, 1998 (incorporated herein by reference to Exhibit 3.2 of the Company's 1997 Annual Report on Form 10-K). 3.4 Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.4 of the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1999). 4. Instruments Defining the Rights of Security Holders 4.1 Specimen Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 of the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1997). 4.2 Rights Agreement dated as of July 31, 1998, between the Company and ChaseMellon Shareholder Services L.L.C. as Rights Agent (incorporated herein by reference to the Company's Form 8-A filed on August 4, 1998, including form of Rights Certificate). 10. Material Contracts 10.1 1996 Amended Stock Option Plan F as amended (incorporated herein by reference to Exhibit A to the Company's definitive Proxy Statement filed on April 15, 1999). 10.2 Outside Directors Stock-for-Fees Plan (incorporated herein by reference to Exhibit C to the Company's definitive Proxy Statement filed on April 10, 1996). 10.3 1992 Amended and Restated Stock Option Plan E, as amended (incorporated herein by reference to Exhibit B to the Company's definitive Proxy Statement filed on April 17, 1995). 10.4 Executive Deferred Compensation Plan, as amended September 1, 1997 (incorporated herein by reference to Exhibit 10.4 of the Company's 1997 Annual Report on Form 10-K). 10.5 Outside Director Deferred Compensation Plan, effective January 1, 1997 (incorporated herein by reference to Exhibit 10.5 of the Company's 1997 Annual Report on Form 10-K). 10 14 10.6 Multi-Currency Revolving Credit Agreement dated as of January 9, 1998 among the Company, certain of the Company's subsidiaries, the Lenders named therein, and NationsBank N.A. as administrative agent and Wachovia Bank N.A., as Documentation agent (incorporated herein by reference to Exhibit 10.6 of the Company's 1997 Annual Report on Form 10-K). 10.7 Agreement of Lease between Joshua Realty Corporation and the Company, dated August 10, 1992, as amended (incorporated herein by reference to Exhibit 10.7 of the Company's 1997 Annual Report on Form 10-K). 10.8 Office Lease Agreement between Hyatt Plaza Limited Partnership and the Company, dated August 12, 1993, as amended (incorporated herein by reference to Exhibit 10.8 of the Company's 1997 Annual Report on Form 10-K). 10.9 Lease Agreement between Fairfax Gilbane, L.P. and the Company, dated February 15, 1994, as amended (incorporated herein by reference to Exhibit 10.9 of the Company's 1997 Annual Report on Form 10-K). 10.10 Deed of Lease between Principal Mutual Life Insurance Company and the Company, dated December 1996 (incorporated herein by reference to Exhibit 10.10 of the Company's 1997 Annual Report on Form 10-K). 10.11 1996 Incentive Compensation Plan for Executive Officers (incorporated herein by reference to Exhibit 10.11 of the Company's 1998 Annual Report on Form 10-K). 10.12 1999 Contractor Stock Option Plan (filed herewith) 13. 1999 Financial Report 21. Subsidiaries of the Company 23. Consents of Independent Accountants 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of PricewaterhouseCoopers LLP 27. Financial Data Schedules 27.1 Financial Data Schedule for the twelve months ended December 31, 1999. 27.2 Restated Financial Data Schedule for the twelve months ended December 31, 1998. 27.3 Restated Financial Data Schedule for the twelve months ended December 1997 27.4 Restated Financial Data Schedule for the twelve months ended December 1996 27.5 Restated Financial Data Schedule for the nine months ended September 30, 1998. 11 15 27.6 Restated Financial Data Schedule for the six months ended June 30, 1998. 27.7 Restated Financial Data Schedule for the three months ended March 31, 1998. 27.8 Restated Financial Data Schedule for the nine months ended September 30, 1997 27.9 Restated Financial Data Schedule for the six months ended June 30, 1997 27.10 Restated Financial Data Schedule for the three months ended March 31, 1997. (b) REPORTS ON FORM 8-K None. 12 16 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of American Management Systems, Incorporated Fairfax, Virginia We have audited the consolidated financial statements of American Management Systems, Incorporated and subsidiaries (the "Company") as of December 31, 1999 and 1998, and for the years then ended, and have issued our report thereon dated February 16, 2000 (incorporated by reference in this Annual Report on Form 10-K). Our audit also included the financial statement schedule for the year ended December 31, 1999 listed in Item 14(a) of this Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP McLean, Virginia February 16, 2000 13 17 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of American Management Systems, Incorporated Our audits of the consolidated financial statements referred to in our report dated February 18, 1998 appearing on page 26 of the 1999 Financial Report of American Management Systems, Incorporated (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule for the year ended December 31, 1997 listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Washington, D.C. February 18, 1998 14 18 Schedule II American Management Systems, Incorporated VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31 (In millions) 1999 1998 1997 - --------------------------------------------------------------------------------------------- Allowance for Doubtful Accounts Balance at Beginning of Period $ 9.8 $ 5.0 $ 18.9 Allowance Accruals 6.2 10.9 10.6 Charges Against Allowance (5.2) (6.1) (24.5) ------- ------- ------- Balance at End of Period $ 10.8 $ 9.8 $ 5.0 ======= ======= ======= Deferred Tax Asset Valuation Allowance Balance at Beginning of Period $ 1.1 $ 0.5 $ 0.4 Allowance Accruals -- 0.6 0.1 Charges Against Allowance (0.2) -- -- ------- ------- ------- Balance at End of Period $ 0.9 $ 1.1 $ 0.5 ======= ======= ======= Provision for Contract Losses Balance at Beginning of Period $ 7.3 $ -- $ 18.5 Allowance Accruals 20.0 7.3 -- Charges Against Provision (0.3) -- (18.5) ------- ------- ------- Balance at End of Period $ 27.0 $ 7.3 $ -- ======= ======= =======
15 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 29th of March, 2000. American Management Systems, Incorporated by s/ Paul A. Brands ----------------------------------------- Paul A. Brands Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following officers and directors of the Registrant in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- (i) Principal Executive Officer: s/Paul A. Brands Chairman and March 29, 2000 --------------------------------- Chief Executive Paul A. Brands Officer (ii) Principal Financial Officer: s/Ronald L. Schillereff Treasurer and March 29, 2000 --------------------------------- Chief Financial Ronald L. Schillereff Officer (iii) Principal Accounting Officer: s/Nancy Yurek Controller March 29, 2000 --------------------------------- Nancy Yurek
16 20
Signature Title Date --------- ----- ---- (iv) Directors: s/Daniel J. Altobello Director March 29, 2000 --------------------------------- Daniel J. Altobello s/Paul A. Brands Director March 29, 2000 -------------------------------- Paul A. Brands s/James J. Forese Director March 29, 2000 -------------------------------- James J. Forese s/Patrick W. Gross Director March 29, 2000 --------------------------------- Patrick W. Gross s/Dorothy Leonard Director March 29, 2000 --------------------------------- Dorothy Leonard s/W. Walker Lewis Director March 29, 2000 --------------------------------- W. Walker Lewis s/Frederic V. Malek Director March 29, 2000 --------------------------------- Frederic V. Malek s/Frank A. Nicolai Director March 29, 2000 --------------------------------- Frank A. Nicolai s/Alan G. Spoon Director March 29, 2000 --------------------------------- Alan G. Spoon
17 21
Signature Title Date --------- ----- ---- (iv) Directors: _________________________ Director March 29, 2000 Daniel J. Altobello _________________________ Director March 29, 2000 Paul A. Brands _________________________ Director March 29, 2000 James J. Forese _________________________ Director March 29, 2000 Patrick W. Gross _________________________ Director March 29, 2000 Dorothy Leonard _________________________ Director March 29, 2000 W. Walker Lewis _________________________ Director March 29, 2000 Frederic V. Malek _________________________ Director March 29, 2000 Frank A. Nicolai _________________________ Director March 29, 2000 Alan G. Spoon
19 22 EXHIBIT INDEX
Exhibit Number Description ------ ----------- 3.1 Second Restated Certificate of Incorporation of the Company * (incorporated herein by reference to the Company's 1995 Annual Report on Form 10-K, filed on April 1, 1996). 3.2 Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 2 * to the Company's Registration Statement on Form 8-A filed on August 4, 1998). 3.3 By-Laws of the Company, as amended and restated February 27, * 1998 (incorporated herein by reference to Exhibit 3.2 of the Company's 1997 Annual Report on Form 10-K). 3.4 Certificate of Amendment of Second Restated Certificate of * Incorporation of the Company (incorporated herein by reference to Exhibit 3.4 of the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1999). 4.1 Specimen Common Stock Certificate (incorporated herein by * reference to Exhibit 4.1 of the Company's quarterly report on Form 10-Q for the Quarter ended March 31, 1997). 4.2 Rights Agreement dated as of July 31, 1998, between the Company * and ChaseMellon Shareholder Services L.L.C. as Rights Agent (incorporated herein by reference to the Company's Form 8-A filed on August 4, 1998, including form of Rights Certificate). 10.1 1996 Amended Stock Option Plan F as amended (incorporated * herein by reference to Exhibit A to the Company's definitive Proxy Statement filed on April 15, 1999). 10.2 Outside Directors Stock-for-Fees Plan (incorporated herein by * reference to Exhibit C to the Company's definitive Proxy Statement filed on April 10, 1996). 10.3 1992 Amended and Restated Stock Option Plan E, as amended * (incorporated herein by reference to Exhibit B to the Company's definitive Proxy Statement filed on April 17, 1995). 10.4 Executive Deferred Compensation Plan, as amended * September 1, 1997 (incorporated herein by reference to Exhibit 10.4 of the Company's 1997 Annual Report on Form 10-K). 10.5 Outside Director Deferred Compensation Plan, effective * January 1, 1997 (incorporated herein by reference to Exhibit 10.5 of the Company's 1997 Annual Report on Form 10-K).
18 23 EXHIBIT INDEX
Exhibit Number Description ------ ----------- 10.6 Multi-Currency Revolving Credit Agreement dated as of * January 9, 1998 among the Company, certain of the Company's subsidiaries, the Lenders named therein, and NationsBank N.A. as administrative agent and Wachovia Bank N.A., as Documentation agent. (incorporated herein by reference to Exhibit 10.6 of the Company's 1997 Annual Report on Form 10-K). 10.7 Agreement of Lease between Joshua Realty Corporation and the * Company, dated August 10, 1992, as amended (incorporated herein by reference to Exhibit 10.7 of the Company's 1997 Annual Report on Form 10-K). 10.8 Office Lease Agreement between Hyatt Plaza Limited Partnership * and the Company, dated August 12, 1993, as amended (incorporated herein by reference to Exhibit 10.8 of the Company's 1997 Annual Report on Form 10-K). 10.9 Lease Agreement between Fairfax Gilbane, L.P. and the Company, * dated February 15, 1994, as amended (incorporated herein by reference to Exhibit 10.9 of the Company's 1997 Annual Report on Form 10-K). 10.10 Deed of Lease between Principal Mutual Life Insurance Company * and the Company, dated December 1996 (incorporated herein by reference to Exhibit 10.10 of the Company's 1997 Annual Report on Form 10-K). 10.11 1996 Incentive Compensation Plan for Executive Officers * (incorporated herein by reference to Exhibit 10.11 of the Company's 1998 Annual Report on Form 10-K). 10.12 1999 Contractor Stock Option Plan (filed herewith) 13. 1999 Financial Report 21. Subsidiaries of the Company 23. Consents of Independent Accountants 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of PricewaterhouseCoopers LLP 27. Financial Data Schedules 27.1 Financial Data Schedule for the twelve months ended December 31, 1999
19 24 EXHIBIT INDEX
Exhibit Number Description ------ ----------- 27.2 Restated Financial Data Schedule for the twelve months ended December 31, 1998 27.3 Restated Financial Data Schedule for the twelve months ended December 31, 1997 27.4 Restated Financial Data Schedule for the twelve months ended December 31, 1996 27.5 Restated Financial Data Schedule for the nine months ended September 30, 1998 27.6 Restated Financial Data Schedule for the six months ended June 30, 1998 27.7 Restated Financial Data Schedule for the three months ended March 31, 1998 27.8 Restated Financial Data Schedule for the nine months ended September 30, 1997 27.9 Restated Financial Data Schedule for the six months ended June 30, 1997 27.10 Restated Financial Data Schedule for the three months ended March 31, 1997
- ------------ *Previously filed. 20 EX-10.12 2 1999 CONTRACTOR STOCK OPTION PLAN 1 Exhibit 10.12 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 1999 CONTRACTOR STOCK OPTION PLAN I. PURPOSES There are two purposes of the 1999 Contractor Stock Option Plan (the "Plan"). The first is to offer to certain non-employees ("contractors") who contribute materially to the successful operation of AMERICAN MANAGEMENT SYSTEMS, INCORPORATED (the "Corporation") additional incentive and encouragement to continue to serve as contractors of the Corporation by increasing their personal participation in the Corporation through stock ownership. The second purpose is to provide an alternative means of compensating contractors whose performances contribute significantly to the success of the Corporation. The Plan provides a means whereby optionees may purchase shares of the $0.01 par value common stock of the Corporation (the "Common Stock") pursuant to options. The options will be "nonqualified stock options," that is, options which are not intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). II. ADMINISTRATION The Plan shall be implemented and administered by a Stock Option/Award Committee appointed by the Board of Directors of the Corporation (the "Board") and composed of two or more directors of the Corporation. The Stock Option/Award Committee may be delegated the authority and discretion to adopt and revise such rules and regulations as it shall deem necessary for the administration of the Plan, and to determine, consistent with the provisions of the Plan, the contractors to be granted options, the times at which options shall be granted, the exercise price of the shares subject to each option, the number of shares subject to each option, the vesting schedule of options or whether the options shall be immediately vested, the times when options shall terminate, and whether the exercise price of options shall be paid in cash or stock. Acts of a majority of the members of the Stock Option/Award Committee at a meeting at which a quorum is present, or acts approved in writing by a majority of the members of the Stock Option/Award Committee, shall be the valid acts of the Stock Option/Award Committee. The Stock Option/Award Committee's actions, including any interpretation or construction of any provisions of the Plan or any option granted hereunder, shall be final, conclusive and binding unless otherwise determined by the Board at its next regularly scheduled meeting. No member of the Stock Option/Award Committee or the Board, as the case may be, shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it. III. ELIGIBILITY; PARTICIPATION All contractors performing consulting services for the Corporation, or any corporation, partnership, limited liability company, or other entity in which the Corporation owns equity interests possessing at least 50 percent of the voting power (a "Subsidiary"), who (i) are natural persons, (ii) render services to the Corporation or a Subsidiary that do not directly or indirectly promote or maintain a market for the Corporation's securities, (iii) has contracted directly with the Corporation or a Subsidiary for the performance of such services, (iv) have, if required by the Stock Option/Award Committee, executed and delivered to the Corporation or a Subsidiary confidentiality and non-disclosure agreements in a form acceptable to the Corporation and (v) otherwise meet minimum requirements established by the Stock Option/Award Committee, shall be eligible to receive options under the Plan. A contractor who has been granted an option may be granted an additional option or options or rights under the Plan if the Stock Option/Award Committee shall so determine. The granting of an option under the Plan shall not affect any outstanding stock option previously granted to a contractor under the Plan or any other plan of the Corporation. Nothing contained in the Plan, or in any option granted pursuant to the Plan, shall confer upon any contractor the right to continue as a contractor of the Corporation or any Subsidiary, or shall interfere in any way with the right of the Corporation or a Subsidiary to terminate the relationship with any such contractor at any time. IV. BASIS OF GRANT Options shall be granted to contractors either (a) on the basis of awards earned under the Corporation's incentive programs for contractors, as in effect from time to time, or (b) as the Stock Option/Award Committee may determine from time to time. If options are granted based on (a) hereof, then options based thereon shall be earned A-1 2 based on the contractor's success in meeting predetermined performance standards during one or more years. Options shall be granted under (a) hereof, if at all, at the time that the Corporation determines in its judgment that the contractor has met or will meet the contractor's predetermined performance standards during the requisite periods. V. NUMBER OF SHARES AND OPTIONS The number of shares authorized to be issued pursuant to options granted under the Plan is 20,000 shares, subject to adjustment in accordance with the provisions of paragraph G of Section VI hereof. Shares subject to options granted under the Plan may be authorized and unissued shares or shares previously acquired or to be acquired by the Corporation and held in treasury. Any shares subject to an option which expires for any reason or is terminated unexercised as to such shares may again be subject to an option granted under the Plan. VI. TERMS AND CONDITIONS OF OPTIONS A. Option Agreement. Each option granted pursuant to the Plan shall be evidenced by an agreement ("Option Agreement") between the Corporation and the optionee receiving the option. Option Agreements (which need not be identical) shall state that the option is a nonqualified stock option, shall designate the number of shares and the exercise price of the options to which they pertain, shall set forth the vesting schedule of the options or state that the options are vested immediately. The Option Agreements shall be in writing, dated as of the date the option is granted, and shall be executed on behalf of the Corporation by such officers as the Stock Option/Award Committee shall authorize. Option Agreements generally shall be in such form and contain such additional provisions as the Stock Option/Award Committee shall prescribe, but in no event shall they contain provisions inconsistent with the provisions of the Plan. B. Exercise of Options. Options are exercisable only to the extent they are vested. Options granted to contractors shall vest either immediately or periodically pursuant to a schedule selected by the Stock Option/Award Committee at the same time the option is granted. The Option Agreement shall either state that the options are fully vested upon grant and immediately exercisable in full or shall set forth the vesting schedule selected by the Stock Option/Award Committee. Optionees may exercise at any time or from time to time all of any portion of a vested option. C. Repurchase Amendment. Options may be amended to advance the date on which the option shall vest. If an option is so amended, the amendment also may provide that the shares which would not have been vested under the vesting schedule set forth in the Option Agreement shall be subject to repurchase by the Corporation for a specified period of time at the original exercise price if the optionee is terminated for any reason prior to expiration of the repurchase period. The amendment shall be evidenced by a written agreement (the "Repurchase Amendment") between the Corporation and the optionee, shall be executed on behalf of the Corporation by such officers as the Stock Option/Award Committee shall authorize, and shall be in such form and contain such provisions as the Stock Option/Award Committee shall prescribe. D. Exercise Price. 1. Fair Market Value. The price at which all stock options granted pursuant to the Plan may be exercised shall be the fair market value of the Common Stock on the date of grant. For purposes of the Plan, the term "fair market value" shall be defined as the closing bid price of the Common Stock quoted over The Nasdaq Stock Market in the National Market on the date of grant of the option, or if there is no trade on such date, the closing bid price on the last preceding date upon which such Common Stock was traded. In the event that the Common Stock is not traded over the Nasdaq Stock Market, the term fair market value shall be defined as the closing bid price of the Common Stock published in the National Daily Stock Quotation Summary on the date of grant of the option, or if there are no quotations published on such date, on the most recent date upon which such Common Stock was quoted. In the event that the Common Stock is listed upon an established stock exchange or exchanges, such fair market value shall be deemed to be the highest closing price of the Common Stock on such stock exchange or exchanges on the date the option is granted, or if no sale of the Common Stock shall have been made on any exchange on that date, then the next preceding day on which there was a sale of such stock. 2. Payment. Payment of the exercise price may be (i) in cash, (ii) by delivery to the Corporation of (x) irrevocable instructions to deliver to a broker the stock certificates representing the shares for which the option is being exercised, and (y) irrevocable instructions to the broker to sell such shares and promptly deliver to the Corporation the portion of the proceeds equal to the exercise price, or in the sole discretion of the Stock Option/Award Committee, (iii) by exchange of Common Stock of the Corporation, or, (iv) partly in cash and partly by exchange of A-2 3 such Common Stock, provided that for purposes of (iii) and (iv) the value of such Common Stock shall be the fair market value on the date of exercise, and further provided that such Common Stock shall have been held by the optionee for a period of at least six (6) months prior to the date of exercise. The Stock Option/Award Committee may permit deferred payment of all or any part of the purchase price of the shares purchased pursuant to the Plan, provided the par value of the shares must be paid in cash. E. Suspension or Termination of Options. Subject to earlier termination as provided below, all stock options shall expire, and all rights granted under Option Agreements shall become null and void, on the date specified in the Option Agreement, which date shall be no later than five (5) years after the stock options are granted. Upon termination (including expiration) of a contractor's contract relationship with the Corporation or a Subsidiary for any reason other than by mutual termination by the Corporation and the contractor of such contracting relationship following completion of ten (10) or more years of continuous service by a contractor, death or disability, all options held by such contractor which are not exercisable on the date of such termination shall expire. To the extent stock options are exercisable on such date, shares subject to stock options held by a contractor may be purchased during the "exercise period," after which the stock options shall expire and all rights granted under the Option Agreement shall become null and void. The "exercise period" for shares subject to stock options held by a contractor, his heirs, legatees or legal representatives, as the case may be, ends on the earlier of (i) the date on which the stock option expires by its terms, or (ii) (A) except in the case of death, disability, or mutual termination of a contractor following completion of ten (10) or more years of continuous service as a contractor, thirty (30) days after the date of the contractor's termination, or (B) in the case of death, disability, or mutual termination of a contractor following completion of ten (10) or more years of continuous service, one (1) year after the date of the contractor's termination. If the Director of Human Resources of the Corporation or his or her designee reasonably believes an optionee has committed an act of misconduct as described in this paragraph, the Director of Human Resources may suspend the optionee's rights to exercise any option pending a determination by the Stock Option/Award Committee. If the Stock Option/Award Committee determines an optionee has committed an act of embezzlement, fraud, dishonesty, nonpayment of any obligation owed to the Corporation, breach of fiduciary duty, breach of any agreement relating to competitive activities or non-solicitation of customers or employees, or deliberate disregard of Corporation rules resulting in loss, damage or injury to the Corporation, or if an optionee makes an unauthorized disclosure of any trade secret or confidential information, engages in any conduct constituting unfair competition, induces any customer to breach a contract with the Corporation or induces any principal for whom the Corporation acts as agent to terminate such agency relationship, neither the optionee nor his or her estate shall be entitled to exercise any option whatsoever. In making such determination, the Stock Option/Award Committee shall act fairly and shall give the optionee an opportunity to appear and present evidence on his or her behalf at a hearing. F. Non-Transferability of Options. Options pursuant to the Plan are not transferable by the optionee otherwise than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined by the Code, Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. Except as permitted by the preceding sentence, no option nor any right granted under an Option Agreement shall be transferred, assigned, pledged, hypothecated or disposed of in any other way (whether by operation of law or otherwise), or be subject to execution, attachment or similar process, and each option shall be exercisable during the optionee's lifetime only by the optionee. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of such options or of such other rights contrary to the provisions hereof, or to subject such options or such other rights to execution, attachment or similar process, such options and such other rights shall immediately terminate and become null and void. G. Adjustment Provisions. Except as otherwise provided in this paragraph G, in the event of changes in the Common Stock by reason of any stock split, combination of shares, stock dividend, reclassification, merger, consolidation, reorganization, recapitalization or similar adjustment, or by reason of the dissolution or liquidation of the Corporation, appropriate adjustments may be made in (i) the aggregate number of or class of shares available under the Plan, and (ii) the number, class and exercise price of shares remaining subject to all outstanding options. Whether any adjustment or modification is to be made as a result of the occurrence of any of the events specified in this section, and the extent thereof, shall be determined by the Board, whose determination shall be binding and conclusive. Notwithstanding the previous sentence, in the event of a stock split, stock dividend or other event that is functionally equivalent to a stock split or stock dividend, (i) the number of shares subject to then-outstanding options will be adjusted so that upon exercise of the option, the holder of each option will be entitled to receive the A-3 4 number of shares or other securities which the holder would have been entitled to receive after the event had the option been exercised immediately before the earlier of the date of the consummation of the event or the record date of the event (the "event date"), (ii) the price of each share subject to then-outstanding options will be adjusted proportionately so that the aggregate purchase price for all then-outstanding options will be the same immediately after the event date as before the event date, (iii) an appropriate and proportionate adjustment will be made as of the event date in the maximum number of shares that may be issued pursuant to options granted under the Plan, (iv) any adjustment with respect to then-outstanding incentive stock options will be made in a transaction that does not constitute a modification under Section 424(h)(3) of the Code, and (v) any option to purchase fractional shares resulting from an adjustment will be eliminated. Existence of the Plan or of Option Agreements pursuant to the Plan shall in no way impair the right of the Corporation or its stockholders to make or effect any adjustments, recapitalizations, reorganizations or other changes in the Corporation's capital structure or its business, or any merger, consolidation, dissolution or liquidation of the Corporation, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock of the Corporation, or any grant of options on its stock not pursuant to the Plan. VII. RIGHTS AS A SHAREHOLDER Optionees shall not have any of the rights and privileges of shareholders of the Corporation in respect of any of the shares subject to any option granted pursuant to the Plan unless and until a certificate, if any, representing such shares shall have been issued and delivered. VIII. WITHHOLDING To the extent required by applicable federal, state, local or foreign law, an optionee shall make arrangements satisfactory to the Corporation for the satisfaction of any withholding tax obligations that arise by reason of an option exercise or the disposition of shares acquired upon exercise of a stock option. The Corporation shall not be required to issue shares until such obligations are satisfied. The Stock Option/Award Committee may permit these obligations to be satisfied by having the Corporation withhold a portion of the shares of Common Stock that otherwise would be issued upon exercise of the option, or to the extent permitted, by permitting the optionee to tender shares owned by the optionee. IX. RECEIPT OF PROSPECTUS Upon the execution of an Option Agreement, each optionee receiving options pursuant to the Plan shall be given a Prospectus, as filed by the Corporation under the Securities Act of 1933, including any exhibits thereto, describing the Plan. Each Option Agreement shall contain an acknowledgment by the optionee that the requirements of this section have been met. X. SUCCESSORS The provisions of the Plan shall be binding upon, and inure to the benefit of, all successors of any optionee, including, without limitation, his estate and the executors, administrators or trustees thereof, his heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such optionee. XI. TERMINATION AND AMENDMENT OF THE PLAN The Plan shall remain in effect until December 3, 2009, unless sooner terminated as hereinafter provided. The Board shall have complete power and authority at any time to terminate the Plan or to make such modification or amendment thereof as it deems advisable and may from time to time suspend, discontinue or abandon the Plan, provided that no such action by the Board shall adversely affect any right or obligation with respect to any grant theretofore made. XII. INDEMNIFICATION OF BOARD AND COMMITTEE In addition to such other rights of indemnification as they may have as directors or as members of the Board or the Stock Option/Award Committee, as the case may be, the members of the Board and the Stock Option/Award Committee shall be indemnified by the Corporation against the reasonable expenses, including attorneys' fees actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, Option Agreements or any option granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by legal counsel selected by A-4 5 the Corporation) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such member is liable for negligence or misconduct in the performance of his duties; provided that within sixty (60) days after institution of any such action, suit or proceeding a member shall in writing offer the Corporation the opportunity, at its own expense, to defend the same. XIII. MERGER OF THE CORPORATION Unless the options issued pursuant to this Plan are assumed in a transaction to which Section 424(a) of the Code applies, if the Corporation shall (i) merge or consolidate with another corporation under circumstances where the Corporation is not the surviving corporation, (ii) sell all, or substantially all of its assets, or (iii) liquidate or dissolve, then each option shall terminate on the date and immediately prior to the time such merger, consolidation, sale, liquidation or dissolution becomes effective or is consummated, provided that the holder of the option shall have the right immediately prior to the effectiveness or consummation of such merger, consolidation, sale, liquidation or dissolution, to exercise any or all of the vested portion of the option, unless such option has otherwise expired or been terminated pursuant to its terms or the terms hereof. In the event of such merger, consolidation, sale, liquidation or dissolution, any portion of an outstanding option which would have vested within one year after the date on which such merger, consolidation, sale, liquidation or dissolution becomes effective or is consummated shall vest immediately prior to the effectiveness or consummation of such merger, consolidation, sale, liquidation or dissolution and shall be part of the vested portion of the option which the holder of the option may exercise. XIV. EFFECTIVE DATE The Plan was adopted by the Board on December 3, 1999, and became effective as of such date. A-5 6 EXHIBIT A ADDITIONAL INFORMATION TAX CONSEQUENCES Information regarding the federal income tax consequences to American Management Systems, Incorporated (the "Corporation") and to optionees of options granted under the 1999 Contractor Stock Option Plan (the "Plan") follows. This information is not intended to be exhaustive and is only intended to briefly summarize the federal income tax statutes, regulations and currently available agency interpretations thereof, and is intended to apply to the Plan as normally operated. It is recommended that optionees consult their own professional tax advisors for personal and specific advice about options. An optionee has no tax consequences from the grant or vesting of an option. Upon exercise of an option, the optionee has compensation income taxable at ordinary income tax rates on the amount by which the fair market value of the shares of common stock, $0.01 par value per share, of the Corporation (the "Common Stock") received as of the date of exercise exceeds the exercise price. The Corporation is entitled to a deduction equal to the amount of compensation income to the optionee as long as it complies with applicable reporting requirements with respect to the optionee's compensation income. Upon the sale of Common Stock acquired through the exercise of an option, any difference between the amount realized and the fair market value of the Common Stock as of the date of exercise will be capital gain or loss. The Plan is not qualified under Section 401(a) of the Code. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 ("ERISA") The Plan is not subject to any provisions of ERISA. DOCUMENTS INCORPORATED BY REFERENCE AND FURTHER INFORMATION The Corporation hereby incorporates by reference (i) its Annual Reports on Form 10-K for the fiscal years ended December 31, 1998 and December 31, 1999, (ii) its Preliminary Proxy Statement in connection with the 1999 Annual Meeting of Shareholders, (iii) its Definitive Proxy Statement in connection with the 1999 Annual Meeting of Shareholders, (iv) its Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, (v) its Current Report on Form 8-K filed on July 20, 1999, (vi) its Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, (vii) its Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, and (viii) the description of the Corporation's Common Stock contained in its Registration Statement on Form 8-A filed under Section 12 of the Exchange Act, including any amendment or report filed for the purpose of updating such description. In addition, all documents subsequently filed by the Corporation pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective amendment which indicates that all securities offered hereby have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. A copy of any document incorporated by reference herein but not delivered with this Prospectus will be furnished without charge upon written or oral requests. Written requests for documents or additional information about the Plan and its administrator should be addressed to American Management Systems, Incorporated, c/o Secretary, 4050 Legato Road, Fairfax, Virginia 22033. Oral requests for documents or additional information should be directed to (703) 267-8000. Copies of the Corporation's most recent Annual Report on Form 10-K, Proxy Statement, including Financial Report, and Annual Report to Shareholders accompany the copy of this Prospectus furnished to participants in the Plan not otherwise receiving copies thereof. The Corporation will promptly furnish without charge an additional copy of any such documents to any participant who requests it. A-6 EX-13 3 1999 FINANCIAL REPORT 1 Exhibit 13 Set forth following this page is the Company's 1999 Financial Report which is Exhibit 13 to the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The 1999 Financial Report constitutes pages 22 to 62 of the Form 10-K. Accordingly, the page immediately preceding this page is numbered 20 and the page following Exhibit 13 is numbered 63. 21 2 Exhibit 13 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 1999 FINANCIAL REPORT CONTENTS - -------------------------------------------------------------------------------- Business of AMS 1 Financial Statements and Notes 4 Reports of Independent Accountants 25 Management's Discussion and Analysis of Financial Condition and Results of Operations 27 Assumptions Underlying Certain Forward-Looking Statements and Factors That May Affect Future Results 34 Five-Year Financial Summary 36 Five-Year Revenues by Target Market 37 Selected Quarterly Financial Data 38 Other Information 39 3 BUSINESS OF AMS OVERVIEW The business of American Management Systems, Incorporated and its wholly-owned subsidiaries ("AMS" or the "Company") is to partner with clients to achieve breakthrough performance through the intelligent use of information technology. AMS is the premier provider of Next Generation Enterprise business and technology solutions that dramatically improve business performance and create value for our clients. AMS provides a full range of consulting services from strategic business analysis to the full implementation of solutions that produce genuine results, on time and within budget. AMS's suite of eBusiness strategy, management and technology services makes business reinvention possible in Internet time for large organizations. AMS measures success based on the results and business benefits achieved by its clients. AMS is a trusted business partner for many of the largest and most respected organizations in the markets in which it specializes. AMS is a company that transforms organizations into Next Generation Enterprises. A key element of this is establishing an extensive network of strategic alliances, partnerships and joint ventures to provide "best of breed" solutions and to extend AMS's market reach in all of the Company's target markets. Further, the Company is establishing organizations with different business models to leverage the Company's assets in new ways and create additional market value. Each year, approximately 85-90% of the Company's business comes from clients it worked with in previous years. The Company, which operates as one segment, focuses on clients in specific sectors which are referred to as target markets. The Company is targeting high value sectors within these target markets and striving to be the market leader in providing Next Generation Enterprise solutions. Organizations in AMS's target markets -- telecommunications firms; financial services institutions; state and local governments and education organizations; federal government agencies; and other corporate clients -- have a crucial need to exploit the potential benefits of information and systems integration technology. The Company helps clients fulfill this need by continuing to build a professional staff which is composed of experts in the necessary technical and functional disciplines; managers who can lead large, complex systems integration projects; and business and computer analysts who can devise creative solutions to complex problems. The Company is focused on accelerating international growth, and the Company is investing in establishing a strong AMS brand and identity to support the growth. Another significant component of AMS's business is the development of proprietary software products, either with its own funds or on a jointly funded basis with other organizations. These products are principally licensed as elements of custom tailored systems, and, to a lesser extent, as stand-alone applications. The Company expended $102.3 million in 1999, $77.4 million in 1998, and $50.6 million in 1997 for development associated with proprietary software. The Company expensed in the accompanying consolidated financial statements $47.1 million in 1999, $35.4 million in 1998, and $30.7 million in 1997 for research and development associated with proprietary software, including amortization. In 1999, the Company reduced the unamortized costs by $21.8 million representing collections from funding partners, compared to $14.8 million in 1998. As a percentage of revenues, license and maintenance fee revenues were less than 10% during each of the last three years. As part of its growth strategy the Company has formed a cross-target market practice that will focus on delivering high-value, customer-facing Web solutions - including eBill, eCare and eMarketing - tailored to clients in the financial services, telecommunications, government and utilities sectors. These solutions will help firms achieve greater cost savings, deliver improved customer service and leverage cross-sell and up-sell opportunities in their markets. The new "eCustomer" practice builds upon the Company's existing, significant eCommerce client base. In 1999, the Company expanded its direct eBusiness revenue to approximately $117 million and its eBusiness related revenue to more than $500 1 4 million, both increases of more than 150%. Given the rapidly evolving digital economy and the critical role of eBusiness, AMS has begun to implement a strategy that clearly positions the Company for success in this fast changing environment. The vision driving the strategy is to be the premier provider of Next Generation Enterprise business and technology solutions that dramatically improve business performance. AMS will provide leading edge eBusiness services and solutions to transform both private and public organizations into Next General Enterprises - organizations fully utilizing emerging technologies to succeed in the digital economy. In order to serve clients outside of the United States, AMS has expanded internationally by establishing subsidiaries or foreign branches. Exhibit 21 of this Form 10-K provides a complete listing of all twenty-one active AMS subsidiaries (and branches), showing name, year organized or acquired, and place of incorporation. Revenues attributable to AMS's non-US clients were approximately $226.7 million in 1999, $208.4 million in 1998, and $248.6 million in 1997. Additional information on revenues and assets attributable to AMS's geographic areas of operation is provided in Note 12 of the consolidated financial statements appearing in Exhibit 13 of this Form 10-K. Founded in 1970, AMS services clients worldwide. AMS's approximately 9,000 employees serve clients from corporate headquarters in Fairfax, Virginia and from 59 offices worldwide. TELECOMMUNICATIONS FIRMS AMS markets systems consulting and integration services for order processing, customer care, billing, accounts receivable, and collections, both for local exchange and interexchange carriers and for cellular/wireless telephone companies. Much of the Company's work involves developing and implementing customized capabilities using AMS's application software products as a foundation. FINANCIAL SERVICES INSTITUTIONS AMS provides information technology consulting and systems integration services to money center banks, major regional banks, insurance companies, and other large financial services firms. The Company specializes in corporate and international banking, consumer credit management, customer value and global risk management, bank management information systems, and retirement plan systems. STATE AND LOCAL GOVERNMENTS AND EDUCATION AMS markets systems consulting and integration services, and application software products, to state, county, and municipal governments for financial management, tax and revenue management, human resources, social services, public safety and transportation functions, and environmental systems. The Company also markets services and application software products to universities and colleges. FEDERAL GOVERNMENT AGENCIES The Company's clients include civilian and defense agencies and aerospace companies. Assignments require knowledge of agency programs and management practices as well as expertise in computer systems integration. Services provided by AMS include information technology, consulting, operations and maintenance support, large scale systems integration and certain Year 2000 remediation. AMS's work for defense agencies often involves specialized expertise in engineering and logistics. 2 5 OTHER CORPORATE CLIENTS The Company also solves information systems problems for the largest firms in other industries, including health care organizations and firms in the gas and electric utilities industry. AMS has systems integration and operations projects with several large organizations and intends to pursue more. AMS provides technical training and technical consulting services in software technology for large-scale business systems. 3 6 FINANCIAL STATEMENTS AND NOTES American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 (In millions except per share data) 1999 1998 1997 - ----------------------------------------------------------------------------------------------- REVENUES $1,240.3 $1,057.8 $872.3 EXPENSES Client Project Expenses 653.8 576.2 485.0 Other Operating Expenses 380.0 305.7 271.6 Corporate Expenses 88.6 79.0 61.4 Provision for Specific Contract 20.0 7.0 -- -------- -------- ------ 1,142.4 967.9 818.0 INCOME FROM OPERATIONS 97.9 89.9 54.3 OTHER (INCOME) EXPENSE Interest (Income) Expense -- 0.8 4.4 Other (Income) Expense (2.8) 1.1 (1.5) Loss on Equity Investments in Other Companies 4.3 0.7 -- -------- -------- ------ 1.5 2.6 2.9 INCOME BEFORE INCOME TAXES 96.4 87.3 51.4 INCOME TAXES 39.5 35.5 20.2 -------- -------- ------ NET INCOME $ 56.9 $ 51.8 $ 31.2 ======== ======== ====== WEIGHTED AVERAGE SHARES 41.9 42.1 41.4 ======== ======== ====== BASIC NET INCOME PER SHARE $ 1.36 $ 1.23 $ 0.75 ======== ======== ====== WEIGHTED AVERAGE SHARES AND EQUIVALENTS 42.6 42.9 42.3 ======== ======== ====== DILUTED NET INCOME PER SHARE $ 1.34 $ 1.21 $ 0.74 ======== ======== ======
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 4 7 American Management Systems, Incorporated CONSOLIDATED BALANCE SHEETS
December 31 (In millions except per share data) 1999 1998 - ----------------------------------------------------------------------------------------------- ASSETS - ----------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and Cash Equivalents $ 111.3 $ 119.3 Accounts and Notes Receivable 294.7 260.3 Prepaid Expenses and Other Current Assets 22.8 8.8 -------- -------- 428.8 388.4 FIXED ASSETS Equipment 50.5 59.7 Furniture and Fixtures 25.5 23.6 Leasehold Improvements 19.1 17.3 -------- -------- 95.1 100.6 Accumulated Depreciation and Amortization (63.9) (63.0) -------- -------- 31.2 37.6 OTHER ASSETS Purchased and Developed Computer Software (Net of Accumulated Amortization of $74,500,000 and $72,000,000) 114.7 83.6 Intangibles (Net of Accumulated Amortization of $5,500,000 and $4,700,000) 6.2 4.3 Other Assets (Net of Accumulated Amortization of $940,000 and $920,000) 31.6 23.7 -------- -------- 152.5 111.6 -------- -------- TOTAL ASSETS $ 612.5 $ 537.6 ======== ========
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 5 8 American Management Systems, Incorporated CONSOLIDATED BALANCE SHEETS
December 31 (In millions except per share data) 1999 1998 - ------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------ CURRENT LIABILITIES Notes Payable and Capitalized Lease Obligations $ 6.1 $ 5.3 Accounts Payable 24.6 21.3 Accrued Incentive Compensation 51.7 55.8 Other Accrued Compensation and Related Items 40.7 39.8 Deferred Revenues 57.4 37.7 Other Accrued Liabilities 12.8 4.8 Accrued Contract Losses 27.0 7.3 Income Taxes Payable 7.0 9.1 -------- -------- 227.3 181.1 Deferred Income Taxes 2.8 4.9 -------- -------- 230.1 186.0 NONCURRENT LIABILITIES Notes Payable and Capitalized Lease Obligations 16.5 22.7 Other Accrued Liabilities 27.5 15.9 Deferred Income Taxes 28.9 21.1 -------- -------- 72.9 59.7 -------- -------- TOTAL LIABILITIES 303.0 245.7 STOCKHOLDERS' EQUITY Preferred Stock ($0.10 Par Value; 4,000,000 Shares Authorized, None Issued or Outstanding) Common Stock ($0.01 Par Value; 200,000,000 Shares Authorized, 51,057,214 and 51,057,214 Issued and 41,018,387 and 42,026,510 Outstanding) 0.5 0.5 Capital in Excess of Par Value 89.5 96.7 Retained Earnings 297.2 240.3 Currency Translation Adjustment (12.2) (6.3) Common Stock in Treasury, at Cost (10,038,827 and 9,030,704 Shares) (65.5) (39.3) -------- -------- 309.5 291.9 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 612.5 $ 537.6 ======== ========
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 6 9 American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 (In millions) 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 56.9 $ 51.8 $ 31.2 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 12.5 17.0 17.9 Amortization 25.1 21.6 16.8 Loss on Investments in Other Companies 4.3 0.7 -- Deferred Income Taxes 5.6 7.8 3.2 Provision for Doubtful Accounts 6.2 10.9 10.6 Provision for Contract Losses 19.7 7.3 (18.5) Changes in Assets and Liabilities: Increase in Trade Receivables (40.6) (30.3) (3.7) (Increase) Decrease in Prepaid Expenses and Other Current Assets (14.0) (0.4) 4.8 Increase in Other Assets (14.6) (10.6) (8.2) Increase (Decrease) in Accrued Incentive Compensation 1.1 31.1 (9.1) Increase (Decrease) in Accounts Payable, Other Accrued Compensation and Liabilities 23.8 26.0 (0.1) Increase (Decrease) in Deferred Revenue 19.6 (2.0) 19.0 (Decrease) Increase in Income Taxes Payable (2.1) 0.3 1.0 -------- -------- ------- Net Cash Provided by Operating Activities 103.5 131.2 64.9 -------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Fixed Assets (9.3) (10.6) (15.9) Purchase of Computer Software (7.7) (3.3) (2.3) Investment in Software Products (45.6) (41.8) (31.6) Other Investments and Intangibles (4.5) (2.3) 0.4 Proceeds from Sale of Fixed Assets and Purchased Computer Software 5.6 2.6 0.9 -------- -------- ------- Net Cash Used in Investing Activities (61.5) (55.4) (48.5) -------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings -- -- 20.0 Payments on Borrowings (5.4) (7.5) (51.7) Proceeds from Common Stock Options Exercised 14.2 20.9 9.1 Payments to Acquire Treasury Stock (52.9) (21.2) (0.1) -------- -------- ------- Net Cash Used in Financing Activities (44.1) (7.8) (22.7) -------- -------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (5.9) 1.7 (6.9) -------- -------- ------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (8.0) 69.7 (13.2) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 119.3 49.6 62.8 -------- -------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 111.3 $ 119.3 $ 49.6 ======== ======== ======= NON-CASH OPERATING AND FINANCING ACTIVITIES: Treasury Stock Utilized to Satisfy Accrued Incentive Compensation Liabilities $ 5.2 $ -- $ 2.3 Treasury Stock Utilized to Satisfy Stock Options Exercised $ 12.3 $ 4.7 $ --
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 7 10 American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Year Ended December 31, 1999, 1998, and 1997 (In millions)
Common Stock Capital in Currency Total (Par Value Excess of Translation Retained Treasury Stockholders' $0.01) Par Value Adjustment Earnings Stock Equity - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1996 $0.5 $75.0 $(1.1) $157.3 $(28.6) $203.1 Common Stock Options Exercised -- 4.1 4.1 Tax Benefit Related to Exercise of Common Stock Options 5.0 5.0 Currency Translation Adjustment (6.9) (6.9) Common Stock Repurchased (0.1) (0.1) Restricted Stock Awarded 2.3 2.3 1997 Net Income 31.2 31.2 ---- ----- ------ ------ ------ ------ Balance at December 31, 1997 0.5 84.1 (8.0) 188.5 (26.4) 238.7 Common Stock Options Exercised -- 5.3 8.3 13.6 Tax Benefit Related to Exercise of Common Stock Options 7.3 7.3 Currency Translation Adjustment 1.7 1.7 Common Stock Repurchased (21.2) (21.2) 1998 Net Income 51.8 51.8 ---- ----- ------ ------ ------ ------ Balance at December 31, 1998 0.5 96.7 (6.3) 240.3 (39.3) 291.9 Common Stock Options Exercised -- (12.3) 21.4 9.1 Tax Benefit Related to Exercise of Common Stock Options 5.1 5.1 Currency Translation Adjustment (5.9) (5.9) Common Stock Repurchased (52.9) (52.9) Restricted Stock Awarded 5.3 5.3 1999 Net Income 56.9 56.9 ---- ----- ------ ------ ------ ------ Balance at December 31, 1999 $0.5 $89.5 $(12.2) $297.2 $(65.5) $309.5 ==== ===== ====== ====== ====== ======
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 8 11 American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31 (In millions) 1999 1998 1997 - ---------------------------------------------------------------------------------------- NET INCOME $56.9 $51.8 $31.2 OTHER COMPREHENSIVE INCOME (LOSS): Currency Translation Adjustment (5.9) 1.7 (6.9) ----- ----- ----- COMPREHENSIVE INCOME $51.0 $53.5 $24.3 ===== ===== =====
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 9 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES The business of American Management Systems, Incorporated and its wholly-owned subsidiaries ("AMS" or the "Company") is to partner with clients to achieve breakthrough performance through the intelligent use of information technology. AMS is an international business and information technology consulting firm that provides a full range of services: business re-engineering, change management, systems integration, and systems development and implementation. AMS is headquartered in Fairfax, Virginia, with 59 offices worldwide. The Company, which operates as one segment, focuses on the following primary target markets: telecommunications firms, financial services institutions, state and local governments and education, federal government agencies and other corporate clients. A. Revenue Recognition Revenues on fixed-price contracts are generally recorded using the percentage of completion method based on the relationship of costs incurred to the estimated total costs of the project. Revenues on cost reimbursable contracts and time and material contracts are recorded as labor and other expenses are incurred. The Company recognizes revenues on the percentage of completion method for contracts involving software license fees and the provision of significant software modifications and customized services. For all other software license contracts, revenues are recorded upon execution of the contract, provided that all shipment obligations have been met, fees are fixed or determinable, and collection is deemed probable. Revenues from software maintenance contracts are recognized ratably over the maintenance period. On benefit-funded contracts (contracts whereby the amounts due the Company are payable based on actual benefits derived by the client), the Company may defer recognition of revenues until a point at which management can predict, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the contract. From that point forward, revenues are recognized on a percentage of completion basis. All of the current large multi-year benefit-funded contracts are now being recognized on a percentage of completion basis. When adjustments in contract value or estimated costs are determined, any changes from prior estimates are reflected in earnings in the current period. Any anticipated losses on contracts in progress are charged to earnings when identified. The costs associated with cost-plus government contracts are subject to audit by the U.S. Government. In the opinion of management, no significant adjustments or disallowances of costs are anticipated beyond those provided for in the financial statements. B. Software Development Costs The Company develops proprietary software products using its own funds, or on a jointly funded basis with other organizations, and records such activities as research and development. These software products are then licensed to customers, either as stand-alone applications, or as elements of custom-built systems. The Company accounts for software development costs in accordance with Statement of Financial Accounting Standards No. 86 -- "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" and for software jointly developed in accordance with Statement of Position 97-2, "Software Revenue Recognition". For projects funded by the Company, significant development costs incurred beyond the point of demonstrated technological feasibility are capitalized and, after the product is available for general release to customers, such costs are amortized on a straight-line basis over a period of 3 to 5 years. For projects where the Company has a funding partner, the capital asset is reduced by the amount collected from the partner. The Company recorded $16.6 million of amortization in 1999, $14.5 10 13 million of amortization in 1998, and $12.5 million of amortization in 1997. Unamortized costs were $106.7 million, $79.1 million, and $51.9 million at December 31, 1999, 1998, and 1997, respectively. In 1999, the Company reduced the unamortized costs by $21.8 million representing collections from funding partners, compared to $14.8 million in 1998. The Company evaluates the net realizable value of capitalized software using the estimated, undiscounted, net-cash flows of the underlying products. The Company capitalizes costs incurred for the development or purchase of internal use software in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Once the product is substantially complete and ready for its intended use, capitalized costs are amortized on a straight-line basis over the estimated useful life of the software. The Company expended $102.3 million in 1999, $77.4 million in 1998, and $50.6 million in 1997 for development associated with proprietary software. The Company expensed in the accompanying consolidated financial statements $47.1 million in 1999, $35.4 million in 1998, and $30.7 million in 1997 for research and development associated with proprietary software. C. Fixed Assets, Purchased Computer Software Licenses and Intangibles Fixed assets and purchased computer software licenses are recorded at cost. Furniture, fixtures, and equipment are depreciated over estimated useful lives ranging from 3 to 10 years. Leasehold improvements are amortized ratably over the lesser of the applicable lease term or the useful life of the improvement. For financial statement purposes, depreciation is computed using the straight-line method. Purchased software licenses are amortized over 2 to 5 years using the straight-line method. Intangibles are generally amortized over 5 to 15 years. D. Income Taxes Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates for the year in which the differences are expected to reverse. Deferred income taxes are provided for temporary differences in recognizing certain income, expense, and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the methods of accounting for revenue, capitalized software development costs, restricted stock, and the timing of deductibility of certain reserves and accruals for income tax purposes. A valuation allowance is recorded if it is "more likely than not" that some portion or all of a deferred tax asset will not be realized. E. Earnings Per Share Basic EPS excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and is computed using the treasury stock method. 11 14 F. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying amount approximates fair value because of the short maturity of these instruments. G. Currency Translation For operations outside the United States with functional currencies other than the U.S. dollar, the Company translates income statement amounts at the average monthly exchange rates throughout the year. The Company translates assets and liabilities at exchange rates prevailing as of the balance sheet date. The resulting translation adjustments and gains and losses on intercompany transactions which are long term in nature are shown as a separate component of stockholders' equity. H. Principles of Consolidation The consolidated financial statements include the accounts of American Management Systems, Incorporated and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. The Company's investments in companies in which it has the ability to exercise significant influence over operating and financial policies are accounted for under the equity method, with the remaining investments carried at cost. I. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Future actual results could be different due to these estimates. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include: management's forecasts of contract costs and progress towards completion which are used to determine revenue recognition under the percentage-of-completion method, management's estimates of allowances for doubtful accounts, tax valuation allowances, and management's estimates of the net realizable value of purchased and developed computer software and intangible assets. J. Foreign Currency Hedging From time to time, the Company enters into foreign exchange contracts as a hedge of intercompany balance sheet transactions. Market value gains and losses are recognized, and the resulting credits or debits offset foreign exchange gains or losses on those transactions when settled. For 1998 and 1997, the Company entered into such short-term contracts with de minimis values. No contracts are outstanding as of December 31, 1999. K. Reclassifications Certain prior year information has been reclassified to conform with the current year presentation. L. Comprehensive Income The Company's principal components of comprehensive income are net income and foreign currency translation adjustments. 12 15 M. Investments The Company's policy is to use the equity method for accounting for investments in companies and other investments in which the Company has significant influence or control, generally this represents common stock ownership or partnership equity of at least 20% or more. Employing this method the Company records the initial investment at cost and subsequently adjusts the carrying amount of the investment to reflect the Company's share of income or loss of the investee and to reflect when applicable any dividends received from the investee. N. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133 entitled "Accounting for Derivative Instruments and Hedging Activities." This Statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The FASB has delayed its effective date for one year to fiscal years beginning after June 15, 2000. The Company will be required to adopt this new accounting standard by January 1, 2001. The Company does not anticipate early adoption of this new standard. Due to the complexity of this new standard, the Company has not completed an assessment of the impact it will have on its financial position or results of operations. The Company currently has no material derivative transactions which would be impacted by this new standard. NOTE 2 -- ACCOUNTS AND NOTES RECEIVABLE
December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------------------ Trade Accounts Receivable Amounts Billed $236.1 $215.5 Amounts Not Billed 58.4 46.7 Contract Retention 11.0 7.9 ------ ------ Total 305.5 270.1 Allowance for Doubtful Accounts (10.8) (9.8) ------ ------ Total $294.7 $260.3 ====== ======
The Company enters into large, long-term contracts and, as a result, periodically maintains individually significant receivable balances with certain major clients. At December 31, 1999, the ten largest individual receivable balances totaled approximately $108.4 million. No other receivable exceeded $5 million. Management believes that credit risk, with respect to the Company's receivables, is low due to the creditworthiness of its clients and the diversification of its client base across different industries and geographies. In addition, the Company is further diversified in that it enters into a range of different types of contracts, such as fixed price, cost-plus, time and material, and benefits funded contracts. The Company may also, from time to time, work as a subcontractor on particular contracts. The Company performs ongoing evaluations of contract performance as well as evaluations of the client's financial condition. 13 16 NOTE 3 -- NOTES PAYABLE AND CAPITALIZED LEASE OBLIGATIONS Effective January 9, 1998, the Company entered into a syndicated five-year $120 million Multi-Currency Revolving Credit Agreement with Bank of America and Wachovia Bank (the "1998 Agreement") as agents. A term loan (the "Term Loan"), which was funded by Wachovia Bank and Bank of America on January 6, 1997 under a term loan agreement, remains outstanding and is now governed by the 1998 Agreement. The aggregate weighted average borrowings under all revolving credit agreements was approximately $0.4 million in 1999, and $4.5 million in 1998, at daily weighted average annual interest rates of approximately 5.7% in 1999 and 4.9% in 1998. The maximum borrowed under all agreements was $37.8 million in 1999 and $33.8 million in 1998. At December 31, 1999 the Company had no amounts outstanding under its revolving credit facility and $22.6 million in term loans compared to no amounts outstanding under its revolving credit facility and $28.0 million in term loans at December 31, 1998. The Company and most of its existing subsidiaries can borrow funds under the 1998 Agreement in any of the approved currencies, subject to certain minimum amounts per borrowing. Interest on such borrowings will generally range from LIBOR plus 12.5 basis points to LIBOR plus 45 basis points, depending on the ratio of total debt to EBITDA. The Company must also pay a facility fee ranging from 12.5 basis points to 20 basis points of the total facility, based on the same performance measure. Based on such measures at December 31, 1999, interest payments during 2000 will be based on LIBOR plus 12.5 basis points and the facility fee will be 12.5 basis points of the total facility. The 1998 Agreement, and the Term Loan, contain certain covenants with which the Company must comply. These include: (i) maintain at the end of each fiscal quarter for the four fiscal quarters ending on such date a fixed charge coverage ratio of not less than 2.25 to 1.0, as of December 31, 1997 and March 31, 1998, increasing to 2.5 to 1.0 for the quarter ending June 30, 1998 and thereafter, (ii) maintain total debt to EBITDA ratio of no more than 3.0 to 1.0, (iii) restrictions on using net worth to acquire other companies or transferring assets to a subsidiary, and (iv) restrictions on declaring or paying cash dividends in any one fiscal year in excess of twenty-five percent of its net income for such year. 14 17 The following schedule summarizes the total outstanding notes; there are no outstanding capitalized lease obligations. The carrying values approximate the fair values.
December 31 (In millions) 1999 1998 - ---------------------------------------------------------------------------------------------------------- Revolving Line-of-Credit $ -- $ -- Unsecured Notes With Interest at 5.250% - 6.938% Principal and Interest Payable Monthly Through January 2004 22.6 28.0 ----- ----- Total Notes Payable and Capitalized Lease Obligations $22.6 $28.0 ===== ===== Principal amounts are repayable as shown below: 2000 6.1 2001 6.1 2002 5.4 2003 4.0 2004 1.0 ----- 22.6 Less Current Portion 6.1 ----- Long-Term Portion $16.5 =====
Interest paid by the Company totaled $4.2 million in 1999, $4.2 million in 1998, and $5.8 million in 1997. NOTE 4 -- EQUITY SECURITIES At December 31, 1997, the Company had a stock option plan, the 1992 Amended and Restated Stock Option Plan E, as amended (the "1992 Plan E"), under which the Company was authorized to issue up to 3,375,000 shares of common stock as incentive stock options ("ISOs") or nonqualified stock options ("NSOs"). The 1992 Plan E, which was approved by the shareholders in May 1992, replaced Stock Option Plan E ("Plan E"). At its February 1998 meeting, the Board terminated the 1992 Plan E. No grants have been made under this plan since 1996. On May 10, 1996, the shareholders approved a new stock option plan for the Company, Stock Option Plan F ("Plan F") under which an additional 3,800,000 shares of common stock may be issued as ISOs or NSOs. On February 21, 1997, the Board adopted certain amendments to Plan F resulting in the 1996 Amended Stock Option Plan F ("Amended Plan F") which was approved by the shareholders at the May 9, 1997 annual meeting. On March 3, 1999 the Board approved an amended, Amended Plan F resulting in the 1996 Amended Stock Option Plan F, as Amended, which was ratified by the shareholders at the May 21, 1999 annual meeting. The plan was amended to increase the number of shares of common stock authorized to be issued to 5,800,000 shares, to increase the maximum lifetime from five years to ten years in the case of NSOs and eight years to ten years in the case of ISOs, and to allow the Compensation Committee to grant stock options to Outside Directors generally on a discretionary basis rather than on an automatic, non-discretionary basis. On December 3, 1999 the Board approved the 1999 Contractor Stock Option Plan. The purpose of the plan is to offer certain non-employees ("contractors"), who contribute materially to the successful operation of the Company, additional incentive to continue to serve as contractors by increasing their participation in the Company through stock ownership. Under the plan, the Company is authorized to issue 15 18 up to 20,000 shares of common stock as NSOs which will expire on a date no later than five years from the date of issuance. No options were granted under this plan during 1999. Under all plans, the exercise price of an ISO granted is not less than the fair market value of the common stock on the date of grant and for NSOs, the exercise price is either the fair market value of the common stock on the date of the grant or, when granted in connection with one-year performance periods under the Company's incentive compensation program, the exercise price may be determined by a formula selected by the Board or appropriate Board committee that is based on the fair market value of the common stock as of a date, or for a period, that is within three months of the date of grant. In cases where the market value exceeds the exercise price on the date of grant, the differential is recorded as compensation expense. Under all plans, options expire up to ten years from the date of grant. Options granted are exercisable immediately, in monthly installments, or at a future date, as determined by the appropriate Board committee or as otherwise specified in the plan. At December 31, 1999 there were 4,789,800 shares available for grant under Amended Plan F, as amended. No options remain available for grant under any previous stock option plan. The following table summarizes information with respect to stock options outstanding at December 31, 1999.
Options Exercisable Total Options Outstanding at 12/31/99 at 12/31/99 ------------------------------------- ----------- Weighted Average Remaining Weighted Weighted Contractual Average Average Range of Number Life Exercise Number Exercise Exercise Prices of Shares (Years) Price of Shares Price - -------------------------------------------------------------------------------------------------------------- $ 6.44 - $ 17.50 941,375 1.75 $14.33 850,461 $14.51 18.25 - 23.72 595,065 5.74 22.07 244,153 21.01 23.75 - 26.13 633,035 2.69 25.01 441,263 24.71 26.25 - 33.00 703,643 6.52 29.36 235,531 29.12 33.38 - 36.63 514,457 4.33 33.94 322,378 33.96 38.06 - 38.06 5,000 7.05 38.06 647 38.06 --------- --------- 3,392,575 4.01 $23.81 2,094,433 $22.06
16 19 Additional information with respect to stock options awarded pursuant to such plans is summarized in the following schedule.
Number of Weighted Option Average Shares Exercise Price - --------------------------------------------------------------------------------------------------------------- Balance Outstanding at December 31, 1996 3,416,756 $ 12.76 For the Year Ended December 31, 1997: Options Granted 964,335 20.77 Options Canceled 85,405 19.60 Options Exercised 516,384 7.94 Balance Outstanding at December 31, 1997 3,779,302 15.31 For the Year Ended December 31, 1998: Options Granted 731,244 25.34 Options Canceled 122,325 21.88 Options Exercised 1,204,535 11.20 Balance Outstanding at December 31, 1998 3,183,686 18.92 For the Year Ended December 31, 1999: Options Granted 1,084,684 30.73 Options Canceled 150,473 24.06 Options Exercised 725,322 12.64 Balance Outstanding at December 31, 1999 3,392,575 23.81
The Company has chosen to continue to account for stock-based compensation using the method prescribed in APB Opinion No. 25, "Accounting for Stock Issued to Employees." In 1996, the Company adopted, for disclosure purposes only, Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS No. 123). If the Company determined compensation cost for these plans in accordance with SFAS No. 123, the Company's pro-forma net income and earnings per share for fiscal year 1999, 1998 and 1997 would have been decreased to the pro-forma amounts indicated below:
December 31 (In millions, except per share data): 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------- Reported: Net Income $56.9 $51.8 $31.2 ===== ===== ===== Basic Net Income per Share $1.36 $1.23 $0.75 ===== ===== ===== Diluted Net Income per Share $1.34 $1.21 $0.74 ===== ===== ===== Pro-Forma: Net Income $51.1 $48.8 $26.8 ===== ===== ===== Basic Net Income per Share $1.22 $1.16 $0.65 ===== ===== ===== Diluted Net Income per Share $1.20 $1.14 $0.64 ===== ===== =====
17 20 The SFAS No. 123 method of accounting does not apply to options granted prior to January 1, 1995, and accordingly, the resulting pro-forma compensation cost may not be representative of that to be expected in future years. The Company has ten-year, eight-year and five-year options. For disclosure purposes, the fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Under the Black-Scholes model, the total value of the ten-year options granted in 1999 was $8.7 million, for which certain options would be amortized on a graded vesting schedule on a pro-forma basis over a seven-year period, and others would be amortized ratably on a pro-forma basis over a ten-year period (which varies between four months and ten years). The weighted-average fair value of the ten-year options granted in 1999 was $15.63. The total value of the eight-year options granted in 1999, 1998 and 1997 was $0.4 million, $2.8 million and $2.2 million, respectively, which would be amortized on a graded vesting schedule on a pro-forma basis over a seven-year period. The weighted-average fair value of the eight-year stock options granted in 1999, 1998 and 1997 was $17.82, $12.37 and $10.56, respectively. The total value of the five-year stock options granted in 1999, 1998 and 1997 was $8.0 million, $5.2 million and $5.5 million, respectively. These would be amortized ratably on a pro-forma basis over a five-year period (which varies between four months and five years). The weighted-average fair value of the five-year stock options granted in 1999, 1998 and 1997 was $16.00, $10.18 and $7.28, respectively. Additionally, the following assumptions were used for the ten-year, eight-year and five-year stock options granted in 1999, 1998 and 1997 respectively.
Ten Year Eight Year Five Year -------------------------- ------------------------- ------------------------- December 31 1999 1998 1997 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Expected Volatility 44.44% -- -- 44.99% 43.86% 39.96% 49.92% 45.44% 39.65% Risk-Free Interest Rate 6.09% -- -- 4.90% 5.36% 5.60% 4.99% 5.48% 6.29% Expected Life 8 yrs -- -- 6 yrs 5 yrs 5 yrs 4 yrs 4 yrs 4 yrs Expected Dividend Yield 0% -- -- 0% 0% 0% 0% 0% 0%
On September 21, 1999, the Company announced that its Board of Directors has authorized the purchase, from time to time, of up to 2 million shares of its common stock through open market and negotiated purchases. This authorization is in addition to the actions in August of 1998 and in February 1999, where in both cases the Board of Directors authorized the purchase of 1 million shares. The Company repurchased 1,900,000, 720,000, and 3,000 shares of its common stock during 1999, 1998, and 1997, respectively, for a total of $74.2 million. In addition, the Company has been funding stock option exercises through the reissuance of previously acquired treasury shares. 18 21 NOTE 5 -- EARNINGS PER SHARE RECONCILIATION
Year Ended December 31 (In millions except per share data) 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------- Basic Earnings per Share Computation Net Income (Numerator) $56.9 $51.8 $31.2 ----- ----- ----- Weighted Average Shares (Denominator) 41.9 42.1 41.4 ----- ----- ----- Basic Net Income per Share $1.36 $1.23 $0.75 ===== ===== ===== Diluted Earnings per Share Computation Net Income (Numerator) $56.9 $51.8 $31.2 ----- ----- ----- Weighted Average Shares and Equivalents: Weighted Average Shares 41.9 42.1 41.4 Shares Issuable Upon Exercise of Stock Options 2.7 3.3 2.9 Less Shares Assumed to be Repurchased at Fair Market Value (2.0) (2.5) (2.0) ----- ----- ----- Total Weighted Average Shares and Equivalents (Denominator) 42.6 42.9 42.3 ----- ----- ----- Diluted Net Income per Share $1.34 $1.21 $0.74 ===== ===== =====
19 22 NOTE 6 -- INCOME TAXES
Year Ended December 31 (In millions) 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------- Income before income taxes for the year ended December 31 was derived in the following jurisdictions: U.S. $ 59.7 $ 58.5 $ 25.7 Non-U.S. 36.7 28.8 25.7 ------- ------- ------- $ 96.4 $ 87.3 $ 51.4 ======= ======= ======= The provision for income taxes is comprised of the following: Current: U.S. Federal $ 21.7 $ 15.5 $ 3.3 U.S. State 5.1 4.1 0.3 Non-U.S. 16.7 8.1 13.3 Deferred: U.S. Federal (1.7) 6.4 3.2 U.S. State (0.2) (1.9) 0.6 Non-U.S. (2.1) 3.3 (0.5) ------- ------- ------- Total Provision $ 39.5 $ 35.5 $ 20.2 ======= ======= ======= The differences between the U.S. federal statutory income tax as measured based on pre-tax income and the Company's effective rate are: U.S. federal statutory income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 4.1 3.3 1.6 Change in valuation allowance (0.2) 0.7 0.2 Research tax credits (1.5) (0.4) (3.6) Meals and entertainment 2.7 2.4 3.7 Goodwill and Other Non-deductibles 0.8 0.6 0.4 Benefit of Non-U.S. Subsidiary Conversion -- (1.7) (1.7) Impact of Non-U.S. jurisdictions 2.4 1.4 6.0 Other (2.3) (0.6) (2.3) ------- ------- ------- Effective Rate 41.0% 40.7% 39.3% ======= ======= =======
20 23
Year Ended December 31 (In millions) 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------- The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 are as follows: Deferred Tax Assets: Accrued Expenses $ 10.3 $ 3.2 $ -- Employee Related Compensation 19.3 13.7 8.7 Deferred Revenue 1.7 1.0 1.5 Allowance for Doubtful Accounts 4.5 3.9 4.2 Loss and Credit Carryforwards 5.2 3.5 9.0 Other 6.9 5.0 3.3 ------- ------- ------- Subtotal 47.9 30.3 26.7 Valuation Allowance (0.9) (1.1) (0.5) ------- ------- ------- Total Deferred Tax Assets $ 47.0 $ 29.2 $ 26.2 ------- ------- ------- Deferred Tax Liabilities: Unbilled Receivables $ (27.1) $ (19.9) $ (20.4) Capitalized Software (42.4) (29.2) (21.0) Other 0.5 (6.1) (3.1) ------- ------- ------- Total Deferred Tax Liabilities (69.0) (55.2) (44.5) ------- ------- ------- Net Deferred Tax Liabilities $ (22.0) $ (26.0) $ (18.3) ======= ======= =======
The net changes in total valuation allowance for the years ending December 31, 1999, 1998, and 1997 were a decrease of $0.2 million, an increase of $0.6 million, and an increase of $0.1 million respectively. Certain of the Company's foreign subsidiaries have net operating losses, the majority of such losses carry forward over an indefinite period. The Company has not provided for U.S. federal income and foreign withholding taxes on $33.4 million of non-U.S. subsidiaries' undistributed earnings as of December 31, 1999, because such earnings are intended to be reinvested indefinitely or have already been taxed at rates in excess of the U.S. federal rate. If these earnings were distributed, foreign tax credits would become available under current law to reduce or eliminate the resulting U.S. income tax liability. Where excess cash has accumulated in the Company's non-US subsidiaries and it is advantageous for tax or foreign exchange reasons, subsidiary earnings are remitted. The Company paid income taxes of approximately $43.0 million, $23.4 million, and $14.9 million, in 1999, 1998, and 1997, respectively. NOTE 7 -- DEFERRED COMPENSATION PLAN The Company has deferred compensation plans which were implemented in late 1996, and permit eligible employees and directors to defer a specified portion of their compensation. The deferred compensation earns a specified rate of return. As of year end 1999 and 1998 the Company had accrued $28.3 million and $17.3 million, respectively, for its obligations under these plans. The Company expensed $1.8 million in 1999 and $1.4 million in 1998, related to the earnings by the deferred compensation plan participants. 21 24 To fund these plans, the Company purchases corporate-owned life insurance contracts. Proceeds from the insurance policies are payable to the Company upon the death of the insured. During 1999 the Company received proceeds of $1.2 million associated with one of the policies, which were subsequently re-invested in the existing corporate-owned life insurance contracts. The cash surrender value of these policies, included in "Other Assets", was $27.5 million at December 31, 1999 and $16.6 million at December 31, 1998. There were no outstanding loans at December 31, 1999 or December 31, 1998 on these policies. NOTE 8 -- EMPLOYEE PENSION PLAN The Company has a simplified employee pension plan, which became effective January 1, 1980. This plan is a defined contribution plan whereby contributions are based on the application of a percentage specified by the Company to the qualified gross wages of eligible employees. The Company makes annual contributions to the plan equal to the amount accrued for pension expense. Total expense of the plan was $14.0 million in 1999, $11.5 million in 1998, and $9.8 million in 1997. NOTE 9 -- JOINT VENTURE In 1998, the Company established a joint venture with Bank of Montreal to provide online loan application and decisioning services to small and mid-size financial institutions via a new limited liability company, Competix L.L.C. In October 1999, Competix converted from a limited liability company to a c-corporation in which the Company currently maintains a 50% interest. Competix is authorized to issue up to 20% of its stock to its employees, issuable upon the exercise of stock options. At such time or times as Competix employees exercise these stock options, AMS's percent ownership in Competix will be reduced. In 1999 and 1998, the Company invested $1.8 million and $3.6 million, respectively, in connection with its 50% interest in Competix, which investment was reduced by $4.3 million and $0.7 million related to the Company's share of the losses incurred by Competix in 1999 and 1998, respectively. (The losses reflect costs related to launching the new business). NOTE 10 -- COMMITMENTS AND CONTINGENCIES The Company occupies production facilities and office space (real property) and uses various equipment under operating lease agreements, expiring at various dates through the year 2015. The commitments under these agreements, as of December 31, 1999, are summarized in the table below. Payments under the real property leases are generally subject to escalation based upon increases in the Consumer Price Index, operating expenses, and property taxes. Gross Rentals and Maintenance Payments --------------------------------------
(In millions) Real Property Equipment Total - --------------------------------------------------------------------------------------------------------------- 2000 $ 41.6 $14.0 $ 55.6 2001 40.4 8.1 48.5 2002 36.2 2.7 38.9 2003 31.3 1.5 32.8 2004 27.0 1.1 28.1 2005 through 2015 125.6 -- 125.6 ------ ----- ------ Total $302.1 $27.4 $329.5 ====== ===== ======
22 25 Operating lease expense for 1999, 1998, and 1997 was approximately $51.0 million, $45.1 million and $46.5 million, respectively. The Company has an extended leave program for certain employees that provides for compensated leave of eight weeks after seven years of service. The leave is not vested and can be taken only at the discretion of management. Because of the extended period over which the leave accumulates and the highly discretionary nature of the program, the amount of extended leave accumulated at any period end which will ultimately be taken is indeterminable. Consequently, the Company expenses such leave as it is taken. As required by the original terms of its contract with Bezeq, a subsidiary of the Company has entered into bank guarantees in Bezeq's favor securing its performance under this contract. At December 31, 1999, approximately $19.8 million was outstanding under such bank guarantees. See "Results of Operations - Expenses," above for additional information about the Bezeq contract. On August 8, 1999, the Company's subsidiary sought and received a temporary injunction from the Jerusalem District Court prohibiting Bezeq from realizing on the guarantees. On December 29, 1999 the Jerusalem District Court ruled that the AMS subsidiary may not enjoin Bezeq from drawing on the bank guarantees. The AMS subsidiary promptly appealed that decision to the Israeli Supreme Court, where the matter is pending. In the event the Israeli Supreme Court does not grant a permanent injunction, and Bezeq were to call on these guarantees, the Company's liquidity will not be jeopardized. On September 3, 1999, Bezeq sent a notice to the relevant AMS subsidiary purporting to terminate the contract, which the Company does not agree that Bezeq is entitled to do. On September 9, 1999, Bezeq sued the AMS subsidiary party to the contract in Jerusalem District Court. Bezeq alleges damages of approximately $39 million based on breach of contract, which figure includes amounts Bezeq could seek to draw under the bank guarantees. The Company's subsidiary is contesting these allegations vigorously in appropriate court submissions. The Company does not anticipate any material adverse effect on its liquidity as a result of these claims alleged by Bezeq against the AMS subsidiary. On January 19, 2000 the AMS subsidiary filed a counterclaim against Bezeq for approximately $58.8 million in damages due to breach of contract and other claims. As previously described in the Company's Forms 10-Q filed May 17, 1999, August 13, 1999 and November 15, 1999, the State of Mississippi sued AMS in April 1999, alleging claims for breach of contract, bad faith breach of contract, and unjust enrichment, and seeks various forms of injunctive relief as well as compensatory damages. On May 24, 1999, AMS filed an answer and counterclaim for payment for certain deliverables accepted by the State, including work in progress. Discovery continues and is expected to be completed by the second quarter of 2000. AMS expects to continue to contest the lawsuit vigorously. AMS performs, at any point in time, under a variety of contracts for many different clients. Situations can occasionally arise where factors may result in the renegotiation of existing contracts. Additionally, certain contracts may provide the client the right to suspend or terminate the contracts. To the extent any contracts may provide the client with such rights, the contracts generally provide for AMS to be compensated for work performed to date and may include provisions for payment of certain termination costs. However, business and other considerations may at times influence the ultimate outcome of contract renegotiations, suspension and/or cancellation. NOTE 11 -- RELATED PARTY TRANSACTIONS The Company incurred legal fees and reimbursable expenses payable to ShawPittman, general counsel to the Company, totaling approximately $5.4 million, $5.0 million, and $4.0 million, in 1999, 1998, and 1997, respectively. A member of the firm of ShawPittman is the spouse of a former executive officer of the Company who resigned in November 1997. 23 26 NOTE 12 -- SEGMENT REPORTING AND SIGNIFICANT CUSTOMERS The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" as required and comparative information for earlier years is presented below. The Company engages in business activities in one operating segment which provides information technology consulting services to large clients in targeted vertical markets. The chief operating decision-maker is provided information about the revenues generated in key client industries. The resources needed to deliver the Company's services are not separately reported by industry. The Company markets its services worldwide, and its operations are grouped into two main geographic areas according to the location of each of the Company's subsidiaries. The Company's long-lived assets are located primarily in the United States. The two groupings consist of United States locations and non-US locations. Pertinent financial data is summarized below.
Year Ended December 31 (In millions) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------ Revenues by Target Market Telecommunications Firms $ 337.6 $ 266.6 $283.0 Financial Services and Institutions 193.9 210.2 181.1 State and Local Governments and Education 346.3 282.1 171.4 Federal Government Agencies 300.3 241.3 189.2 Other Corporate Clients 62.2 57.6 47.6 -------- -------- ------ Consolidated Total $1,240.3 $1,057.8 $872.3 ======== ======== ====== Revenues by Geographic Area U.S. Companies $1,048.4 $ 873.3 $682.2 Non-US Companies 191.9 184.5 190.1 -------- -------- ------ Consolidated Total $1,240.3 $1,057.8 $872.3 ======== ======== ======
Revenues from AMS's U.S. Companies include export sales to non-US clients of $34.8 million in 1999, $23.9 million in 1998, and $58.5 million in 1997. As a result the Company's total non-US client revenues, primarily in Western Europe, were as follows:
Year Ended December 31 (In millions) 1999 1998 1997 - ------------------------------------------------------------------------------------------------ Exports By U.S. Companies $ 34.8 $ 23.9 $ 58.5 Non-US Companies 191.9 184.5 190.1 ------ ------ ------ Total Non-US Client Revenues $226.7 $208.4 $248.6 ====== ====== ====== Percent of Total Revenues 18.3% 19.7% 28.5% ====== ====== ======
Significant Customers: Total revenues from the U.S. Government, comprising 112 clients in 1999, 109 clients in 1998, and 93 clients in 1997, were approximately $288.2 million in 1999, $224.8 million in 1998, and $171.5 million in 1997. No other customer accounted for 10% or more of total revenues in 1999, 1998, or 1997. 24 27 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of American Management Systems, Incorporated Fairfax, Virginia We have audited the accompanying consolidated balance sheets of American Management Systems, Incorporated and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the years then ended. 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 audit in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of American Management Systems, Incorporated and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP McLean, Virginia February 16, 2000 25 28 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of American Management Systems, Incorporated In our opinion, the accompanying consolidated financial statements appearing on pages 4 to 24 of the 1999 Financial Report present fairly, in all material respects, the financial position of American Management Systems, Incorporated and its subsidiaries at December 31, 1997, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. 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 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. PricewaterhouseCoopers LLP Washington, D.C. February 18, 1998 26 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") contains certain forward-looking statements. In addition, the Company or its representatives from time to time may make, or may have made, certain forward-looking statements, orally or in writing, including, without limitation, any such statements made in this MD&A, press releases, or any such statements made, or to be made, in the MD&A contained in other filings with the Securities and Exchange Commission. The Company wishes to ensure that such forward-looking statements are accompanied by meaningful cautionary statements so as to ensure, to the fullest extent possible, the protections of the safe harbor established by Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Accordingly, such forward-looking statements made by, or on behalf of, the Company are qualified in their entirety by reference to, and are accompanied by, the discussion herein of important factors that could cause the Company's actual results to differ materially from those projected in such forward-looking statements. RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percentage of total revenues of major items in the Consolidated Statements of Operations and the percentage change in such items from period to period (see "Financial Statements and Notes"), excluding percentage changes in de minimus dollar amounts. The effect of inflation and price changes on the Company's revenues, income from operations, and expenses, is generally comparable to the general rate of inflation in the U.S. economy.
Period-to-Period Percentage of Total Revenues Change ---------------------------- ---------------- 1999 1998 vs. vs. 1999 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------ Revenues.............................................. 100.0% 100.0% 100.0% 17.3% 21.3% Expenses Client Project Expenses.......................... 52.7 54.5 55.6 13.5 18.8 Other Operating Expenses......................... 30.7 28.8 31.2 24.3 12.6 Corporate Expenses............................... 7.1 7.5 7.0 12.2 28.7 Provision for Specific Contract.................. 1.6 0.7 -- 185.7 100.0 ------- ------- ------- 92.1 91.5 93.8 18.0 18.3 Income from Operations................................ 7.9 8.5 6.2 8.9 65.6 Other (Income) Expense................................ 0.1 0.2 0.3 (42.3) (10.3) ------- ------- ------- Income Before Income Taxes............................ 7.8 8.3 5.9 10.4 69.8 Income Taxes.......................................... 3.2 3.4 2.3 11.3 75.7 ------- ------- ------- Net Income............................................ 4.6 4.9 3.6 9.8 66.0 Weighted Average Shares............................... (0.5) 1.7 Basic Net Income per Share............................ 10.6 64.0 Weighted Average Shares and Equivalents............... (0.7) 1.4 Diluted Net Income per Share.......................... 10.7 63.5
27 30 RESULTS OF OPERATIONS (continued) REVENUES Revenues increased 17% and 21% during 1999 and 1998 compared to the preceding year. Approximately 85-90% of each year's revenues came from clients for whom the Company performed services in prior years. Looking ahead to 2000, the Company expects growth to continue at approximately the same rates that were experienced in 1999. The Financial Services Institutions target market is expected to grow at a faster rate than the Company's overall growth rate and the State and Local Governments target market is expected to grow at a slightly slower rate. As part of its growth strategy the Company formed in 1998 a cross-target market practice that focuses on delivering high-value, customer-facing Web solutions - including eBill, eCare and eMarketing - tailored to clients in financial services, telecommunications, government and utilities. These solutions help firms achieve greater cost savings, deliver improved customer service and leverage cross-sell and up-sell opportunities in their markets. The new "eCustomer" practice builds upon the Company's existing, significant eCommerce client base. The 1999 eCommerce related revenues were more than $500 million, an increase of more than 150% when compared to 1998 eCommerce revenues of $200 million. The Company expects to continue rapid growth in its eCommerce revenue for 2000 in all of its target markets. Business with non-US clients increased 9% to $227 million during 1999 and decreased 16% during 1998 to $208 million. The 1999 increase is principally attributable to increased business with new clients in the Telecommunications Firms market, a market that has shown continued improvement over the past two years. The decrease in 1998 was due to the Company having not fully replaced the revenues from two large projects with European telecommunications clients whose cancellations were announced in 1997. Business with non-US clients represents 18% and 20% of the Company's total revenues for 1999 and 1998, respectively. During 1999, the Company continued to increase its non-US client base and expanded the number of services offered to these clients. In 1998, the Company opened a new office in Australia, where work on a large telecommunications project continues and there continues to be expanded business in Australia. The Company believes that it is well positioned to achieve substantial growth in non-US business going forward. For the year 2000, the Company expects non-US business and European business in particular, to show some growth over 1999, mainly in the Telecommunications Firms and the State and Local Governments and Education target markets. In the Telecommunications Firms market, a market that continues to be characterized by large projects with relatively few clients, revenues increased 27% in 1999 when compared to 1998 and decreased 6% comparing 1998 to 1997. The 1999 revenue growth reflects the Company's continued success in implementing its revised strategy (begun in 1998) in the telecommunications marketplace, acquiring new clients, expanding service offerings and initiating several systems integration engagements. This market showed continued success in its core business as well as a significant improvement in the eBusiness arena. Non-US revenues increased 19% in 1999 and decreased 30% in 1998 when compared to the previous year. The increase in 1999 shows that the core business in this market is strong and that there were several new European clients in 1999. For the year 2000, the Company anticipates revenue growth in this market to increase at rates above the Company's overall revenue growth. The Company's development of its next generation of customer care and billing software, known as "Tapestry", is continuing to progress through a contract with a European client. Because that client is sharing part of the cost of development, collections from that contract did not contribute materially to revenue growth in this market in 1999 and the Company does not anticipate that such collection will make a material contribution to revenue in the first half of 2000; rather, the Company expects such collection to reduce capitalized software costs. Although the first release of the software has been delivered to this client, the development effort continues for the second release which is scheduled to be delivered at the end of the first half of 2000. There continues to be significant market interest in Tapestry. 28 31 Notwithstanding actual and projected revenue growth, there continues to be risks in this market. Competition for experienced staff is especially intense in the telecommunications field, and staffing remains one of the Company's critical challenges. Additionally, the Company works in countries located in regions other than Western Europe and North America from time to time and the delivery risks in some of these other countries may be higher. Revenues in the Telecommunications Firms market in these countries were less than 3% of the Company's total revenues for 1999. In the Financial Services Institutions target market, 1999 revenues decreased 8% over 1998, principally due to a market slowdown associated with Year 2000 "lockdowns" and the increased M&A activity in the overall marketplace. In addition, large projects were winding down in the fourth quarter of 1998 and certain new projects did not ramp up as quickly as anticipated. Comparing 1998 to 1997, revenues in this market increased 16% as a result of new business in mid-1997. Business with non-US clients, primarily European, account for approximately 34% of the 1999 revenues in this market ($67 million). For 2000, the Company anticipates revenue growth in this market to increase at rates greater than the Company's overall revenue growth rate, with an increased emphasis on eCommerce business. In the State and Local Governments and Education target market, revenues increased 23% in 1999 and 65% in 1998. The Company's revenues in this market experienced significant growth over the past years, and therefore the moderating increase in 1999 was expected. The revenue increase for the first half of 1999 and all of 1998 was driven by the rapid build-up of several large contracts with state taxation departments looking to make substantial improvements in their ability to collect delinquent taxes and several new engagements for integrated financial systems. On certain of the contracts with state taxation departments, the Company's fees are paid out of the benefits (increased collections) that the client achieves. On benefit-funded contracts (contracts whereby the amounts due the Company are payable based on actual benefits derived by the client), the Company deferred recognition of revenues until that point at which management could predict, with reasonable certainty, that the benefit stream would generate amounts sufficient to fund the contract. From that point forward, revenues were recognized on a percentage of completion basis. All of the current large multi-year benefit-funded contracts are now being recognized on a percentage of completion basis. Revenues in the State and Local Governments and Education market are expected to increase in 2000 at rates below the Company's overall revenue growth rate, due to a continued slowdown in new procurements related to Year 2000 issues. Revenues in the Federal Government Agencies target market increased 24% in 1999 and 28% in 1998. These increases were attributable predominantly to the award in mid-1997 of a significant multi-year contract with the Department of Defense for its Standard Procurement System ("SPS"), which accounted for 35% of the 1999 revenue growth and 34% of the 1998 revenue growth. In addition, there was increased business with existing clients and new business with both defense and civilian agencies. For the year 2000, the Company expects revenues in this target market to increase over 1999 at a rate approximating the Company's overall revenue growth rate. These revenue increases will continue to be driven primarily by contracts with clients using the Company's federal financial systems. Revenues from Other Corporate Clients increased 8% in 1999 and increased 21% in 1998. The 1999 and 1998 increases are mainly attributable to increased business with new clients in the electric and gas utilities market and the health care market. For all of 2000, the Company expects revenue growth in this market to increase at the same rate of growth as the Company's overall growth rate. 29 32 EXPENSES Client project expenses and other operating expenses together increased 17% during 1999, which was in line with the growth rate in revenues. Comparing 1998 to 1997, client project and other operating expenses increased 17%, which was slightly lower than the growth rate in revenues. Looking to 2000, the Company anticipates that these expenses will continue to grow at rates lower than the revenue growth rate. The Company has made significant expenditures related to development of the "Tapestry" software. A majority of these expenditures have been and will be capitalized. Key software deliveries have been made early in the fourth quarter of 1999 and the Company is targeting another delivery of the software for mid-2000. Amortization of the Tapestry product is scheduled to begin late in the first half of 2000. Corporate Expenses increased 12% and 29%, in 1999 and 1998, respectively. The increase in corporate expenses for 1999 and 1998, was due to the dedication of resources applied to the Year 2000 remediation of internal systems. During the second half of 1999, the rate of increase was offset in part by reductions in accruals for corporate level performance-based incentive compensation, and profit-based compensation accruals under the Company's restricted stock program. For the year 2000, the Company expects corporate expenses to grow at rates below the Company's revenue growth rate. The Company is continuing to address the ongoing disputes on a project an AMS subsidiary undertook for Bezeq, the Israeli telephone company ("Bezeq"), mentioned in the Company's Form 10-Q for the third quarter filed on November 15, 1999. At the end of 1999, the Company continued to maintain the $27 million provision, established in 1998 ($7 million) and 1999 ($20 million) for potential losses related to this project. The Company has no information that would cause it to change the amount of the provision. INCOME FROM OPERATIONS Income from operations increased 9% in 1999 and 66% in 1998. The Company's profit margins have continued to improve due to an ongoing emphasis on well-structured and priced engagements and tightly managed delivery risk. In addition, the Company is continuing to focus on controlling expenses. For 2000, the Company will continue to emphasize managed growth and expects improved profit margins when compared with 1999 results. OTHER (INCOME) EXPENSE Interest (income) expense decreased 100% in 1999 and decreased 82% in 1998, compared to 1998 and 1997, respectively. The 1999 and 1998 decrease is due to lower amounts of short-term borrowings, as a result of significantly improved cash flow from operations during all of 1999 and the second half of 1998. In addition, the increased cash from operations was invested in short-term instruments, which resulted in higher interest income. Other (income) expense decreased in 1999, compared to the same period in 1998, primarily because of proceeds from an insurance policy and also an increase in the investment (cash surrender value) on the company owned life insurance program. Other (income) expense increased over 100% during 1998, compared to 1997, primarily because of a write-off of certain small investments and some obsolete fixed assets. The improved cash flow has increased the Company's cash investment income, which partially offset the expense increase. In late 1998, the Company established a joint venture with Bank of Montreal to provide online processing services for loan applications to small and mid-size financial institutions via a new firm, Competix, Inc. (formerly Competix, L.L.C.). The Company incurred a loss of $4.3 million during 1999 and $0.7 million during 1998 related to this joint venture, due to continued losses and start up costs of this new company. The Company expects to incur expenses in 2000 related to this joint venture as were incurred in 1999. 30 33 INCOME TAXES The Company's effective tax rate for 1999 was 41% compared to 40.7% in 1998, and 39.3% in 1997. The Company expects that its effective tax rate in 2000 will be generally consistent with its historical rates. FOREIGN CURRENCY EXCHANGE Approximately 18% of the Company's total revenues in 1999, 20% in 1998, and 28% in 1997, were derived from non-US clients. The Company's practice is to negotiate contracts in the same currency in which the predominant expenses are incurred, thereby mitigating the exposure to foreign currency exchange fluctuations. It is not possible to accomplish this in all cases; thus, there is some risk that profits will be affected by foreign currency exchange fluctuations. However, the Company seeks to negotiate provisions in contracts with non-US clients that allow pricing adjustments related to currency fluctuations. In a further effort to mitigate foreign currency exchange risk, the Company has established a notional cash pool with a European bank. This arrangement allows the Company to better utilize its cash resources among all of the Company's subsidiaries, without incurring foreign currency conversion risks, thereby mitigating foreign currency exposure for these transactions. The Company also actively manages the excess cash balances in the cash pool, which will increase interest income on short-term investments. During the past two years, the Company also has employed limited hedging of intercompany balance sheet transactions through derivative instruments (foreign currency swap contracts); however, as of December 31, 1999, the Company had no outstanding derivative contracts. LIQUIDITY AND CAPITAL RESOURCES The Company provides for its operating cash requirements primarily through funds generated from operations. Through an available bank facility, the Company can also provide for cash and currency management with respect to the short-term impact of certain cyclical uses, such as annual payments of incentive compensation as well as financing, from time to time, accounts receivable. At December 31, 1999, the Company's cash and cash equivalents totaled $111.3 million down from $119.3 million at the end of 1998. Cash provided by operating activities for 1999 was $103.5 million compared to $131.2 million in 1998. During 1999, the Company invested over $61.5 million in fixed assets, software purchases, and computer software development compared to $55.4 million in 1998. In 1999 and 1998, the Company invested $1.8 million and $3.6 million, respectively, on the Competix joint venture, which was reduced by $4.3 million in 1999 and $0.7 million in 1998 related to the Company's share of the Competix losses. The Company expects to incur continued cash investments related to this joint venture in 2000 as were incurred in 1999. Revolving line-of-credit borrowings were zero at December 31, 1999. The aggregate weighted average short-term borrowings during 1999 were approximately $0.4 million, at a weighted average annual interest rate of 5.7%. During 1999, the Company made approximately $5.4 million in installment payments of principal on outstanding debt owed to banks; the Company also received proceeds of approximately $14.2 million during the period from the exercise of stock options and the tax benefits related thereto. The Company repurchased approximately 1.9 million shares of common stock during 1999, at a cost of $52.9 million. On September 21, 1999, the Company announced that its Board of Directors has authorized the purchase, from time to time, of up to 2 million shares of its common stock through open market and negotiated purchases. This authorization is in addition to the actions in August of 1998 and in February 1999, where in both cases the Board of Directors authorized the purchase of 1 million shares. The 31 34 Company has acquired in open market purchases approximately 2.6 million shares through December 31, 1999, and as of such date had authorization to purchase up to 1.4 million additional shares. At December 31, 1999, the Company's debt-equity ratio, as measured by total liabilities divided by stockholders' equity was 0.98 up from 0.84 at December 31, 1998. The Company's material unused source of liquidity at the end of 1999 consisted of $120.0 million under the multi-currency revolving credit agreement with Bank of America and Wachovia Bank as agents. The Company believes that its liquidity needs can be met from the various sources described above. As required by the original terms of its contract with Bezeq, a subsidiary of the Company has entered into bank guarantees in Bezeq's favor securing its performance under this contract. At December 31, 1999, approximately $19.8 million was outstanding under such bank guarantees. See "Results of Operations - Expenses," above for additional information about the Bezeq contract. On August 8, 1999, the Company's subsidiary sought and received a temporary injunction from the Jerusalem District Court prohibiting Bezeq from realizing on the guarantees. On December 29, 1999 the Jerusalem District Court ruled that the AMS subsidiary may not enjoin Bezeq from drawing on the bank guarantees. The AMS subsidiary promptly appealed that decision to the Israeli Supreme Court, where the matter is pending. In the event the Israeli Supreme Court does not grant a permanent injunction, and Bezeq were to call on these guarantees, the Company's liquidity will not be jeopardized. On September 3, 1999, Bezeq sent a notice to the relevant AMS subsidiary purporting to terminate the contract, which the Company does not agree that Bezeq is entitled to do. On September 9, 1999, Bezeq sued the AMS subsidiary party to the contract in Jerusalem District Court. Bezeq alleges damages of approximately $39 million based on breach of contract, which figure includes amounts Bezeq could seek to draw under the bank guarantees. The Company's subsidiary is contesting these allegations vigorously in appropriate court submissions. The Company does not anticipate any material adverse effect on its liquidity as a result of these claims alleged by Bezeq against the AMS subsidiary. On January 19, 2000 the AMS subsidiary filed a counterclaim against Bezeq for approximately $58.8 million in damages due to breach of contract and other claims. YEAR 2000 ISSUES Since 1997, the Company has been engaged in the process of reviewing, remediating, testing, and contingency planning for any unexpected failures of its internal information technology infrastructure, its suppliers, and the software it develops for and licenses to its customers, in order to prevent the occurrence of any material Year 2000 problems. This company-wide effort included participation at levels from the Audit Committee of the Board of Directors through dedicated information technology staff. The Company was able to remediate and test its critical information technology systems in advance of December 31, 1999. Through the date of this Form 10-K, the Company has experienced no material unresolved problems related to Year 2000, including the changeover from December 31, 1999, to January 1, 2000, and the leap day, February 29, 2000, in connection with either its internal information technology infrastructure or in the software it has licensed to its customers. In addition, no major suppliers have failed to meet their obligations as a result of the Year 2000. The Company spent approximately $5.0 million during the 1999 fiscal year on all of its Year 2000 compliance efforts, which, combined with other expenditures to date, amounts to a total expenditure of approximately $11.0 million on Year 2000 compliance over the past 4 years. The Company will continue to monitor its internal and licensed information technology and non-information technology systems, as well as those of the third parties with whom it conducts business, 32 35 through the middle of the Year 2000 to ensure that any latent year 2000 issues that may arise are addressed promptly. Although the Company does not anticipate any additional material expenditures relating to Year 2000 compliance, it cannot provide any assurance as to the magnitude of any future costs until a more significant period of time has passed from the Year 2000 changeover. 33 36 ASSUMPTIONS UNDERLYING CERTAIN FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS Over the next several years, the Company expects to continue to manage its growth in revenues. The continuing controlled growth in revenues should enable the Company to continue improving its profit margins, as in past years, excluding the after-tax reserves for a troubled contract signed two years ago. The Company faces continuing risks in the area of project delivery and staffing. AMS has established a reputation in the marketplace of being a firm which delivers on time and in accordance with specifications regardless of the complexity of the application and the technology. The Company's customers often have a great deal at stake in being able to meet market and regulatory demands, and demand very ambitious delivery requirements. In order to meet its contractual commitments, AMS must continue to recruit, train, and assimilate successfully large numbers of entry-level and experienced employees annually, as well as to provide sufficient senior managerial experience on engagements, especially on large, complex projects. Moreover, this staff must be re-deployed on projects globally. Staffing projects in certain less industrialized countries can pose special risks and challenges. The Company must also manage rates of attrition, in view of increased competition for its talent. There is also the risk of failing to successfully manage large projects and the risk that the unanticipated delay, suspension, renegotiation or cancellation of a large project could have an adverse impact on operating results. Any such development in a project could result in a decline in revenues or profits, the need to relocate staff, a lawsuit or other dispute with a client regarding money owed, or damages incurred as a result of alleged non-performance by AMS and a diminution of AMS's reputation. Changing client requirements, such as scope changes and process issues, and delays in client acceptance of interim project deliverables, are other examples of risks of non-performance, especially in large complex projects. All of these risks are magnified in the largest projects and markets simply because of their size. The Company's business is characterized by large contracts producing high percentages of the Company's revenues. For example, 40% of the Company's total revenues in 1999 was derived from business with 17 clients. The Company has experienced, and may continue to experience for several more months, some diversion of work, both pending and new opportunities, and decreases in revenues and profit margins, as a result of client Year 2000 compliance issues. Although these risks exist potentially across the Company's engagements, they are magnified in certain target markets, such as the Financial Services Institutions and the State and Local Governments markets given the need for Year 2000 compliance certainty in those markets. See "YEAR 2000 ISSUES" section in MD&A for additional information on Year 2000 compliance issues. There is also the risk of revenues not being realized when expected, such as in certain contracts in the State and Local Governments market. On certain large contracts, the Company's fees are paid out of the benefits (for example, increased revenues from tax collections) that the client achieves. The Company historically has deferred recognition of such revenues until management can predict, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the contract. From that point forward revenues are recognized on a percentage of completion basis. As the number of such contracts, and the Company's experience with predicting the timing and certainty of such revenues, have increased over time, the Company expects to be able to recognize revenues earlier on such contracts in the future. 34 37 The Company also faces the risk of increased competition in the markets in which it participates. In addition to any risk that the Company's competitors may create, some of the Company's current or prospective clients may decide to perform projects with their in-house staff that the Company might otherwise have undertaken. The Company also faces the risk of shrinking markets resulting from mergers and other consolidations of clients or prospective clients. Increased competition from industry rivals, as well as decisions by clients to outsource fewer projects or to consolidate with others in the Company's markets, could have a negative impact on pricing, revenues and margins. Events such as unanticipated declines in revenues or profits could in turn result in immediate fluctuations in the trading price and volume of the Company's stock. Certain other risks, including, but not limited to, the Company's international scope of operations, are discussed elsewhere in this Form 10-K. Increasingly, the Company conducts business in countries other than Western Europe and North America. Contracts being performed in such non-Western countries can have higher delivery risks for a variety of reasons. Because the Company operates in a rapidly changing and highly competitive market, additional risks not discussed in this Form 10-K may emerge from time to time. The Company cannot predict such risks or assess the impact, if any, that such risks may have on its business. Consequently, the Company's various forward-looking statements, made, or to be made, should not be relied upon as a prediction of actual results. 35 38 FIVE-YEAR FINANCIAL SUMMARY
Year Ended December 31 (In millions except share and per share data) 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS - -------------------------------------------------------------------------------------------------------------------------- Revenues $1,240.3 $1,057.8 $872.3 $812.2 $632.4 Client Project Expenses 653.8 576.2 485.0 525.9 348.6 Other Operating Expenses 380.0 305.7 271.6 201.9 186.1 Corporate Expenses 88.6 79.0 61.4 56.8 47.0 Provision for Specific Contract 20.0 7.0 -- -- -- -------- -------- ------ ------ ------- Total Operating Expense 1,142.4 967.9 818.0 784.6 581.7 Income From Operations 97.9 89.9 54.3 27.6 50.7 Other (Income) Expense 1.5 2.6 2.9 1.4 0.9 -------- -------- ------ ------ ------ Income Before Income Taxes 96.4 87.3 51.4 26.2 49.8 Income Taxes 39.5 35.5 20.2 10.7 20.6 -------- -------- ------ ------ ------ Net Income $ 56.9 $ 51.8 $ 31.2 $ 15.5 $ 29.2 ======== ======== ====== ====== ====== PER COMMON SHARE DATA - -------------------------------------------------------------------------------------------------------------------------- Basic Net Income per Common Share $ 1.36 $ 1.23 $ 0.75 $ 0.38 $ 0.73 Weighted Average Shares 41,917,762 42,133,843 41,361,967 40,656,760 39,736,747 Diluted Net Income per Common Share $ 1.34 $ 1.21 $ 0.74 $ 0.37 $ 0.72 Weighted Average Shares and Equivalents 42,558,786 42,938,896 42,304,018 41,925,353 40,707,633 Common Shares Outstanding at Year End 41,018,387 42,026,510 41,544,299 40,939,209 40,040,454 FINANCIAL POSITION - -------------------------------------------------------------------------------------------------------------------------- Total Assets $ 612.5 $ 537.6 $421.4 $424.2 $337.5 Fixed Assets, Net 31.2 37.6 45.2 48.0 37.1 Working Capital 198.7 202.4 168.9 125.0 115.6 Noncurrent Liabilities 72.9 59.7 52.7 22.3 26.8 Stockholders' Equity 309.5 291.9 238.7 203.1 175.5
36 39 FIVE-YEAR REVENUES BY TARGET MARKET
Year Ended December 31 (In millions) 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------- Revenues Telecommunication Firms $ 337.6 $ 266.6 $283.0 $331.9 $236.3 Financial Services Institutions 193.9 210.2 181.1 154.1 134.9 State and Local Governments and Education 346.3 282.1 171.4 140.7 106.9 Federal Government Agencies 300.3 241.3 189.2 135.7 111.5 Other Corporate Clients 62.2 57.6 47.6 49.8 42.8 -------- -------- ------ ------ ------ Total Revenues $1,240.3 $1,057.8 $872.3 $812.2 $632.4 ======== ======== ====== ====== ======
37 40 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following summary represents the results of operations for the two years in the period ended December 31, 1999.
(In millions except per share data) 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Total - ----------------------------------------------------------------------------------------------------------------------- 1999: - ----------------------------------------------------------------------------------------------------------------------- Revenues $290.9 $305.3 $321.9 $322.2 $1,240.3 Income Before Income Taxes 26.8 7.8 30.6 31.2 96.4 Net Income 15.8 4.6 18.1 18.4 56.9 Basic Earnings per Share 0.37 0.11 0.43 0.45 1.36 Diluted Earnings per Share 0.37 0.10 0.43 0.44 1.34 1998: - ----------------------------------------------------------------------------------------------------------------------- Revenues $223.0 $250.7 $282.2 $301.9 $1,057.8 Income Before Income Taxes 15.2 20.3 24.9 26.9 87.3 Net Income 9.0 12.0 14.7 16.1 51.8 Basic Earnings per Share 0.21 0.29 0.35 0.38 1.23 Diluted Earnings per Share 0.21 0.28 0.34 0.38 1.21
The Company has never paid any cash dividends on its common stock and does not anticipate paying dividends in the foreseeable future. Its policy is to invest retained earnings in the operation and expansion of its business. Future dividend policy with respect to its common stock will be determined by the Board based upon the Company's earnings, financial condition, capital requirements, and other then-existing conditions. STOCK MARKET INFORMATION The common stock of American Management Systems, Incorporated, is traded on the NASDAQ over-the-counter market under the symbol AMSY. References to the stock prices are the high and low bid prices during the calendar quarters.
1999 1998 --------------------------- ---------------------- High Low High Low - ------------------------------------------------------------------------------------------------- 1st Quarter $39.375 $31.375 $30.000 $18.750 2nd Quarter 35.000 25.875 30.000 24.875 3rd Quarter 32.060 23.563 34.500 26.000 4th Quarter 35.250 20.188 40.250 21.875
The approximate number of shareholders of record of the Company's common stock as of March 24, 2000 was 1,704. 38 41 OTHER INFORMATION TRANSFER AGENT AND REGISTRAR ChaseMellon Shareholder Services, L.L.C. Ridgefield Park, N.J. INDEPENDENT ACCOUNTANTS Deloitte & Touche LLP McLean, Virginia COUNSEL Shaw Pittman Washington, D.C. STOCKHOLDER AND 10-K INFORMATION Financial inquiries should be directed to Ronald L. Schillereff, Chief Financial Officer, American Management Systems, Incorporated, 4050 Legato Road, Fairfax, Virginia 22033. Telephone (703) 267-8000. A complimentary copy of the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission will be provided upon written request. ANNUAL MEETING The annual shareholders meeting has been scheduled for May 12, 2000 in Fairfax, Virginia, for stockholders of record on March 20, 2000. 39 42 Exhibit 13 Set forth preceding this page is the Company's 1999 Financial Report which is Exhibit 13 to the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The 1999 Financial Report constitutes pages 22 to 62 of the Form 10-K. Accordingly, the page immediately preceding this page is numbered 39 and the page following Exhibit 13 is numbered 63. 40 EX-21 4 SUBSIDIARIES OF THE COMPANY 1 Exhibit 21 SUBSIDIARIES OF THE COMPANY The following are all of the active subsidiaries of the Registrant and are included in its audited consolidated financial statements filed with its Annual Report on Form 10-K for the fiscal year ended December 31, 1999. Each subsidiary listed is either wholly-owned by the Registrant or by the Registrant and another of its subsidiaries listed below.
Place of Subsidiary (Year Organized or Acquired) Incorporation --------------------------------------- ------------- AMS Technical Systems, Inc. (1983) Delaware Branch Office in Korea (1995) Branch Office in Israel (1997) AMS Management Systems Canada Inc. (1983) Canada American Management Systems Operations Corporation (1984) Delaware AMS Management Systems Australia Pty Limited (1989) Australia AMS Management Systems U.K. Ltd. (1989) England AMS Management Systems Europe, S.A./N.V. (1990) Belgium AMS Management Systems Deutschland GmbH (1990) Germany AMS Management Systems Mexico, S.A. de C.V. (1994) Mexico AMSY Management Systems Netherlands B.V. (1994) The Netherlands Nordic Business Management Systems AB (1994) Sweden AMS Management Systems Espana, S.A. (1995) Spain AMS Management Systems (Switzerland) AG (1995) Switzerland AMS Management Systems Italia, S.p.A (1996) Italy AMS Management Systems Portugal, Lda (1997) Portugal AMS Management Systems France S.A. (1997) France AMS Management Systems Poland Sp. ZO.O (1997) Poland AMS Management Systems International, Inc. (1999) Delaware Budgeting Technologies, Inc. (1999) Maryland American Management Systems Norway AS (1999) Norway
63 EX-23.1 5 CONSENT OF DELOITTE & TOUCHE LLP 1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements Nos. 333-00563, 333-01557, and 333-08371 of American Management Systems, Incorporated on Form S-8 of our reports dated February 16, 2000, appearing in the Annual Report on Form 10-K of American Management Systems, Incorporated for the year ended December 31, 1999. DELOITTE & TOUCHE LLP McLean, Virginia March 29, 2000 64 EX-23.2 6 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333-00563, 333-01557 and 333-08371) of American Management Systems, Incorporated, of our report dated February 18, 1998, appearing on page 26 of the 1999 Financial Report, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 14 of this Form 10-K. PricewaterhouseCoopers LLP Washington, D.C. March 30, 2000 65 EX-27.1 7 FINANCIAL DATA SCHEDULE - 12 MONTHS ENDED 12/31/99
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 111,300 0 294,700 10,800 0 428,800 95,100 (63,900) 612,500 230,100 0 0 0 500 309,500 612,500 1,240,300 1,240,300 653,800 1,142,400 1,500 6,200 0 96,400 39,500 56,900 0 0 0 56,900 1.36 1.34
EX-27.2 8 FINANCIAL DATA SCHEDULE - 12 MONTHS ENDED 12/31/98
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 119,300 0 260,300 9,800 0 388,400 100,600 (63,000) 537,600 186,000 0 0 0 500 291,900 537,600 1,057,800 1,057,800 576,200 967,900 2,600 10,900 800 87,300 35,500 51,800 0 0 0 51,800 1.23 1.21
EX-27.3 9 FINANCIAL DATA SCHEDULE - 12 MONTHS ENDED 12/31/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 49,600 0 240,900 5,000 0 298,900 103,300 (58,100) 421,400 130,000 0 0 0 500 238,700 421,400 872,300 872,300 485,000 818,000 2,900 10,600 4,400 51,400 20,200 31,200 0 0 0 31,200 0.75 0.74
EX-27.4 10 FINANCIAL DATA SCHEDULE - 12 MONTHS ENDED 12/31/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 62,800 0 247,700 18,900 0 323,800 91,100 (43,100) 424,200 198,800 0 0 0 500 203,100 424,200 812,200 812,200 525,900 784,600 1,400 15,200 2,000 26,200 10,700 15,500 0 0 0 15,500 0.38 0.37
EX-27.5 11 FINANCIAL DATA SCHEDULE - 9 MONTHS ENDED 9/30/98
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 30, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 94,300 0 234,800 9,145 0 336,700 102,200 (63,400) 474,500 144,800 0 0 0 500 275,000 474,500 755,900 755,900 417,800 694,200 1,300 8,800 600 60,400 24,800 35,600 0 0 0 35,600 0.85 0.83
EX-27.6 12 FINANCIAL DATA SCHEDULE - 6 MONTHS ENDED 6/30/98
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 73,500 0 222,700 8,100 0 305,000 102,700 (62,600) 436,100 112,500 0 0 0 500 266,800 436,100 473,700 473,700 264,500 436,800 1,500 6,800 1,100 35,400 14,500 20,900 0 0 0 20,900 0.50 0.49
EX-27.7 13 FINANCIAL DATA SCHEDULE - 3 MONTHS ENDED 3/31/98
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 44,400 0 247,300 7,000 0 304,200 103,400 (60,800) 431,600 122,800 0 0 0 500 253,200 431,600 223,000 223,000 123,300 206,900 900 2,000 500 15,200 6,200 9,000 0 0 0 9,000 0.21 0.21
EX-27.8 14 FINANCIAL DATA SCHEDULE - 9 MONTHS ENDED 9/30/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 52,500 0 250,600 5,800 0 312,800 100,700 (54,800) 432,100 165,000 0 0 0 500 222,200 432,100 642,600 642,600 364,500 608,000 3,100 3,500 3,800 31,500 13,400 18,100 0 0 0 18,100 0.44 0.43
EX-27.9 15 FINANCIAL DATA SCHEDULE - 6 MONTHS ENDED 6/30/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 38,200 0 257,200 8,000 0 304,200 98,300 (51,100) 419,400 156,500 0 0 0 500 216,900 419,400 417,200 417,200 237,100 392,500 1,600 2,600 2,300 23,100 9,500 13,600 0 0 0 13,600 0.33 0.32
EX-27.10 16 FINANCIAL DATA SCHEDULE - 3 MONTHS ENDED 3/31/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 30,500 0 250,400 19,700 0 294,300 94,300 (46,900) 395,000 137,500 0 0 0 500 210,500 395,000 196,300 196,300 110,400 186,300 300 800 800 9,700 4,000 5,700 0 0 0 5,700 0.14 0.14
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