-----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, K/QiWRFy+sggKVTJKiOnmevinyZYPuW1d2Mlpxhdj8dgMt1gFRkpAGNhR3E8kXW3 sbsgu6QkR3lA2zNoGZVcwQ== 0000950133-97-002676.txt : 19970804 0000950133-97-002676.hdr.sgml : 19970804 ACCESSION NUMBER: 0000950133-97-002676 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970801 SROS: NASD 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09233 FILM NUMBER: 97650080 BUSINESS ADDRESS: STREET 1: 4050 LEGATO RD CITY: FAIRFAX STATE: VA ZIP: 22033 BUSINESS PHONE: 7032678000 10-Q 1 AMERICAN MANAGEMENT SYSTEMS, INC. FORM 10-Q. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1997 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 or other Jurisdiction of I.R.S. Employer Incorporation or Organization: Delaware 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 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 ------- --------- As of July 25, 1997, 41,409,494 shares of common stock were outstanding. 2 CONTENTS
Page ---- Part I Financial Information --------------------- Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 7 Item 3. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . 12 Part II Other Information ----------------- Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . 12 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . 12 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 13
3 PART I FINANCIAL INFORMATION Item 1. Financial Statements The information furnished in the accompanying Consolidated Statements of Operations, Consolidated Revenues by Market, Consolidated Balance Sheets, and Consolidated Statements of Cash Flows reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results of operations and financial condition for the interim periods. The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes for the year ended December 31, 1996, included in the American Management Systems, Incorporated (the "Company" or "AMS") Annual Report on Form 10-K (File No. 0-9233) filed with the Securities and Exchange Commission on March 28, 1997. 1 4 American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF OPERATIONS Unaudited (In millions except per share data)
For the Quarter For the Six Months Ended June 30, Ended June 30, 1997 1996 1997 1996 ------ ------ ------ ------ REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . $220.9 $188.8 $417.2 $370.2 EXPENSES Client Project Expenses . . . . . . . . . . . . . . . . 129.5 115.4 242.8 224.9 Other Operating Expenses . . . . . . . . . . . . . . . . 64.7 46.3 125.4 95.9 Corporate Expenses . . . . . . . . . . . . . . . . . . . 12.1 12.1 24.3 22.9 ----- ------ ------ ------ 206.3 173.8 392.5 343.7 INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . 14.6 15.0 24.7 26.5 OTHER (INCOME) EXPENSE Interest Expense . . . . . . . . . . . . . . . . . . . . 1.7 0.8 3.0 1.4 Other (Income) Expense . . . . . . . . . . . . . . . . . (0.4) (0.1) (1.4) (0.6) ------ ------ ------ ------ 1.3 0.7 1.6 0.8 INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . 13.3 14.3 23.1 25.7 INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 6.0 9.5 10.8 ------ ------ ------ ------ NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7.9 $ 8.3 $ 13.6 $ 14.9 ====== ====== ====== ====== WEIGHTED AVERAGE SHARES AND EQUIVALENTS . . . . . . . . . . . . 42.4 42.0 42.2 41.8 ====== ====== ====== ====== NET INCOME PER SHARE . . . . . . . . . . . . . . . . . . . . . $ 0.18 $ 0.20 $ 0.32 $ 0.36 ====== ====== ====== ======
2 5 American Management Systems, Incorporated CONSOLIDATED REVENUES BY MARKET Unaudited (In millions)
For the Quarter For the Six Months Ended June 30, Ended June 30, 1997 1996 1997 1996 -------- -------- -------- -------- Telecommunications Firms . . . . . . . . . . . . . . . . $ 75.1 $ 69.7 $134.0 $138.1 Financial Services Institutions . . . . . . . . . . . . 54.1 44.7 105.9 85.8 State and Local Governments and Education . . . . . . . 42.5 33.1 76.8 64.3 Federal Government Agencies . . . . . . . . . . . . . . 43.4 30.2 84.0 59.6 Other Corporate Clients . . . . . . . . . . . . . . . . 5.8 11.1 16.5 22.4 ------ ------ ------ ------ Total Revenues . . . . . . . . . . . . . . . . . . . . . $220.9 $188.8 $417.2 $370.2 ====== ====== ====== ======
3 6 American Management Systems, Incorporated CONSOLIDATED BALANCE SHEETS (In millions except per share data)
6/30/97 ASSETS (Unaudited) 12/31/96 ----------- -------- CURRENT ASSETS Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . $ 38.2 $ 62.8 Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . . 257.2 247.7 Prepaid Expenses and Other Current Assets . . . . . . . . . . . . . . 8.8 13.3 ------ ------ 304.2 323.8 FIXED ASSETS Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66.0 62.0 Furniture and Fixtures . . . . . . . . . . . . . . . . . . . . . . . . 20.3 18.4 Leasehold Improvements . . . . . . . . . . . . . . . . . . . . . . . . 12.0 10.7 ------ ------ 98.3 91.1 Accumulated Depreciation and Amortization (51.1) (43.1) ------ ------ 47.2 48.0 OTHER ASSETS Purchased and Developed Computer Software (Net of Accumulated Amortization of $54,900,000 and $50,500,000) . . . . . . . . . . . 49.0 40.2 Intangibles (Net of Accumulated Amortization of $2,800,000 and $2,600,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 6.3 Other Assets (Net of Accumulated Amortization of $800,000 and $15,700,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.7 5.9 ------ ------ 68.0 52.4 ------ ------ TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $419.4 $424.2 ====== ======
4 7 American Management Systems, Incorporated CONSOLIDATED BALANCE SHEETS (In millions except per share data)
6/30/97 LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 12/31/96 ----------- -------- CURRENT LIABILITIES Notes Payable and Capitalized Lease Obligations . . . . . . . . . . . $ 61.1 $ 53.5 Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.9 19.6 Accrued Incentive Compensation . . . . . . . . . . . . . . . . . . . . 5.9 36.1 Other Accrued Compensation and Related Items . . . . . . . . . . . . . 31.4 32.3 Deferred Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 23.5 20.6 Other Accrued Liabilities . . . . . . . . . . . . . . . . . . . . . . 2.0 2.7 Provision for Contract Losses . . . . . . . . . . . . . . . . . . . . 3.1 18.5 Income Taxes Payable . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 7.8 ------ ------ 144.5 191.1 Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . 12.0 7.7 ------ ------ 156.5 198.8 NONCURRENT LIABILITIES Notes Payable and Capitalized Lease Obligations . . . . . . . . . . . 30.3 13.7 Other Accrued Liabilities . . . . . . . . . . . . . . . . . . . . . . 8.5 1.4 Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . 7.2 7.2 ------ ------ 46.0 22.3 ------ ------ TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202.5 221.1 STOCKHOLDERS' EQUITY Preferred Stock ($0.10 Par Value; 4,000,000 Shares Authorized, None Issued or Outstanding) Common Stock ($0.01 Par Value; 100,000,000 Shares Authorized, 49,960,164 and 49,598,673 Issued and 41,389,288 and 40,939,209 Outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 0.5 Capital in Excess of Par Value . . . . . . . . . . . . . . . . . . . . 77.7 75.0 Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 170.9 157.3 Currency Translation Adjustment . . . . . . . . . . . . . . . . . . . (5.8) (1.1) Common Stock in Treasury, at Cost (8,570,876 and 8,659,464 Shares) . . (26.4) (28.6) ------ ------ 216.9 203.1 ------ ------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . $419.4 $424.2 ====== ======
5 8 American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited (In millions)
For the Six Months Ended June 30, 1997 1996 ------ ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13.6 $ 14.9 Adjustments to Reconcile Net Income to Net Cash Used by Operating Activities: Depreciation and Amortization . . . . . . . . . . . . . . . . . . . . . 17.1 20.0 Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 4.4 Provision for Doubtful Accounts . . . . . . . . . . . . . . . . . . . . 2.6 1.0 Changes in Assets and Liabilities: Increase in Trade Receivables . . . . . . . . . . . . . . . . . . . (12.1) (55.6) Decrease (Increase) in Prepaid Expenses and Other Current Assets . . 4.4 (2.5) Increase in Other Assets . . . . . . . . . . . . . . . . . . . . . (7.6) (4.9) Decrease in Accrued Incentive Compensation . . . . . . . . . . . . . (28.0) (8.0) (Decrease) Increase in Accounts Payable, Other Accrued Compensation, and Other Accrued Liabilities . . . . . . . . . . . (15.4) 0.3 Increase (Decrease) in Deferred Revenue . . . . . . . . . . . . . . 2.9 (0.4) Decrease in Income Taxes Payable . . . . . . . . . . . . . . . . . . (4.3) (2.3) ------- ------- Net Cash Used by Operating Activities . . . . . . . . . . . . . . . . . (22.5) (33.1) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . . . (8.4) (10.6) Purchase of Computer Software and Investment in Software Products . . . . . (16.4) (8.5) Decrease in Other Investments . . . . . . . . . . . . . . . . . . . . . . . 0.5 0.4 Proceeds from Sale of Fixed Assets and Purchased Computer Software . . . . . 0.2 0.4 ------- ------- Net Cash Used by Investing Activities . . . . . . . . . . . . . . . . . (24.1) (18.3) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.5 28.7 Payments on Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.4) (3.4) Proceeds from Common Stock Options Exercised . . . . . . . . . . . . . . . . 2.7 3.7 Payments to Acquire Treasury Stock . . . . . . . . . . . . . . . . . . . . . (0.1) - ------- ------- Net Cash Provided by Financing Activities . . . . . . . . . . . . . . . 26.7 29.0 Increase in Currency Translation Adjustment . . . . . . . . . . . . . . . . (4.7) (0.2) ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . (24.6) (22.6) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . 62.8 35.8 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $ 38.2 $ 13.2 ======= ======= NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES: Treasury Stock Utilized to Satisfy Accrued Incentive Compensation Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.3 $ 3.4
6 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percentage of revenues of major items in the Consolidated Statements of Operations and the percentage of change in such items from period to period, excluding percentage changes in de minimus dollar amounts.
Percentage of Total Revenues Period-to-Period Change -------------- ----------------------------------- Quarter Ended Quarter Ended Six Months Ended June 30, June 30, 1997 June 30, 1997 vs. vs. 1997 1996 June 30, 1996 June 30, 1996 -------- -------- ------------- ---------------- Revenues . . . . . . . . . . . . . . . . . . 100.0% 100.0% 17.0% 12.7% Expenses Client Project Expenses . . . . . . . . 58.6 61.2 12.2 8.0 Other Operating Expenses . . . . . . . . 29.3 24.5 39.7 30.8 Corporate Expenses . . . . . . . . . . . 5.5 6.4 0.0 6.1 ----- ----- Total . . . . . . . . . . . . . . . . . 93.4 92.1 18.7 14.2 Income from Operations . . . . . . . . . . . 6.6 7.9 (2.7) (6.8) Other (Income) Expense . . . . . . . . . . . 0.6 0.4 - - Income Before Income Taxes . . . . . . . . . 6.0 7.5 (7.0) (10.1) Income Taxes . . . . . . . . . . . . . . . . 2.4 3.1 (10.0) (12.0) Net Income . . . . . . . . . . . . . . . . . 3.6 4.4 (4.8) (8.7) Weighted Average Shares and Equivalents . . . - - 0.9 0.9 Net Income per Share . . . . . . . . . . . . - - (10.0) (11.1)
7 10 RESULTS OF OPERATIONS (continued) 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 the Private Securities Litigation Reform Act of 1995. 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 documents. REVENUES Revenues increased 17% during the second quarter and 13% for the first six months of 1997, compared to the same 1996 periods, with second quarter growth occurring in all of the Company's target markets, except the Other Corporate Clients market. For the first six months of 1997, growth occurred in all target markets except the Telecommunication Firms and the Other Corporate Client markets. Business with non-US clients increased 8% (to $73.7 million) during the second quarter and 1% (to $133.7 million) for the first six months of 1997, compared to the same 1996 periods. The low rate of increase was primarily due to the suspension of work on a non-US telecommunications systems project, as previously disclosed. All other business with non-US clients increased 35% and 28% during the second quarter and first six months, respectively. In the Telecommunications Firms market, revenues increased only 8% in the second quarter and decreased 3% for the first six months, compared to the 1996 periods, owing to the above-cited suspension. Revenues from all other telecommunication clients increased 34% in the second quarter and 20% for the first half of 1997, when compared to 1996. Non-US revenues in this market increased 3% for the quarter and declined 7% for the first half, compared to the prior periods. Excluding the effects of the above cited non-US contract, non-US revenues in this market increased 38% in the second quarter and 26% for the first half of 1997. Business in this market is characterized by very large projects with relatively few clients. For all of 1997, the Company expects the annual growth in this market will be below that for 1996 and below the Company's overall growth rate, reflecting the impact of reduced revenues from the non-US project. The Company is continuing work on one release of the major non-US systems project referred to above, however, there continue to be significant uncertainties relating to this project. In the Financial Services Institutions target market, 1997 revenues in the second quarter and first half, increased 21% and 23%, respectively, when compared to the 1996 periods, owing to build-ups in business with clients who started large projects in 1996, and start-up work on several new contracts awarded during the first half of 1997. Business with non-US clients accounted for approximately 35% of the second quarter revenues in this market ($19 million) and 32% of the six months revenues ($34 million). For all of 1997, the Company expects revenue growth in this market to increase in line with the Company's overall revenue growth. 8 11 In the State and Local Governments and Education target market, revenues increased 28% in the second quarter and 19% for the first half of 1997. The increases for both 1997 periods were attributable to continued work with state taxation departments and several new engagements for financial and revenue systems. The Company expects revenues in the State and Local Governments and Education market to increase in 1997 at rates somewhat higher than the increase in the Company's overall revenues. Revenues in the Federal Government Agencies target market increased 44% during the second quarter, and 41% during the first half of 1997, compared to the first quarter of 1996. This increase was attributable to increased business with existing clients and new business with both defense and civilian agencies. The Company expects revenues in this target market, for all of 1997, to increase at rates greater than the overall growth rate of the Company, owing in part to the award of a significant contract with the Department of Defense. Revenues from Other Corporate Clients decreased 48% during the second quarter and 26% for the first half, compared to 1996. The decrease in revenues, specifically in the second quarter, was due in part to a reclassification of 1997 first quarter revenues to the other target markets. Absent that reclassification, second quarter revenues would have decreased 20%. The Company has made a conscious decision to focus business in the health care market and the electric and gas utilities market. EXPENSES Client project expenses and other operating expenses together increased 20% during the second quarter and 15% for the first half of 1997, generally in line with the revenue growth rate. For all of 1997, the Company anticipates that these expenses will continue to grow in proportion to revenue growth. During the first half, and continuing throughout 1997, the Company is making significant expenditures related to research and development as it produces the next generation of software to be used in its telecommunications business. A significant portion of these expenditures are being capitalized. Corporate Expenses were flat during the second quarter and increased 6% for the first half, when compared to the 1996 periods. The reduced rate of growth in these expenses reflects the Company's focus on controlling these expenses along with reductions in corporate level performance-based incentive compensation. INCOME FROM OPERATIONS Income from operations decreased 3% for the second quarter and 7% for the first six months of 1997. A principal factor in the decrease was the significant amount of management and staff resources that have been consumed working on the non-US telecommunications client project, at break-even rates. The Company expects to show increases in income from operations for the remainder of the year, and the year as a whole. OTHER (INCOME) EXPENSE Interest expense increased 113% during the second quarter and increased 114% during the first half of 1997, because of additional long-term debt incurred by the Company during the first quarter 1997 and increases in short-term borrowing to finance the growth of the Company's accounts receivable. Other income increased 300% in the second quarter and 133% for the first half of 1997, compared to 1996, due primarily to a refund of property taxes. 9 12 FOREIGN CURRENCY EXCHANGE Approximately 32% of the Company's first half revenues were derived from non-US business. 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, and the Company does take some risk that profits and stockholders' equity will be affected by foreign currency exchange fluctuations. However, these risks are mitigated to the extent the Company: 1) successfully negotiates short-term contracts (one year or less), or 2) negotiates provisions that allow pricing adjustments related to currency fluctuations. To date, the Company has not engaged in any hedging activities relating to foreign currency exchange fluctuations. LIQUIDITY AND CAPITAL RESOURCES The Company provides for its operating cash requirements primarily through funds generated from operations, and secondarily from bank borrowings, which 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 to some degree financing of accounts receivable. At June 30, 1997, the Company's cash and cash equivalents totaled $38.2 million, down from $62.8 million at the end of 1996. Cash used in operating activities was $22.5 million, due primarily to payments made in the first quarter for incentive compensation and other employee benefits, and to a lesser extent, continued delays in collecting accounts receivable related to subcontract work with a prime contractor in the child support enforcement business and a receivable from a foreign government experiencing continued cash flow problems. The Company received a large payment during the second quarter related to the subcontract work in the child enforcement business, but there remain uncertainties regarding timely collection of the balance of such receivables. The Company invested over $24.8 million in fixed assets and software purchases, and computer software development during the first half of 1997. Revolving line of credit borrowings during the first half of 1997 increased by $7.5 million over year-end 1996, which borrowings consisted entirely of foreign currency borrowings by the Company's non-US subsidiaries, all of which borrowings remained outstanding at June 30, 1997. Additionally, the Company borrowed $20 million under the term loan provisions of its new $100 million syndicated debt facility. During the first half, the Company made approximately $3.3 million in installment payments of principal on outstanding debt owed to banks; the Company also received approximately $2.6 million during the period from the exercise of stock options. At June 30, 1997, the Company's debt-equity ratio, as measured by total liabilities divided by stockholders' equity, was 0.93, down from 1.09 at December 31, 1996. The Company's material unused source of liquidity at the end of the second quarter 1997 consisted of approximately $26 million under the new revolving credit facility. The Company believes that its liquidity needs can be met from the various sources described above. NEW ACCOUNTING PRONOUNCEMENT Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share", was issued by the Financial Accounting Standards Board in February 1997. The effective date of SFAS No. 128 is for periods ending after December 15, 1997 and early adoption is not permitted. The Company will implement SFAS No. 128 during the quarter and year ended December 31, 1997 and management does not expect this pronouncement to have a material impact on Earnings per Share. 10 13 ASSUMPTIONS UNDERLYING CERTAIN FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS In the next few years, the Company expects growth in revenues to be at the Company's historical long-term rates and not at the exceptional rates posted in recent years. The more controlled and lower growth in revenues should enable the Company to improve its profit margins. These margins were reduced during the last two years owing to heavy investment in building up staff capacity and infrastructure, and the stress of absorbing many new professional staff. Delays in the completion of one software release in a major multi-release project for a non-US telecommunications system project during the fourth quarter of 1996, and the client's subsequent suspension, in early 1997, of another software release, also contributed to the Company's reduced profit margin for the first half of 1997. There continue to be significant uncertainties relating to this project. 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 terms and delivery schedules. In order to meet its contractual commitments, AMS must continue to be able to successfully recruit, train, and assimilate 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 throughout North America, Europe, and other locations. There is also the risk of successfully managing large projects and the risk of a material impact on results because of the unanticipated delay, suspension, renegotiation or cancellation of a large project. Any such development in a project could result in a drop in revenues or profits, the need to relocate staff, a potential dispute with a client regarding money owed, and a diminution of AMS's reputation. 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, 34% of the Company's total revenues in 1996 were derived from business with ten clients. 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 increasing international scope of operations, are discussed elsewhere in this Form 10-Q. Because the Company operates in a rapidly changing and highly competitive market, additional risks not discussed in this Form 10-Q may emerge from time to time. The Company cannot predict such risks or assess the impact, if any, 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. 11 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk NONE. PART II OTHER INFORMATION Item 1. Legal Proceedings NONE. Item 2. Changes in Securities NONE. Item 3. Defaults Upon Senior Securities NONE. Item 4. Submission of Matters to a Vote of Security Holders (a) The regular annual meeting of stockholders of the Company was held in Fairfax, Virginia on May 9, 1997 for the purposes of electing the board of directors and voting on the proposal described below. (b) Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder, and there was no solicitation in opposition to management's solicitations. All of management's nominees for director were elected. (c) Two proposals were submitted to a vote of stockholders as follows: (1) The stockholders approved the election of the following persons as directors of the Company:
Name For Withheld ---- --- -------- Paul A. Brands 32,949,127 68,508 Philip M. Giuntini 32,972,837 44,798 Charles O. Rossotti 32,655,608 362,027 Patrick W. Gross 32,972,380 45,255 Frederic V. Malek 32,808,785 208,850 Frank A. Nicolai 32,971,034 46,601 Daniel J. Altobello 32,973,936 43,699 W. Walker Lewis 32,975,340 42,295 James J. Forese 32,973,936 43,699 Dorothy Leonard 32,965,636 51,999 Alan G. Spoon 32,965,104 52,531
12 15 (2) The stockholders approved, with 30,094,416 affirmative votes, 696,827 negative votes, 173,000 abstentions, and 2,053,392 broker non-votes, the proposal to adopt 1996 amended Stock Option Plan F. Item 5. Other Information NONE. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.4 First amendment, dated June 29, 1997, to $100,000,000 Multi-Currency Revolving Credit and Term Loan Agreement among AMS, subsidiaries of AMS, the bank lenders party thereto, and Wachovia Bank of Georgia, N.A. and NationsBank, N.A. as agents, dated December 24, 1996. (b) Reports on Form 8-K NONE. 13 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN MANAGEMENT SYSTEMS, INCORPORATED Date: August 1, 1997 /s/ Philip M. Giuntini ----------------------- ---------------------------------------- Philip M. Giuntini, President Date: August 1, 1997 /s/ James E. Marshall ----------------------- ---------------------------------------- James E. Marshall, Controller 14 EX-10.4 2 REVOLVING CREDIT AGREEMENT. 1 EXHIBIT 10.4 FIRST AMENDMENT TO MULTI-CURRENCY REVOLVING CREDIT AND TERM LOAN AGREEMENT This FIRST AMENDMENT TO MULTI-CURRENCY REVOLVING CREDIT AND TERM LOAN AGREEMENT (the "First Amendment") is made as of June 29, 1997 by and among each of the Borrowers named herein on the signature pages hereof (individually, a "Borrower" and collectively, the "Borrowers"), American Management Systems, Incorporated, as guarantor (the "Guarantor"), each of the lenders named herein on the signature pages hereof (individually, a "Lender" and collectively, the "Lenders"), Wachovia Bank, N.A., formerly Wachovia Bank of Georgia, N.A., as administrative agent for the Lenders (in such capacity, the "Administrative Agent") and NationsBank, N.A., as documentation agent for the Lenders (in such capacity, the "Documentation Agent") (each of the Administrative Agent and the Documentation Agent, an "Agent" or collectively, the "Agents"). The Borrowers, the Guarantor, the Lenders and the Agents are parties to a Multi-Currency Revolving Credit and Term Loan Agreement dated as of December 24, 1996 (the "Agreement"); the Borrowers and the Guarantor have requested that the Lenders and the Agents amend certain provisions of the Agreement; and the Borrowers, the Guarantor, the Lenders and the Agents desire to amend the Agreement as herein provided. Capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Agreement. ACCORDINGLY, the Borrowers, the Guarantor, the Lenders and the Agents agree as follows: 2 1. APPLICABLE RATE. The definition of "Applicable Rate" in Section 1.1 of the Agreement shall be amended by substituting the following matrix for the existing matrix:
- ---------------------------------------------------------------------------------------------------------------------------- Total Debt: EBITDA Eurocurrency Rate Margin Facility Fee LC Fee (basis points per annum) (basis points per annum) (basis points per annum) - ---------------------------------------------------------------------------------------------------------------------------- Less than or equal to 1.0 15 7.5 35.0 - ---------------------------------------------------------------------------------------------------------------------------- Greater than 1.0 but less 22.5 10.0 45.0 than or equal to 1.25 - ---------------------------------------------------------------------------------------------------------------------------- Greater than 1.25 but less than 25.0 15.0 50.0 or equal to 1.50 - ---------------------------------------------------------------------------------------------------------------------------- Greater than 1.50 but less than 32.0 18.0 55.0 or equal to 2.0 - ---------------------------------------------------------------------------------------------------------------------------- Greater than 2.0 40.0 25.0 70.0 - ----------------------------------------------------------------------------------------------------------------------------
2. FIXED CHARGE COVERAGE RATIO. Subsection 6.2(b) of the Agreement shall be amended to read as follows: (b) Fixed Charge Coverage Ratio: Maintain a ratio of EBILTDA to Interest and Lease Charges of not less than (i) 2.25 to 1.0 as of June 30, 1997, (ii) 2.30 to 1.0 as of September 30, 1997 and (iii) 2.50 to 1.0 as of the last day of each fiscal quarter thereafter, calculated in all cases for the four fiscal quarters ending on such date. 3. ACKNOWLEDGMENT OF GUARANTOR. The Guarantor reaffirms its obligations under the Guaranty and consents to this First Amendment. 4. REPRESENTATIONS AND WARRANTIES. Each Borrower represents and warrants to the Agents and each Lender as follows: 4.1 EXISTENCE. Each of the Borrower and its Subsidiaries is a corporation or partnership duly organized, validly existing and in good standing under the Laws of the nation in which it is organized and any political subdivision thereof, and is duly qualified to do business 2 3 and in good standing in each other nation and any political subdivision thereof where the nature or extent of its business activities requires such qualification, except where the failure to be so qualified and in good standing could not reasonably be expected to have a Materially Adverse Effect. 4.2 POWER AND AUTHORITY. Each of the Borrower and its Subsidiaries has all requisite power and authority to own or lease its properties, conduct its business as now conducted and to execute and deliver the First Amendment and to perform the Agreement as amended hereby. 4.3 AUTHORIZATION AND ENFORCEABILITY. The execution, delivery and performance of the First Amendment have been duly authorized by all necessary corporate or partnership action of each of the Borrower and its Subsidiaries and require no consent of any Person which has not been obtained, and the First Amendment constitutes and the Agreement as amended hereby constitutes valid and binding obligations of each of the Borrower and its Subsidiaries party thereto, enforceable in accordance with their respective terms, except as such enforceability may be limited by Debtor Relief Laws and by general principles of equity. 4.4 NO VIOLATION. The execution, delivery and performance of the First Amendment does not and will not violate any Borrower's or any of its Subsidiaries' charter, bylaws, partnership agreement or other organizational documents, any Laws applicable to such Borrower or any of its Subsidiaries or any agreement to which such Borrower or any of its Subsidiaries is a party or by which such Borrower or any of its Subsidiaries is bound, except for 3 4 violations of Laws or agreements which could not reasonably be expected to have a Materially Adverse Effect. 4.5 NO DEFAULT. As of the date of this First Amendment, no Default Condition or Event of Default has occurred and is continuing under the Agreement which has not been waived. 5. CONDITIONS PRECEDENT. This First Amendment shall not be effective until such time as each of the following conditions is satisfied: 5.1 DOCUMENTS. Each of the parties hereto has executed the First Amendment. 5.2 AMENDMENT FEE. AMS shall have paid to the Administrative Agent for the account of the Lenders an amendment fee equal to $60,000. 6. COST OF EXPENSES. AMS shall pay all costs, fees and expenses of the Agents incident to this First Agreement, including the reasonable fees, out-of-pocket expenses and other disbursements of Mays & Valentine, L.L.P., counsel for the Agents, in connection with this Amendment. 7. REAFFIRMATION. Except as otherwise expressly amended by this First Amendment, the Agreement is and shall continue to be in full force and effect in accordance with its terms. The parties hereto further agree that each reference in any Loan Document to the "Agreement" shall be deemed to refer to the Agreement as amended by this First Amendment and as it may be amended from time to time hereafter. 4 5 8. MISCELLANEOUS. 8.1 GOVERNING LAW. This First Amendment shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. 8.2 NO NOVATION. The transactions described herein do not constitute, and should not be construed to be, a novation of any indebtedness outstanding under the Agreement. 8.3 WAIVER. Any waiver of a provision of a Loan Document accomplished by this First Amendment shall be effective only in the specific instance for which it is granted, shall not constitute a waiver of any other provison of a Loan Document and shall not constitute an undertaking or agreement to waive any provision of a Loan Document in the future. 8.4 SUCCESSORS AND ASSIGNS. This First Amendment shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns. 8.5 INVALIDITY. If any provision of this First Amendment shall be held invalid by any court of competent jurisdiction, such holding shall not invalidate any other provision hereof. 8.6 COUNTERPARTS. This First Amendment may be executed in several counterparts, each of which shall be an original and all of which together shall constitute but one and the same instrument. 5 6 IN WITNESS WHEREOF, each Borrower, the Guarantor, the Administrative Agent, the Documentation Agent and each Lender have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. AMERICAN MANAGEMENT SYSTEMS, INCORPORATED, as Borrower and Guarantor BY: /s/ FRANK A. NICOLAI ------------------------------------ NAME: Frank A. Nicolai ---------------------------------- TITLE: Secretary and Treasurer --------------------------------- AMS MANAGEMENT SYSTEMS DEUTSCHLAND GMBH, as Borrower BY: /s/ FRANK A. NICOLAI ------------------------------------ NAME: Frank A. Nicolai ---------------------------------- TITLE: Director --------------------------------- 6 7 AMS MANAGEMENT SYSTEMS EUROPE S.A./N.V., as Borrower BY: /s/ FRANK A. NICOLAI ------------------------------------ NAME: Frank A. Nicolai ---------------------------------- TITLE: Director --------------------------------- AMS MANAGEMENT SYSTEMS U.K. LTD., as Borrower BY: /s/ FRANK A. NICOLAI ------------------------------------ NAME: Frank A. Nicolai ---------------------------------- TITLE: Director --------------------------------- AMS MANAGEMENT SYSTEMS CANADA INC., as Borrower BY: /s/ FRANK A. NICOLAI ------------------------------------ NAME: Frank A. Nicolai ---------------------------------- TITLE: Director --------------------------------- 7 8 AMS MANAGEMENT SYSTEMS NETHERLANDS, B.V, as Borrower BY: /s/ FRANK A. NICOLAI ------------------------------------ NAME: Frank A. Nicolai ---------------------------------- TITLE: Director --------------------------------- NORDIC BUSINESS MANAGEMENT SYSTEMS AB, as Borrower BY: /s/ FRANK A. NICOLAI ------------------------------------ NAME: Frank A. Nicolai ---------------------------------- TITLE: Director --------------------------------- AMS MANAGEMENT SYSTEMS AUSTRALIA PTY. LIMITED as Borrower BY: /s/ FRANK A. NICOLAI ------------------------------------ NAME: Frank A. Nicolai ---------------------------------- TITLE: Director --------------------------------- 8 9 AMS MANAGEMENT SYSTEMS (SWITZERLAND) AG as Borrower BY: /s/ FRANK A. NICOLAI ------------------------------------ NAME: Frank A. Nicolai ---------------------------------- TITLE: Authorized Signatory --------------------------------- AMS MANAGEMENT SYSTEMS ITALIA S.P.A. as Borrower BY: /s/ FRANK A. NICOLAI ------------------------------------ NAME: Frank A. Nicolai ---------------------------------- TITLE: Director --------------------------------- AMS MANAGEMENT SYSTEMS ESPANA, S.A. as Borrower BY: /s/ FRANK A. NICOLAI ------------------------------------ NAME: Frank A. Nicolai ---------------------------------- TITLE: Director --------------------------------- 9 10 COMMONWEALTH OF VIRGINIA City/County of Fairfax The foregoing instrument was acknowledged before me in my jurisdiction aforesaid this 11th day July, 1997 by Frank A. Nicolai, who is Director of AMS Management Systems Espana, S.A., for and on behalf of the corporation. /s/ JOSEPHINE METRESS -------------------------------------- Notary Public My commission expires: March 31, 2001 ------------------ 10 11 WACHOVIA BANK, N.A., formerly Wachovia Bank of North Carolina, N.A. By: /s/ WRAY C. BROUGHTON ------------------------------------ Its: Vice President ----------------------------------- NATIONSBANK, N.A. By: /s/ ELIZABETH S. DUFF ------------------------------------ Its: Elizabeth S. Duff ----------------------------------- Vice President COMMERZBANK AG, NEW YORK BRANCH By: /s/ PETER T. DOYLE By: /s/ ROBERT J. DONOHUE ------------------------ ------------------------------------------ Its: PETER T. DOYLE Its: Robert J Donohue ----------------------- ------------------------------------------ ASSISTANT TREASURER Vice President NATIONSBANK, N.A., as Documentation Agent By: /s/ ELIZABETH S. DUFF ------------------------------------ Its: Elizabeth S. Duff ----------------------------------- Vice President WACHOVIA BANK, N.A., formerly Wachovia Bank of Georgia, N.A., as Administrative Agent By: /s/ ELIZABETH A. DREILING ------------------------------------ Its: Elizabeth A. Dreiling ----------------------------------- ASSISTANT VICE PRESIDENT 11 EX-27 3 FINANCIAL DATA SCHEDULE.
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. 1,000 6-MOS DEC-31-1997 JUN-30-1997 38,200 0 257,200 8,000 0 304,200 98,300 (51,100) 419,400 156,500 0 0 0 500 216,900 419,400 417,200 417,200 242,800 392,500 1,600 2,600 3,000 23,100 9,500 13,600 0 0 0 13,600 0.32 0.32
-----END PRIVACY-ENHANCED MESSAGE-----