<PAGE>
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, 1995
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 August 9, 1995, 26,517,843 shares of common stock were outstanding.
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I Financial Information
---------------------
Item 1. Financial Statements............................. 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 7
Part II Other Information Required in Report
------------------------------------
Item 1. Legal Proceedings................................ 11
Item 2. Changes in Securities............................ 11
Item 3. Defaults Upon Senior Securities.................. 11
Item 4. Submission of Matters to a Vote of Security
Holders.......................................... 11
Item 5. Other Information................................ 12
Item 6. Exhibits and Reports on Form 8-K................. 12
</TABLE>
<PAGE>
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, 1994, 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 30, 1995.
1
<PAGE>
American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands except per share data)
<TABLE>
<CAPTION>
For the Quarter For the Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Services and Products............. $140,591 $ 96,589 $262,367 $184,148
Reimbursed Expenses............... 16,878 13,192 30,856 25,900
-------- -------- -------- --------
157,469 109,781 293,223 210,048
EXPENSES
Client Project Expenses........... 90,582 59,314 166,360 115,368
Other Operating Expenses.......... 45,847 33,612 88,730 62,444
Corporate Expenses................ 9,403 6,524 18,393 13,952
-------- -------- -------- --------
145,832 99,450 273,483 191,764
INCOME FROM OPERATIONS............. 11,637 10,331 19,740 18,284
OTHER (INCOME) EXPENSE
Interest Expense.................. 383 320 735 597
Other Income...................... (230) (68) (732) (257)
-------- -------- -------- --------
153 252 3 340
INCOME BEFORE INCOME TAXES......... 11,484 10,079 19,737 17,944
INCOME TAXES....................... 4,907 4,132 8,290 7,357
-------- -------- -------- --------
NET INCOME......................... 6,577 5,947 11,447 10,587
DIVIDENDS AND ACCRETION ON
SERIES B PREFERRED STOCK........... - 103 - 266
-------- -------- -------- --------
NET INCOME TO COMMON SHAREHOLDERS.. $ 6,577 $ 5,844 $ 11,447 $ 10,321
======== ======== ======== ========
WEIGHTED AVERAGE SHARES
AND EQUIVALENTS.................... 27,025 25,599 26,982 25,382
======== ======== ======== ========
NET INCOME PER COMMON SHARE $0.24 $0.23 $0.42 $0.41
======== ======== ======== ========
</TABLE>
2
<PAGE>
American Management Systems, Incorporated
CONSOLIDATED REVENUES BY MARKET
Unaudited
(In thousands)
<TABLE>
<CAPTION>
For the Quarter For the Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Services Institutions........... $ 31,571 $ 20,599 $ 59,313 $ 39,084
Federal Government Agencies............... 24,186 21,995 47,211 43,276
State and Local Government and Education.. 26,059 20,496 46,152 39,206
Telecommunications Firms.................. 50,509 26,784 92,763 48,446
Other Corporate Clients................... 8,266 6,715 16,928 14,136
-------- -------- -------- --------
Total Services and Products Revenues...... 140,591 96,589 262,367 184,148
Reimbursed Expenses Revenues.............. 16,878 13,192 30,856 25,900
-------- -------- -------- --------
Total Revenues............................ $157,469 $109,781 $293,223 $210,048
======== ======== ======== ========
</TABLE>
3
<PAGE>
American Management Systems, Incorporated
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
6/30/95
(Unaudited) 12/31/94
---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents..................................... $ 12,704 $ 34,238
Accounts and Notes Receivable................................. 176,910 141,089
Prepaid Expenses and Other Current Assets..................... 6,974 6,669
-------- ---------
196,588 181,996
FIXED ASSETS
Equipment..................................................... 59,673 52,697
Furniture and Fixtures........................................ 13,895 12,044
Leasehold Improvements........................................ 13,074 10,608
-------- ---------
86,642 75,349
Accumulated Depreciation and Amortization..................... (51,353) (46,674)
-------- ---------
35,289 28,675
OTHER ASSETS
Purchased and Developed Computer Software (Net of Accumulated
Amortization of $46,710,000 and $41,094,000)................. 28,048 28,786
Intangibles (Net of Accumulated Amortization of $1,832,000 and
$1,581,000).................................................. 7,145 7,365
Other Assets (Net of Accumulated Amortization of $4,110,000
and $3,513,000).............................................. 4,875 5,360
-------- ---------
40,068 41,511
-------- ---------
TOTAL ASSETS.................................................... $271,945 $ 252,182
======== =========
</TABLE>
4
<PAGE>
American Management Systems, Incorporated
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
6/30/95
(Unaudited) 12/31/94
----------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable and Capitalized Lease Obligations............... $ 20,222 $ 9,424
Accounts Payable.............................................. 10,277 6,988
Accrued Incentive Compensation................................ 8,779 17,134
Other Accrued Compensation and Related Items.................. 23,350 16,603
Deferred Revenues............................................. 18,515 25,673
Other Accrued Liabilities..................................... 3,543 3,896
Income Taxes Payable.......................................... - 1,778
-------- ---------
84,686 81,496
Deferred Income Taxes......................................... 14,301 11,047
-------- ---------
98,987 92,543
NONCURRENT LIABILITIES
Notes Payable and Capitalized Lease Obligations............... 10,667 12,933
Other Accrued Liabilities..................................... 714 704
Deferred Income Taxes......................................... 7,714 7,688
-------- ---------
19,095 21,325
-------- ---------
TOTAL LIABILITIES............................................... 118,082 113,868
OTHER STOCKHOLDERS' EQUITY
Preferred Stock ($0.10 Par Value, 1,500,000 Shares Authorized,
None Issued or Outstanding)..................................
Common Stock ($0.01 Par Value, 100,000,000 Shares Authorized,
32,389,787 and 32,201,104 Issued and 26,504,829 and
26,196,520 Outstanding, Respectively)........................ 324 322
Capital in Excess of Par Value................................ 61,841 60,341
Retained Earnings............................................. 124,030 112,583
Currency Translation Adjustment............................... (829) (1,354)
Common Stock in Treasury, at Cost
(5,884,958 and 6,004,584 Shares)............................. (31,503) (33,578)
-------- ---------
153,863 138,314
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $271,945 $ 252,182
======== =========
</TABLE>
5
<PAGE>
American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
<TABLE>
<CAPTION>
For The Six Months Ended
June 30,
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.......................................................... $ 11,447 $ 10,587
Adjustments to Reconcile Net Income to Net
Cash Provided (Used) by Operating Activities:
Depreciation and Amortization..................................... 12,186 9,919
Deferred Income Taxes............................................. 3,280 3,266
Provision for Doubtful Accounts................................... 800 700
Changes in Assets and Liabilities:
Increase in Trade Receivables.................................... (36,621) (34,125)
(Increase) Decrease in Prepaid Expenses and Other Current Assets. (305) 2,344
Decrease (Increase) in Other Assets.............................. 337 (197)
Decrease in Accrued Incentive Compensation....................... (5,455) (9,827)
Increase in Accounts Payable and Other Accrued Compensation
and Other Accrued Liabilities .................................. 9,693 6,299
(Decrease) Increase in Deferred Revenue.......................... (7,158) 11
Decrease in Income Taxes Payable................................. (1,778) (174)
-------- --------
Net Cash Used by Operating Activities............................. (13,574) (11,197)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets............................................ (13,085) (6,247)
Purchase of Computer Software....................................... (1,238) (697)
Investment in Software Products..................................... (3,654) (5,487)
Increase in Other Investments....................................... 115 (144)
Proceeds from Sale of Fixed Assets and Purchased Computer Software.. 168 93
-------- --------
Net Cash Used by Investing Activities............................. (17,694) (12,482)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings.......................................................... 10,798 11,633
Payments on Borrowings.............................................. (2,266) (2,167)
Proceeds from Common Stock Options Exercised........................ 1,503 3,095
Payments to Acquire Treasury Stock.................................. (826) -
Dividends Paid on Preferred Stock................................... (288)
-------- --------
Net Cash Provided by Financing Activities........................ 9,209 12,273
Decrease in Currency Translation Adjustment......................... 525 248
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS............................ (21,534) (11,158)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 34,238 15,600
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 12,704 $ 4,442
======== ========
NON-CASH OPERATING AND FINANCING ACTIVITIES:
Treasury Stock Utilized to Satisfy Accrued Incentive Compensation
Liability.......................................................... $ 2,900 $ 600
Conversion of Preferred Stock to Common Stock....................... $ 8,478
</TABLE>
6
<PAGE>
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.
<TABLE>
<CAPTION>
Percentage of Period-to-Period Change
Total Revenues --------------------------------
----------------- Quarter Ended Six Months Ended
Quarter Ended June 30, 1995 June 30, 1995
June 30, vs. vs.
1995 1994 June 30, 1994 June 30, 1994
------ ------ -------------- ----------------
<S> <C> <C> <C> <C>
Revenues
Services and Products.................. 89.3% 88.0% 45.6% 42.5%
Reimbursed Expenses.................... 10.7 12.0 27.9 19.1
----- -----
Total.................................. 100.0 100.0 43.4 39.6
Expenses
Client Project Expenses................ 57.5 54.0 52.7 44.2
Other Operating Expenses............... 29.1 30.6 36.4 42.1
Corporate Expenses..................... 6.0 5.9 44.1 31.8
----- -----
Total.................................. 92.6 90.5 46.6 42.6
Income from Operations................... 7.4 9.5 12.6 8.0
Other (Income) Expense................... 0.1 0.2 (39.3) (99.1)
Income Before Income Taxes............... 7.3 9.3 13.9 10.0
Income Taxes............................. 3.1 3.8 18.8 12.7
Net Income............................... 4.2 5.5 10.6 8.1
Dividends and Accretion on Series B
Preferred Stock......................... 0.0 0.1 (100.0) (100.0)
Net Income to Common Shareholders........ 4.2 5.4 12.5 10.9
Weighted Average Shares and Equivalents.. - - 5.6 6.3
Net Income per Common Share.............. - - 4.3 2.4
</TABLE>
7
<PAGE>
Results of Operations (cont'd.)
---------------------
REVENUES
Services and Products revenues ("S&P Revenues") increased 46% in the second
quarter and 43% for the first six months of 1995 compared to the same 1994
periods, with revenue growth in both the quarter and the half in all of the
Company's target markets. S&P Revenues derived from business with non-US
clients increased approximately 135% during both the second quarter (to $40.2
million) and the first half (to $73.2 million) and accounted for approximately
54% of the total S&P Revenue increases. The Company expects S&P Revenues for
the year to increase at a rate slower than that experienced in the first half,
although greater than its historical annual rate of revenue growth.
In the Financial Services Institutions target market, S&P Revenues increased
53% in the second quarter and 52% in the first half of 1995 (to $31.6 millon and
$59.3 million, respectively) over the comparable 1994 periods, owing principally
to build-ups in business with clients who started large projects in the second
half of 1994. The Company expects that S&P Revenues in this market for the year
will increase at a rate comparable to the Company's overall revenue growth rate.
S&P Revenues in the Federal Government Agencies target market increased 10%
for the quarter and 9% for the half (to $24.2 million and $47.2 million,
respectively) when compared to the same 1994 periods. The Company expects S&P
Revenues in this market for the year to continue to increase, but at rates lower
than the overall growth in total S&P Revenues.
In the State and Local Government and Education target market, S&P Revenues
increased 27% during the quarter and 18% during the half, compared to 1994,
principally due to the completion, during the second quarter, of a performance
based contract, which was being accounted for under the completed contracts
method. The Company expects S&P Revenue growth in this market for the year to
be at a slower growth rate than the Company's overall growth rate for 1995.
With Telecommunications Firms, S&P Revenues increased 89% in the second
quarter and 92% in the first six months of 1995 over the comparable 1994
periods. This increase is mainly attributable to business with non-US clients,
which increased 167% (to $30.2 million) in the quarter, and 177% to ($54.3
million) in the half. The Company expects revenue growth in this market for the
year to continue to outpace that of the Company as a whole.
S&P Revenues from Other Corporate Clients increased 23% during the second
quarter and 20% during the first six months of 1995, compared to 1994. This
market grouping includes business not covered by the Company's other markets,
including business which may at some point be treated as a separate target
market. The Company expects S&P Revenues in this market to grow, for the year
as a whole, at rates below that of the Company overall.
8
<PAGE>
EXPENSES
Client Project Expenses increased 53% during the second quarter and 44% during
the first six months of 1995, compared to the same 1994 periods. While the
second quarter increase was greater than the increase in S&P Revenues, due
principally to assimilating new staff onto client projects, the six month
increase was approximately the same as the increase in S&P Revenues. The Company
expects these expenses for the year to be in line with the S&P Revenue growth of
the Company.
Other Operating Expenses increased 36% in the quarter and 42% for the half,
compared to the same 1994 periods. These rates of increase are in line with the
increases in S&P Revenues and, for the year, should increase at a rate
comparable to that of the S&P Revenue growth.
Corporate Expenses increased 44% and 32% during the quarter and first half,
respectively, compared to the same 1994 periods. The Company expects Corporate
Expenses for the year to increase at rates slower than the overall revenue
growth rates.
OTHER (INCOME) EXPENSE
Interest Expense increased 20% during the second quarter and 23% during the
first half of 1995, due to increased borrowing by certain of the Company's non-
US subsidiaries under a line of credit agreement. For the remainder of 1995,
Interest Expense will likely increase at greater rates, as the Company, during
the third quarter of 1995, has entered into agreements to finance $15 million of
new term debt. Other Income, primarily interest, increased 238% in the second
quarter and 185% for the half, owing to higher levels of investments and higher
interest rates in the US.
LIQUIDITY AND CAPITAL RESOURCES
The Company provides for its operating cash requirements primarily through
funds generated from operations, and using bank borrowings primarily for cash
management with respect to the short term impact of certain cyclical uses, such
as annual payments of incentive compensation, and to finance certain capital
acquisitions. At June 30, 1995, the Company's cash and cash equivalents totaled
$12.7 million, down from $34.2 million at the end of 1994. Cash used in
operating activities was $13.6 million due principally to payments made in the
first quarter of the year for incentive compensation and other employee benefits
and increases in accounts receivable. Additionally, the Company invested over
$17.7 million in fixed assets and software purchases, and computer software
development. The Company borrowed $10.8 million during the first half for short-
term borrowings by its European subsidiaries. The Company also made
approximately $2.3 million in debt repayments during the first half and received
approximately $1.5 million from the exercise of employee stock options. As
previously reported, the Company has subcontracts with a prime contractor in the
human services business. At June 30, 1995, the accounts receivable related to
these subcontracts was approximately 10% of total accounts receivable. These
amounts span four contracts which the prime contractor has with state/local
government clients, in three different states.
9
<PAGE>
The Company has two line of credit facilities which it can use to generate
working capital, for which the principal need is to finance the growth in
accounts receivable. At June 30, 1995, the Company had $15.6 million
outstanding under the line of credit agreements.
At June 30, 1995, the Company's material unused source of liquidity consisted
of approximately $23.4 million available under its revolving lines of credit.
Also at June 30, 1995, the Company's debt-equity ratio, as measured by total
liabilities divided by common stockholders' equity, was 0.77. At December 31,
1994, the debt-equity ratio was 0.82.
During the third quarter of 1995, the Company entered into two long term
financing agreements, totalling $15.0 million. This financing was used
principally to replace the working capital expended during the first six months
for purchases of fixed assets.
The Company believes that its liquidity needs can be met from the resources
described above.
10
<PAGE>
PART II OTHER INFORMATION REQUIRED IN REPORT
------------------------------------
Item 1. Legal Proceedings
-----------------
On July 20, 1995, Andersen Consulting LLP ("Andersen") sued AMS in the
United States District Court for the Southern District of New York claiming that
(1) a 1993 AMS proposal to a state government for tax management services
infringed Andersen's copyright in a detail design prepared jointly by Andersen
and AMS for a local government client; and (2) the description of services in
AMS's proposal causes Andersen to believe that AMS has disclosed certain of
Andersen's trade secrets in performing the contract awarded to AMS pursuant to
the 1993 proposal. Andersen seeks injunctive relief and damages of $20 million.
A hearing was held on July 26, 1995 on Andersen's motion for a preliminary
injunction. As of the filing of this Form 10-Q, no decision has been rendered.
Andersen filed the suit without any prior consultation with AMS about
the facts underlying Andersen's allegations. AMS's opposition to Andersen's
request for injunctive relief demonstrates AMS's belief that no trade secret
protection could exist in the concepts cited by Andersen and that AMS has
utilized no confidential information of Andersen. AMS is vigorously contesting
Andersen's claims.
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 18, 1995 for the purposes of electing the
board of directors and voting on the proposals described below.
(b) Proxies for the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934 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) Four proposals were submitted to a vote of stockholders as follows:
11
<PAGE>
(1) The stockholders approved the election of the following persons as
directors of the Company:
<TABLE>
<CAPTION>
Name For Withheld
---------------------- ---------- --------
<S> <C> <C>
Paul A. Brands 20,082,579 618,519
Philip M. Giuntini 20,082,579 618,519
Charles O. Rossotti 20,073,984 627,114
Patrick W. Gross 20,082,084 619,014
Frederic V. Malek 20,342,122 358,976
Frank A. Nicolai 20,082,039 619,059
Daniel J. Altobello 20,338,407 362,691
Steven R. Fenster 20,346,979 354,119
Dorothy Leonard-Barton 20,346,829 354,269
James J. Forese 20,082,579 618,519
</TABLE>
(2) The stockholders approved with 15,680,801 affirmative votes,
4,984,654 negative votes, 35,643 abstentions, and no broker non-
votes, the proposal to amend the Restated Certificate of
Incorporation, as amended, increasing the authorized number of
shares of common stock.
(3) The stockholders approved with 17,755,074 affirmative votes,
1,176,531 negative votes, 61,830 abstentions, and no broker non-
votes the proposal to adopt an amended 1992 Amended and Restated
Stock Option Plan E.
(4) The stockholders approved with 18,674,457 affirmative votes,
269,248 negative votes, 49,730 abstentions, and no broker non-
votes, the proposal to establish the Outside Directors Stock-for-
Fees Plan.
Item 5. Other Information
-----------------
NONE.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
NONE.
12
<PAGE>
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 14, 1995 /s/ Philip M. Giuntini
--------------------- ------------------------------------------
Philip M. Giuntini, President
Date: August 14, 1995 /s/ James E. Marshall
--------------------- -------------------------------------------
James E. Marshall, Controller
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the June 30,
1995 financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 12,704
<SECURITIES> 0
<RECEIVABLES> 176,910
<ALLOWANCES> 4,054
<INVENTORY> 0
<CURRENT-ASSETS> 196,588
<PP&E> 86,642
<DEPRECIATION> (51,353)
<TOTAL-ASSETS> 271,945
<CURRENT-LIABILITIES> 98,987
<BONDS> 0
<COMMON> 324
0
0
<OTHER-SE> 153,539
<TOTAL-LIABILITY-AND-EQUITY> 271,945
<SALES> 293,223
<TOTAL-REVENUES> 293,223
<CGS> 166,360
<TOTAL-COSTS> 273,483
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 800
<INTEREST-EXPENSE> 735
<INCOME-PRETAX> 19,737
<INCOME-TAX> 8,290
<INCOME-CONTINUING> 11,447
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,447
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
