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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.
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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.
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CONTENTS
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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
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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
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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).
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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.
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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.
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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
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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
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Schedule II
American Management Systems, Incorporated
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
For the Year Ended December 31 (In millions) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 $ --
======= ======= =======
</TABLE>
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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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
(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
</TABLE>
16
<PAGE> 20
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
(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
</TABLE>
17
<PAGE> 21
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
(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
</TABLE>
19
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C> <C>
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).
</TABLE>
18
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C> <C>
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
</TABLE>
19
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
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
</TABLE>
- ------------
*Previously filed.
20
<PAGE> 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
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<PAGE> 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
<PAGE> 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
<PAGE> 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
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<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 6
FINANCIAL STATEMENTS AND NOTES
American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31
(In millions except per share data) 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
======== ======== ======
</TABLE>
- ----------------
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 7
American Management Systems, Incorporated
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 (In millions except per share data) 1999 1998
- -----------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
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
======== ========
</TABLE>
- ----------------
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 8
American Management Systems, Incorporated
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 (In millions except per share data) 1999 1998
- ------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
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
======== ========
</TABLE>
- ----------------
See Accompanying Notes to Consolidated Financial Statements.
6
<PAGE> 9
American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 (In millions) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 $ --
</TABLE>
- ----------------
See Accompanying Notes to Consolidated Financial Statements.
7
<PAGE> 10
American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 1999, 1998, and 1997 (In millions)
<TABLE>
<CAPTION>
Common
Stock Capital in Currency Total
(Par Value Excess of Translation Retained Treasury Stockholders'
$0.01) Par Value Adjustment Earnings Stock Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
==== ===== ====== ====== ====== ======
</TABLE>
- ----------------
See Accompanying Notes to Consolidated Financial Statements.
8
<PAGE> 11
American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year Ended December 31 (In millions) 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
===== ===== =====
</TABLE>
- ----------------
See Accompanying Notes to Consolidated Financial Statements.
9
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<TABLE>
<CAPTION>
December 31 (In millions) 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
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
====== ======
</TABLE>
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
<PAGE> 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
<PAGE> 17
The following schedule summarizes the total outstanding notes; there
are no outstanding capitalized lease obligations. The carrying values
approximate the fair values.
<TABLE>
<CAPTION>
December 31 (In millions) 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
=====
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
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
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 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
</TABLE>
16
<PAGE> 19
Additional information with respect to stock options awarded pursuant to such
plans is summarized in the following schedule.
<TABLE>
<CAPTION>
Number of Weighted
Option Average
Shares Exercise Price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
December 31 (In millions, except per share data): 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
===== ===== =====
</TABLE>
17
<PAGE> 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.
<TABLE>
<CAPTION>
Ten Year Eight Year Five Year
-------------------------- ------------------------- -------------------------
December 31 1999 1998 1997 1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
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
<PAGE> 21
NOTE 5 -- EARNINGS PER SHARE RECONCILIATION
<TABLE>
<CAPTION>
Year Ended December 31 (In millions except per share data) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
===== ===== =====
</TABLE>
19
<PAGE> 22
NOTE 6 -- INCOME TAXES
<TABLE>
<CAPTION>
Year Ended December 31 (In millions) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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%
======= ======= =======
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
Year Ended December 31 (In millions) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
======= ======= =======
</TABLE>
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
<PAGE> 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
--------------------------------------
<TABLE>
<CAPTION>
(In millions) Real Property Equipment Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
====== ===== ======
</TABLE>
22
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
Year Ended December 31 (In millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
======== ======== ======
</TABLE>
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:
<TABLE>
<CAPTION>
Year Ended December 31 (In millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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%
====== ====== ======
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
Period-to-Period
Percentage of Total Revenues Change
---------------------------- ----------------
1999 1998
vs. vs.
1999 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
27
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 38
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Year Ended December 31
(In millions except share and per share data) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
36
<PAGE> 39
FIVE-YEAR REVENUES BY TARGET MARKET
<TABLE>
<CAPTION>
Year Ended December 31 (In millions) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
======== ======== ====== ====== ======
</TABLE>
37
<PAGE> 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.
<TABLE>
<CAPTION>
(In millions except per share data)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
- -----------------------------------------------------------------------------------------------------------------------
1999:
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
1999 1998
--------------------------- ----------------------
High Low High Low
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
The approximate number of shareholders of record of the Company's
common stock as of March 24, 2000 was 1,704.
38
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
Place of
Subsidiary (Year Organized or Acquired) Incorporation
--------------------------------------- -------------
<S> <C>
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
</TABLE>
63
<PAGE> 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
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 111,300
<SECURITIES> 0
<RECEIVABLES> 294,700
<ALLOWANCES> 10,800
<INVENTORY> 0
<CURRENT-ASSETS> 428,800
<PP&E> 95,100
<DEPRECIATION> (63,900)
<TOTAL-ASSETS> 612,500
<CURRENT-LIABILITIES> 230,100
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 309,500
<TOTAL-LIABILITY-AND-EQUITY> 612,500
<SALES> 1,240,300
<TOTAL-REVENUES> 1,240,300
<CGS> 653,800
<TOTAL-COSTS> 1,142,400
<OTHER-EXPENSES> 1,500
<LOSS-PROVISION> 6,200
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 96,400
<INCOME-TAX> 39,500
<INCOME-CONTINUING> 56,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,900
<EPS-BASIC> 1.36
<EPS-DILUTED> 1.34
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 119,300
<SECURITIES> 0
<RECEIVABLES> 260,300
<ALLOWANCES> 9,800
<INVENTORY> 0
<CURRENT-ASSETS> 388,400
<PP&E> 100,600
<DEPRECIATION> (63,000)
<TOTAL-ASSETS> 537,600
<CURRENT-LIABILITIES> 186,000
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 291,900
<TOTAL-LIABILITY-AND-EQUITY> 537,600
<SALES> 1,057,800
<TOTAL-REVENUES> 1,057,800
<CGS> 576,200
<TOTAL-COSTS> 967,900
<OTHER-EXPENSES> 2,600
<LOSS-PROVISION> 10,900
<INTEREST-EXPENSE> 800
<INCOME-PRETAX> 87,300
<INCOME-TAX> 35,500
<INCOME-CONTINUING> 51,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,800
<EPS-BASIC> 1.23
<EPS-DILUTED> 1.21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 49,600
<SECURITIES> 0
<RECEIVABLES> 240,900
<ALLOWANCES> 5,000
<INVENTORY> 0
<CURRENT-ASSETS> 298,900
<PP&E> 103,300
<DEPRECIATION> (58,100)
<TOTAL-ASSETS> 421,400
<CURRENT-LIABILITIES> 130,000
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 238,700
<TOTAL-LIABILITY-AND-EQUITY> 421,400
<SALES> 872,300
<TOTAL-REVENUES> 872,300
<CGS> 485,000
<TOTAL-COSTS> 818,000
<OTHER-EXPENSES> 2,900
<LOSS-PROVISION> 10,600
<INTEREST-EXPENSE> 4,400
<INCOME-PRETAX> 51,400
<INCOME-TAX> 20,200
<INCOME-CONTINUING> 31,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,200
<EPS-BASIC> 0.75
<EPS-DILUTED> 0.74
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 62,800
<SECURITIES> 0
<RECEIVABLES> 247,700
<ALLOWANCES> 18,900
<INVENTORY> 0
<CURRENT-ASSETS> 323,800
<PP&E> 91,100
<DEPRECIATION> (43,100)
<TOTAL-ASSETS> 424,200
<CURRENT-LIABILITIES> 198,800
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 203,100
<TOTAL-LIABILITY-AND-EQUITY> 424,200
<SALES> 812,200
<TOTAL-REVENUES> 812,200
<CGS> 525,900
<TOTAL-COSTS> 784,600
<OTHER-EXPENSES> 1,400
<LOSS-PROVISION> 15,200
<INTEREST-EXPENSE> 2,000
<INCOME-PRETAX> 26,200
<INCOME-TAX> 10,700
<INCOME-CONTINUING> 15,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,500
<EPS-BASIC> 0.38
<EPS-DILUTED> 0.37
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 94,300
<SECURITIES> 0
<RECEIVABLES> 234,800
<ALLOWANCES> 9,145
<INVENTORY> 0
<CURRENT-ASSETS> 336,700
<PP&E> 102,200
<DEPRECIATION> (63,400)
<TOTAL-ASSETS> 474,500
<CURRENT-LIABILITIES> 144,800
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 275,000
<TOTAL-LIABILITY-AND-EQUITY> 474,500
<SALES> 755,900
<TOTAL-REVENUES> 755,900
<CGS> 417,800
<TOTAL-COSTS> 694,200
<OTHER-EXPENSES> 1,300
<LOSS-PROVISION> 8,800
<INTEREST-EXPENSE> 600
<INCOME-PRETAX> 60,400
<INCOME-TAX> 24,800
<INCOME-CONTINUING> 35,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,600
<EPS-BASIC> 0.85
<EPS-DILUTED> 0.83
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 73,500
<SECURITIES> 0
<RECEIVABLES> 222,700
<ALLOWANCES> 8,100
<INVENTORY> 0
<CURRENT-ASSETS> 305,000
<PP&E> 102,700
<DEPRECIATION> (62,600)
<TOTAL-ASSETS> 436,100
<CURRENT-LIABILITIES> 112,500
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 266,800
<TOTAL-LIABILITY-AND-EQUITY> 436,100
<SALES> 473,700
<TOTAL-REVENUES> 473,700
<CGS> 264,500
<TOTAL-COSTS> 436,800
<OTHER-EXPENSES> 1,500
<LOSS-PROVISION> 6,800
<INTEREST-EXPENSE> 1,100
<INCOME-PRETAX> 35,400
<INCOME-TAX> 14,500
<INCOME-CONTINUING> 20,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,900
<EPS-BASIC> 0.50
<EPS-DILUTED> 0.49
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 44,400
<SECURITIES> 0
<RECEIVABLES> 247,300
<ALLOWANCES> 7,000
<INVENTORY> 0
<CURRENT-ASSETS> 304,200
<PP&E> 103,400
<DEPRECIATION> (60,800)
<TOTAL-ASSETS> 431,600
<CURRENT-LIABILITIES> 122,800
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 253,200
<TOTAL-LIABILITY-AND-EQUITY> 431,600
<SALES> 223,000
<TOTAL-REVENUES> 223,000
<CGS> 123,300
<TOTAL-COSTS> 206,900
<OTHER-EXPENSES> 900
<LOSS-PROVISION> 2,000
<INTEREST-EXPENSE> 500
<INCOME-PRETAX> 15,200
<INCOME-TAX> 6,200
<INCOME-CONTINUING> 9,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,000
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 52,500
<SECURITIES> 0
<RECEIVABLES> 250,600
<ALLOWANCES> 5,800
<INVENTORY> 0
<CURRENT-ASSETS> 312,800
<PP&E> 100,700
<DEPRECIATION> (54,800)
<TOTAL-ASSETS> 432,100
<CURRENT-LIABILITIES> 165,000
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 222,200
<TOTAL-LIABILITY-AND-EQUITY> 432,100
<SALES> 642,600
<TOTAL-REVENUES> 642,600
<CGS> 364,500
<TOTAL-COSTS> 608,000
<OTHER-EXPENSES> 3,100
<LOSS-PROVISION> 3,500
<INTEREST-EXPENSE> 3,800
<INCOME-PRETAX> 31,500
<INCOME-TAX> 13,400
<INCOME-CONTINUING> 18,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,100
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.43
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 38,200
<SECURITIES> 0
<RECEIVABLES> 257,200
<ALLOWANCES> 8,000
<INVENTORY> 0
<CURRENT-ASSETS> 304,200
<PP&E> 98,300
<DEPRECIATION> (51,100)
<TOTAL-ASSETS> 419,400
<CURRENT-LIABILITIES> 156,500
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 216,900
<TOTAL-LIABILITY-AND-EQUITY> 419,400
<SALES> 417,200
<TOTAL-REVENUES> 417,200
<CGS> 237,100
<TOTAL-COSTS> 392,500
<OTHER-EXPENSES> 1,600
<LOSS-PROVISION> 2,600
<INTEREST-EXPENSE> 2,300
<INCOME-PRETAX> 23,100
<INCOME-TAX> 9,500
<INCOME-CONTINUING> 13,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,600
<EPS-BASIC> 0.33
<EPS-DILUTED> 0.32
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 30,500
<SECURITIES> 0
<RECEIVABLES> 250,400
<ALLOWANCES> 19,700
<INVENTORY> 0
<CURRENT-ASSETS> 294,300
<PP&E> 94,300
<DEPRECIATION> (46,900)
<TOTAL-ASSETS> 395,000
<CURRENT-LIABILITIES> 137,500
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 210,500
<TOTAL-LIABILITY-AND-EQUITY> 395,000
<SALES> 196,300
<TOTAL-REVENUES> 196,300
<CGS> 110,400
<TOTAL-COSTS> 186,300
<OTHER-EXPENSES> 300
<LOSS-PROVISION> 800
<INTEREST-EXPENSE> 800
<INCOME-PRETAX> 9,700
<INCOME-TAX> 4,000
<INCOME-CONTINUING> 5,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,700
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
