<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies: (3)
Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
<TABLE>
<S> <C>
(1) Amount Previously Paid: (3) Filing Party:
(2) Form, Schedule or Registration Statement No.: (4) Date Filed:
</TABLE>
<PAGE> 2
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
4050 LEGATO ROAD
FAIRFAX, VIRGINIA 22033
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED will be held at 4050 Legato Road,
Fairfax, Virginia 22033 on Friday, May 12, 2000, at 10:00 a.m. local time, for
the following purposes:
To elect nine (9) directors to hold office until the next Annual
Meeting of Shareholders of American Management Systems, Incorporated and until
their successors are elected and qualified; and
To transact such other business as may properly come before the
meeting or any adjournment(s) or postponement(s) thereof.
Only shareholders of record at the close of business on March 20,
2000, will be entitled to notice of, and to vote at, the meeting or any
adjournment(s) or postponement(s) thereof.
Shareholders are cordially invited to attend the meeting in person.
IF YOU WILL NOT BE ABLE TO ATTEND THE MEETING IN PERSON, PLEASE INDICATE YOUR
CHOICE ON THE MATTERS TO BE VOTED UPON, DATE AND SIGN THE ENCLOSED PROXY, AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. ALTERNATIVELY, YOU MAY VOTE BY
TELEPHONE AT 1-800-840-1208. Instructions regarding telephone voting are
included on the Proxy.
BY ORDER OF THE BOARD OF DIRECTORS,
Frank A. Nicolai
Secretary
April 12, 2000
<PAGE> 3
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
4050 LEGATO ROAD
FAIRFAX, VIRGINIA 22033
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 12, 2000
TABLE OF CONTENTS
<TABLE>
<S> <C>
General..................................................................................1
Voting Procedure.........................................................................1
Election of Directors....................................................................2
Information Concerning Nominees for Director.............................................2
Information Concerning Executive Officers................................................7
Principal Stockholders...................................................................8
Section 16(a) Beneficial Ownership Reporting Compliance..................................9
Executive Compensation..................................................................10
Compensation Committee Report of Executive Compensation.................................12
Shareholder Return Performance Graph....................................................15
Committees and Compensation of the Board of Directors...................................16
Compensation Committee Interlocks and Insider Participation.............................17
Independent Public Accountants..........................................................18
Other Matters...........................................................................18
Proposals for 2001 Annual Meeting of Shareholders.......................................18
Annual Report...........................................................................19
American Management Systems, Incorporated 1999 Financial Report.................Appendix 1
</TABLE>
<PAGE> 4
GENERAL
The enclosed Proxy is being solicited by the Board of Directors (the
"Board of Directors" or the "Board") of AMERICAN MANAGEMENT SYSTEMS,
INCORPORATED (the "Company" or "AMS") in connection with the annual meeting of
shareholders of the Company to be held May 12, 2000 (the "Annual Meeting"), or
any adjournment(s) or postponement(s) thereof. The entire expense of
solicitation of proxies will be borne by the Company. Solicitation will be
primarily by mail. However, directors, executive officers, and employees of the
Company may also solicit by telephone or personal contact. The Company will
reimburse brokers and other persons holding shares in their names, or in the
names of nominees, for their expenses of sending proxy materials to beneficial
owners and obtaining their proxies. It is anticipated that the Proxy Statement
and Proxy first will be mailed to shareholders on or about April 12, 2000.
Any shareholder giving a Proxy by mail or via telephone has the power
to revoke it at any time before it is voted by giving written notice of
revocation to the Secretary of the Company or by delivering a proxy in
accordance with applicable law bearing a later date to the Secretary of the
Company. If you attend the Annual Meeting, you may, if you wish, revoke your
Proxy by voting in person. Proxies solicited herein will be voted, and if the
person solicited specifies in the Proxy a choice with respect to matters to be
acted upon, the shares will be voted in accordance with such specification. If
no choice is indicated, the Proxy will be voted "FOR" the election of the
nominees listed on pages 2 to 6 under the caption "Information Concerning
Nominees for Director."
VOTING PROCEDURE
As of March 20, 2000, there were outstanding 41,488,828 shares of the
Company's Common Stock, $0.01 par value per share (the "Common Stock"). Each
share of Common Stock is entitled to one vote at the Annual Meeting. Only
shareholders of record at the close of business on March 20, 2000 will be
entitled to vote at the Annual Meeting.
Votes cast in person or by Proxy at the Annual Meeting, abstentions
and Broker Non-votes (as defined below) will be tabulated by the election
inspectors appointed for such Meeting and will be counted for purposes of
determining whether a quorum is present. Directors will be elected by the
affirmative vote of the holders of a plurality of the shares present (in person
or represented by Proxy) and voted on the election of directors at the Annual
Meeting. Any other matter submitted to a vote at the Annual Meeting will be
approved by the affirmative vote of the holders of a majority of the shares
present (in person or represented by Proxy) and entitled to vote on each such
matter. The election inspectors will treat abstentions on a particular matter as
shares that are present and entitled to vote for purposes of determining the
approval of such matter. Abstentions, therefore, will have the same effect as a
vote against a particular matter. If a broker submits a Proxy indicating that it
does not have discretionary authority as to certain shares to vote on a
particular matter (a "Broker Non-vote"), those shares will not be treated as
present and entitled to vote for purposes of determining the approval of such
matter.
<PAGE> 5
ELECTION OF DIRECTORS
Nine directors are to be elected at the Annual Meeting, each to hold
office until the next annual meeting of shareholders of the Company and until
his or her successor is elected and qualified. The directors will be elected by
the affirmative vote of the holders of a plurality of the shares present (in
person or represented by Proxy) and voted on the election of directors. Unless
otherwise directed, it is the intention of the persons named in the Proxy to
vote such Proxy for the election of the nominees listed under the caption
"Information Concerning Nominees for Director" on pages 2 to 6. All of the
nominees are now directors of the Company. In the event that any nominee should
be unable to accept the office of director, which is not anticipated, it is
intended that the persons named in the Proxy will vote for the election of such
other person in the place of such nominee for the office of director as the
Board of Directors may recommend. Descriptive information as to each nominee is
set forth below under the caption "Information Concerning Nominees for
Director."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE NOMINEES
DESCRIBED BELOW FOR ELECTION AS DIRECTORS.
INFORMATION CONCERNING NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED
NAME AGE POSITION DIRECTOR BACKGROUND
---- --- -------- -------- ----------
<S> <C> <C> <C> <C>
Paul A. Brands............. 58 Chairman of the 1992 Mr. Brands has served as Chairman of the Board of
Board of Directors, Directors since December 1997 and as a member of
Chief Executive the Board of Directors since October 1992. Mr.
Officer, and Director Brands served as Vice Chairman of the Board of
Directors from October 1992 to December 1997. He
was designated Chief Executive Officer in
September 1993. He supervised the Federal
Consulting and Systems Group from 1977 to 1992;
Data Base Management, Inc. from 1990 to 1992; and
the Company's interest in Bell Atlantic Systems
Integration Corporation from 1989 to 1992. Mr.
Brands joined the Company in 1977. He also is a
director of SAGA Systems, Inc., which is a public
company.
</TABLE>
-2-
<PAGE> 6
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED
NAME AGE POSITION DIRECTOR BACKGROUND
---- --- -------- -------- ----------
<S> <C> <C> <C> <C>
Patrick W. Gross........... 55 Chairman of the 1974 Mr. Gross is one of the Company's founders and
Executive Committee has served AMS continuously as an executive
of the Board of officer since 1970. Since December 1997, Mr.
Directors, and Gross has served as Chairman of the Executive
Director Committee of the Board of Directors, an office he
also held from 1983 to 1989. He also served as
Vice Chairman of the Board of Directors from
February 1989 to September 1997. He is a
director of Capital One Financial Corporation,
Computer Network Technology Corporation, and
Landmark Systems Corporation, all of which are
publicly-held entities. He is also Chairman of
the Board of Directors (a non-executive position)
of Baker & Taylor Holdings, Inc., which is a
non-publicly held entity.
Frank A. Nicolai........... 58 Executive Vice 1974 Mr. Nicolai is one of the Company's founders and
President, has served continuously as an executive officer
Secretary, and since 1970. He was elected Secretary in 1987.
Director In addition, he served as Treasurer of the
Company from 1980 to 1999.
Daniel J. Altobello........ 59 Director 1993 Mr. Altobello has been Chairman and Director of
ONEX Food Services, Inc. since September 1995 and
President of Caterair International Corporation
since December 1989. He served as Chairman of the
Board and Chief Executive Officer of Caterair
International Corporation from December 1989
through September 1995. From April 1988 through
December 1989, Mr. Altobello was Executive Vice
President of Marriott Corporation and President of
Marriott Airport Operations. He presently serves
as a director of MESA Air Group, Inc., World
Airways, Inc., Sodexho-Marriott Services, Inc. and
First Union Realty Trust, all of which are public
companies. He also currently serves as a director
of CareFirst, Inc., CareFirst of Maryland, Inc.,
Colorado Prime Corporation, and Atlantic Aviation
Holdings, and a member of the Advisory Board of
Thayer Capital Partners, a merchant bank. None of
these entities is publicly held.
</TABLE>
-3-
<PAGE> 7
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED
NAME AGE POSITION DIRECTOR BACKGROUND
---- --- -------- -------- ----------
<S> <C> <C> <C> <C>
James J. Forese............ 64 Director 1989 Mr. Forese is currently President, Chief Executive
Officer and a Director of IKON Office Solutions.
From January 1997 to July 1998 he served as
Executive Vice President and President,
International Operations of IKON Office Solutions.
From 1995 to 1996 he served as Executive Vice
President, Chief Operating Officer, and Director
of ALCO Standard Corporation. From 1993 to 1995 he
served as General Manager of IBM Customer
Financing and Chairman of IBM Credit Corporation.
He served as IBM Vice President, Finance from 1990
to 1993 and IBM Vice President and Group
Executive, IBM World Americas Group from 1988 to
1990. He currently serves as a director of NUI
Corporation and Unisource Worldwide, both of which
are publicly-held corporations. He joined
ALCO/IKON in 1996.
Dorothy Leonard............ 58 Director 1991 Dr. Leonard has been a Professor at the Harvard
University Graduate School of Business
Administration since 1993. Prior to this, she
served as an Associate Professor from 1989 to
1993, and an Assistant Professor from 1983 to
1989, at the Harvard University Graduate School of
Business Administration. Dr. Leonard serves as an
independent industrial consultant to numerous
Fortune 100 companies and to startups. She also
serves on the Advisory Board to Daimler Chrysler
Corporation, a public company.
</TABLE>
-4-
<PAGE> 8
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED
NAME AGE POSITION DIRECTOR BACKGROUND
---- --- -------- -------- ----------
<S> <C> <C> <C> <C>
W. Walker Lewis............ 55 Director 1995 Mr. Lewis presently is Chairman of Devon Value
Advisers. From January 1995 to April 1998 he was a
Senior Advisor with SBC Warburg Dillon Read Inc.
(previously Dillon, Read & Co., Inc.). He was
Managing Director, Strategic Services, and a
member of the Management Committee of Kidder,
Peabody & Co., Inc. from April 1994 to December
1994. From April 1992 through December 1993, he
served as President of Avon North America and as
Executive Vice President of Avon Corporate. He
currently serves as a director of Owens Corning,
which is a publicly-held corporation, and London
Fog and Mrs. Fields Original Cookies, which are
non-publicly held entities. Mr. Lewis previously
served as a director of AMS from February 1981
through May 1992.
Frederic V. Malek.......... 63 Director 1985 Mr. Malek has been Chairman of Thayer Capital
Partners, a merchant bank, since March 1993. He
was Co-Chairman, CB Commercial Real Estate Group
(a real estate brokerage and management firm) from
April 1989 to October 1996. He was Campaign
Manager for the re-election campaign of President
Bush and Vice President Quayle from December 1991
to November 1992. He was Vice Chairman of
Northwest Airlines from 1990 to December 1991, and
was President of Northwest Airlines from 1989 to
1990. From 1988 to 1989 he was Senior Advisor to
The Carlyle Group (investment bank), and from 1981
to 1988 he was President of Marriott Hotels and
Resorts. Mr. Malek also serves as a director of
Automatic Data Processing, Inc.; various
Paine-Webber mutual funds; FPL Group; Northwest
Airlines; CB Richard Ellis Services, Inc.; Global
Vacation Group, Inc.; Aegis Communications Group,
Inc.; SAGA Systems, Inc.; and HCR/Manor Care, Inc.,
all of which are publicly-held entities.
</TABLE>
-5-
<PAGE> 9
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED
NAME AGE POSITION DIRECTOR BACKGROUND
---- --- -------- -------- ----------
<S> <C> <C> <C> <C>
Alan G. Spoon.............. 48 Director 1996 As of May 1, 2000, Mr. Spoon will become General
Partner of Polaris Venture Partners, a venture
capital firm. Mr. Spoon has been Chief Operating
Officer and Director of The Washington Post
Company, a public company, since 1991, and has
also served as President since 1993. Mr. Spoon
joined The Washington Post Company in 1982. From
1989 to 1991, he was President of Newsweek, Inc.
During that time he also was responsible for
Post-Newsweek television stations. From 1987 to
1989, he was The Washington Post Company's Chief
Financial Officer. He presently serves as a
director of Human Genome Sciences, Inc.,
Ticketmaster-CitySearch Online, Inc., and Danaher
Corporation, each of which are public companies.
</TABLE>
-6-
<PAGE> 10
INFORMATION CONCERNING EXECUTIVE OFFICERS
Information concerning Paul A. Brands, Chairman of the Board of
Directors and Chief Executive Officer; Patrick W. Gross, Chairman of the
Executive Committee of the Board of Directors; and Frank A. Nicolai, Executive
Vice President and Secretary, is set forth above under the caption "Information
Concerning Nominees for Director."
<TABLE>
<CAPTION>
NAME AGE POSITION BACKGROUND
---- --- -------- ----------
<S> <C> <C> <C>
Fred L. Forman................. 56 Executive Dr. Forman is currently AMS's General Manager in
Vice President Europe focusing on the expansion and
diversification of the Company's business there,
as well as management of the Company's
infrastructure. In addition, he participates in
several executive steering committees with key
clients and in key AMS-wide executive management
activities. He joined the Company in 1971.
Ronald L. Schillereff......... 55 Executive Dr. Schillereff joined the Company in February
Vice President, 1999. From 1993 to 1998 he was with Electronic
Chief Financial Data Systems Corporation ("EDS") serving as
Officer, Managing Director of EDS Australia (1997 to 1998);
and Treasurer Managing Director of A.T. Kearney for Southeast
Asia, which is a wholly-owned management
consulting subsidiary of EDS (1995 to 1997); and
Principal and Practice Leader in Management
Consulting Services, the consulting division of
EDS (1993 to 1995).
</TABLE>
-7-
<PAGE> 11
PRINCIPAL STOCKHOLDERS
As of March 20, 2000, no persons were known by the Company to
beneficially own 5% or more of the outstanding shares of Common Stock. The
following table sets forth, as of March 20, 2000, the number and percentage of
outstanding shares of Common Stock beneficially owned by (i) each director, (ii)
each executive officer, and (iii) all executive officers and directors as a
group. Unless otherwise noted below, each person named in the table has sole
voting and sole investment power with respect to each of the shares beneficially
owned by such person.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING SHARES(2)
- ------------------------------------ ------------ ---------------------
<S> <C> <C>
Daniel J. Altobello(3).............................................. 25,957 0.0%
6550 Rock Spring Drive
Bethesda, MD 20817
Paul A. Brands (3)(4)............................................... 508,681 1.2%
4050 Legato Road
Fairfax, VA 22033
James J. Forese(3).................................................. 93,708 0.2%
70 Valley Stream Parkway
Malvern, PA 19355
Fred L. Forman(4)................................................... 240,560 0.6%
4050 Legato Road
Fairfax, VA 22033
Patrick W. Gross(3)(4)(5)........................................... 691,972 1.7%
4050 Legato Road
Fairfax, VA 22033
Dorothy Leonard(3).................................................. 14,213 0.0%
Harvard University Graduate School
of Business
522 Soldiers Field Road
Morgan Hall T93
Boston, MA 02163
W. Walker Lewis(3).................................................. 14,403 0.0%
399 Park Avenue, 19th Floor
New York, NY 10022
Frederic V. Malek(3)............................................... 24,259 0.0%
901 15th Street, N.W.
Suite 350
Washington, D.C. 20004
Frank A. Nicolai(3)(4)(6)........................................... 541,154 1.3%
4050 Legato Road
Fairfax, VA 22033
Ronald L. Schillereff(4)............................................ 9,333 0.0%
4050 Legato Road
Fairfax, VA 22033
Alan G. Spoon(3)(7)................................................. 11,749 0.0%
1150 15th Street, N.W.
Washington, D.C. 20071
All executive officers and directors................................ 2,175,989 5.2%
as a group (eleven persons)
</TABLE>
-8-
<PAGE> 12
(1) The amount of beneficial ownership includes stock options granted to
directors and executive officers which have vested and are or will become
exercisable within 60 days of March 20, 2000. Accordingly, Mr. Altobello
has 6,832 options vested and exercisable; Mr. Brands has 16,200 options
vested and exercisable; Mr. Forese has 5,583 options vested and
exercisable; Dr. Forman has 8,100 options vested and exercisable; Mr.
Gross has 8,100 options vested and exercisable; Dr. Leonard has 6,833
options vested and exercisable; Mr. Lewis has 11,749 options vested and
exercisable; Mr. Malek has 7,166 options vested and exercisable; Mr.
Nicolai has 8,100 options vested and exercisable; Dr. Schillereff has
9,333 options vested and exercisable; and Mr. Spoon has 8,749 options
vested and exercisable. All executive officers and directors as a group
(eleven persons) have beneficial ownership of 96,745 options vested and
exercisable within 60 days of March 20, 2000.
(2) The percentages of Common Stock were calculated to include stock options
vested and exercisable. The number of shares of Common Stock was
calculated as of March 20, 2000.
(3) Indicates a director of the Company.
(4) Indicates an executive officer of the Company.
(5) The amount includes 64,875 shares beneficially owned by Mr. Gross' wife.
Mr. Gross disclaims beneficial ownership with respect to the shares owned
by his wife, who has the sole power to vote and dispose of such shares.
The amount also includes 362,310 shares jointly owned by Mr. and Mrs.
Gross, who share joint power to vote and dispose of such shares. Lastly,
the amount includes 55,350 shares each owned by two trusts, totaling
110,700 shares, for the benefit of Mr. Gross' son and daughter,
respectively, of which Mr. and Mrs. Gross are co-trustees. Mr. and Mrs.
Gross share joint power to vote and dispose of such shares.
(6) The amount includes 64,124 shares beneficially owned by Ms. Nicolai with
respect to which she has sole voting and dispositive power. Mr. Nicolai
disclaims beneficial ownership with respect to the shares owned by Ms.
Nicolai.
(7) The amount includes 3,000 shares jointly owned by Mr. Spoon and his
spouse, who share joint power to vote and dispose of such shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the Company's directors, executive officers, and
persons who own more than 10% of a registered class of the equity securities of
the Company ("reporting persons") file with the Securities and Exchange
Commission (the "Commission") initial reports of ownership, and reports of
changes in ownership, of shares of stock, and options to purchase such shares,
of the Company. Reporting persons are required by Commission rules to furnish
the Company with copies of all Section 16(a) reports they file.
Based solely upon a review of Section 16(a) reports furnished to the
Company for the fiscal year ended December 31, 1999 (the "1999 fiscal year"),
and representations by reporting persons that no other reports were required for
the 1999 fiscal year, all Section 16(a) reporting requirements were met, except
as follows. During 1999, Messrs. Patrick W. Gross and James J. Forese and Ms.
Nancy M. Yurek each reported the exercise of options to purchase shares of
Common Stock on a Form 4 that was filed late. In addition, Mr. W. Walker Lewis
reported the acquisition of shares of Common Stock for his service on the Board
of Directors on a Form 4 that was filed late in 1999.
-9-
<PAGE> 13
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid or accrued by
the Company during the three fiscal years ended December 31, 1999, to the
Company's executive officers.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
SHARES
UNDERLYING
OPTIONS
(NO. OF LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OTHER SHARES)(2) PAYOUT(3) COMPENSATION(4)
- --------------------------- ---- ------ ----- ----- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul A. Brands 1999 $391,666 $335,000 0 12,000 $727,500 $8,188
Chairman of the Board 1998 342,333 437,500 0 3,000 0 8,328
of Directors, Chief Executive 1997 304,000 0 0 0 0 8,427
Officer, and Director
Patrick W. Gross 1999 $330,833 $167,835 0 4,000 $347,415 $8,188
Chairman of the Executive 1998 311,167 236,250 0 1,000 0 8,328
Committee of the Board of 1997 292,000 0 0 0 0 8,427
Directors, and Director
Frank A. Nicolai 1999 $306,666 $155,775 0 4,000 $324,225 $8,188
Executive Vice President, 1998 286,333 217,500 0 1,000 0 8,328
Secretary, and Director 1997 268,000 0 0 0 0 8,427
Fred L. Forman 1999 $330,833 $125,250 $266,376(5) 4,000 $375,750 $8,188
Executive Vice President 1998 313,500 236,250 174,158(6) 1,000 0 8,328
1997 303,667 229,500 9,959(7) 0 0 8,427
Ronald L. Schillereff 1999 $275,000 $150,000 0 35,000(8) 0 0
Executive Vice President,
Chief Financial Officer,
and Treasurer
</TABLE>
(1) All amounts were awarded based on the achievement of annual performance
goals under single or multi-year incentive compensation plans.
(2) Except as otherwise indicated, each of these awards of shares of Common
Stock is associated with performance under individual incentive
compensation plans and was made by the appropriate Board committee
pursuant to a shareholder-approved stock option plan.
(3) All amounts represent the final cash payment for successful completion of
multi-year performance indicators of individual incentive compensation
plans.
(4) These amounts represent the Company's contribution to special individual
retirement accounts pursuant to the AMS Simplified Employee Pension/IRA
Plan (the "IRA Plan").
(5) This amount consists of $142,315 in foreign assignment related income and
$124,061 in foreign taxes paid by the Company in connection with
compensation paid to Dr. Forman for services performed for the Company
abroad.
(6) This amount consists of $104,186 in foreign assignment related income and
$69,972 in foreign taxes paid by the Company in connection with
compensation paid to Dr. Forman for services performed for the Company
abroad.
(7) This amount represents foreign taxes paid by the Company in connection
with compensation paid to Dr. Forman for services performed for the
Company abroad.
(8) Dr. Schillereff received these options upon joining the Company in
February 1999.
-10-
<PAGE> 14
OPTION GRANTS IN FISCAL 1999
Shown below is information concerning stock option grants to the
Company's executive officers who were granted options on Common Stock during the
Company's 1999 fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SHARES OPTIONS PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM COMPOUNDED ANNUALLY
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------------
NAME GRANTED(1) FISCAL 1999 ($/SHARE)(2) DATE 5% 10%
---- ------- ----------- ---------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Paul A. Brands............ 12,000 1.1% $33.38 02/29/04 $110,719 $244,678
Patrick W. Gross.......... 4,000 0.4% $33.38 02/29/04 $36,906 $81,559
Frank A. Nicolai.......... 4,000 0.4% $33.38 02/29/04 $36,906 $81,559
Fred L. Forman............ 4,000 0.4% $33.38 02/29/04 $36,906 $81,559
Ronald L. Schillereff..... 35,000(3) 3.3% $35.88 02/01/04 $346,906 $766,572
</TABLE>
(1) Except as otherwise indicated, each option grant is associated with a
performance-based individual incentive compensation plan for 1998-1999 and
was made by the appropriate Board committee pursuant to 1996 Amended Stock
Option Plan F, as amended ("Plan F"), a shareholder-approved stock option
plan. The options will become exercisable one month prior to the indicated
expiration date. In accordance with each incentive compensation plan, the
exercise date of an option award may be accelerated to June 30 or August
31 of the year following the end of the performance period covered by the
plan if the Compensation Committee determines that the executive
successfully completed the plan.
(2) Each option grant was awarded with an exercise price equal to the market
value of the Common Stock on the date of the grant.
(3) These options were granted to Dr. Schillereff when he joined AMS in
February 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
Shown below is information with respect to exercises by the Company's
executive officers during the Company's 1999 fiscal year of options to purchase
shares of Common Stock pursuant to Plan F, and earlier stock option plans. Also
shown is information with respect to certain unexercised options to purchase
shares of Common Stock held by the Company's executive officers as of the end of
the Company's 1999 fiscal year.
<TABLE>
<CAPTION>
NUMBER
OF NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED END OF FISCAL YEAR END OF FISCAL 1999(2)
ON VALUE ------------------ ---------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul A. Brands........................ 0 0 24,300 16,500 $263,250 $16,312
Patrick W. Gross...................... 0 0 12,150 5,750 $131,625 $6,656
Frank A. Nicolai...................... 1,350 $30,633 12,150 5,750 $131,625 $6,656
Fred L. Forman........................ 0 0 12,150 5,750 $131,625 $6,656
Ronald L. Schillereff................. 0 0 7,000 28,000 0 0
</TABLE>
(1) Based on the market value of the Common Stock on the date of exercise (as
measured by the closing bid price of the National Market of The Nasdaq
Stock Market), minus the option's exercise price.
(2) Based on the market value of the Common Stock on the last trading day of
1999 (as measured by the closing bid price of $31.35 of the National
Market of The Nasdaq Stock Market), minus the option's exercise price.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
No long-term incentive plan awards were made to the Company's
executive officers during the Company's 1999 fiscal year.
-11-
<PAGE> 15
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Exchange Act that might incorporate future filings, including this Proxy
Statement, in whole or in part, the following report and Performance Graph shall
not be incorporated by reference into any such filings.
COMPENSATION COMMITTEE REPORT OF EXECUTIVE COMPENSATION
COMPOSITION AND RESPONSIBILITIES OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is responsible
for developing and making recommendations to the Board of Directors with respect
to the Company's compensation policies generally. It is composed entirely of
outside directors who have never served as officers of the Company or its
affiliates (the "Outside Directors"). The Compensation Committee approves the
compensation plans for the Company's executive officers, including the Chief
Executive Officer (the "CEO"), and on an annual basis determines the
compensation to be paid to the executive officers. The Compensation Committee is
responsible for the granting and administration of stock options and incentive
compensation granted to the executive officers.
The Compensation Committee has furnished the following report for
fiscal 1999:
COMPENSATION OBJECTIVES AND PHILOSOPHY
The objectives of the Company's executive compensation program are to
provide a level of compensation that will attract and retain executives capable
of achieving long-term success for the Company's shareholders and to structure
their compensation packages such that a significant portion generally is tied to
the achievement of multi-year targets for pre-tax income.
EXECUTIVE OFFICER COMPENSATION
GENERAL. The Company's executive compensation program consists of
three main components: (i) annual base salary, (ii) potential for an annual cash
bonus and awards of stock options based on Company pre-tax income, the profit
contribution of a particular business unit, individual performance, or some
combination of these factors, and (iii) the opportunity to earn long-term cash
and stock-based incentives which are intended to encourage the achievement of
superior results over time and to align executive officer and shareholder
interests. In addition to research and recommendations furnished by the
Company's senior management, the Compensation Committee has relied, inter alia,
on information furnished through executive compensation surveys by a recognized
compensation consulting firm, and information known to various members of the
Board of Directors. The Compensation Committee compares salaries and other
elements of executive compensation with the compensation paid to executives in
technology and consulting firms which are actual competitors of the Company. Few
of these companies are in the Hambrecht & Quist Technology Stock Index, the peer
index chosen by the Company for comparison in the "Shareholder Return
Performance Graph" below, because their shares are not publicly traded. They
include, for example, the consulting divisions of certain Big 5 accounting
firms, other prominent consulting firms which are wholly-owned subsidiaries of
publicly-traded companies, and other software firms that are privately held.
The executive officers, including the CEO, are eligible for the same
benefits, including group health and life insurance and participation in the IRA
Plan, as are available generally to the Company's professional staff, except
that the executive officers do not participate in the Company's Profit-Sharing
Plan (the "Profit-Sharing Plan"), a stock award plan, or the Company's Employee
Stock Purchase Plan. The Company does not provide material perquisites to any of
its executive officers.
ANNUAL BASE SALARY. The Compensation Committee determines the annual
base salary of each of the Company's executive officers, including the CEO.
Changes in base salary are generally made effective on March 1. The same
principles are applied in setting the salaries of all executive officers to
ensure that salaries are competitively established. Salaries are determined by
considering the executive officer's potential duties and responsibilities within
the Company and his business unit, and the executive officer's potential impact
on the operations and profitability of the Company. Unlike with respect to the
Company's incentive compensation
-12-
<PAGE> 16
arrangements, the Compensation Committee does not consider achievement of
specific corporate performance factors in establishing base salaries for its
executive officers. In general, it is the policy of the Company to set base
salaries lower than would be typical for comparable positions in similar firms,
and to include more compensation in incentive plans, particularly incentive
compensation plans tied to multi-year performance periods.
INCENTIVE COMPENSATION PLANS. Each executive officer of the Company
generally participates in incentive compensation plans of one to three years in
duration. These plans are similar to multi-year incentive plans in which other
members of the Company's professional staff participate. Under such plans, the
executive officer is eligible for annual cash incentive awards, and cash awards
which may be made at the end of each plan if the Compensation Committee
determines that the executive officer has met the specified goals of the
executive's programs. Some plans also contemplate awards of stock options under
the Company's shareholder-approved stock option plans. Generally, each executive
officer has a plan which details the executive officer's goals, which are
comprised of financial performance, including targets for the Company's pre-tax
income. Each executive officer also generally has an incentive compensation plan
with targets based on the achievement of various individual goals.
The annual cash awards under the incentive compensation plans and the
cash portion of the award for completion of an incentive compensation plan
generally are based on multiples of a percentage of the executive officer's
salary for the relevant fiscal period. The number of stock options which may be
awarded is determined at the time the performance goals are established. Such
number of stock options is not determined by reference to any specific criteria
other than the Company's historical practice of awarding stock options in
connection with incentive compensation plans for certain executive officers. The
exercise price of all options granted in connection with the incentive
compensation plans for the executive officers is the fair market value of the
shares on the date of grant of the option. Achievement of the specified
financial or individual goals for plan years earlier than the final plan year in
a multi-year plan entitles the executive to specified interim cash payments and
stock option grants, all of which are considered advances against the multi-year
incentive compensation amounts. Such interim cash payments are significantly
less than a ratable percentage of the projected incentive compensation payable
on successful completion of a multi-year plan. For example, successful
completion of the first year of a two-year plan typically would entitle the
executive to payment of 25% of target cash incentive compensation. Stock options
in connection with multi-year plans also are granted according to a schedule
specified in the plan, typically including a small percentage of options granted
at the time the plans are approved by the Compensation Committee.
Fiscal 1999 was the second year of two-year compensation plans for
Paul A. Brands, Patrick W. Gross, Frank A. Nicolai, and Fred L. Forman. All of
these plans included the same pre-tax income target as a financial goal and
included individual goals based on the areas of responsibility of each such
executive officer. All plans required that a minimum percentage of the stated
goal must be achieved before any portion of the related incentive compensation
share was payable. The plans also took into account projected pre-tax income for
the year following the performance year just ended in determining whether awards
are payable and the amounts of such awards. Each plan also included higher award
multiples for performance which exceeded the targets by a stated percentage.
Ronald L. Schillereff completed a one-year incentive compensation
plan with non-financial goals in 1999. His individual goals were based on his
area of responsibility and included the establishment of certain management and
control processes.
In February 2000, the Compensation Committee determined that Messrs.
Brands, Gross, and Nicolai had substantially met their financial and
non-financial goals relative to fiscal year 1999 and that Dr. Schillereff had
substantially met his non-financial goals for such year, and determined that
each had earned his respective target payments. In addition, the Compensation
Committee determined that Dr. Forman had substantially met his financial goals
and had met certain of his non-financial goals for fiscal year 1999 and
determined that he had earned the related target payments. The foregoing amounts
are shown above in the Summary Compensation Table under "Annual Compensation --
Bonus" and/or "Long-Term Compensation -- Payouts -- LTIP Payout." The
Compensation Committee in February 2000 also approved the stock option awards to
Messrs. Brands, Gross, Nicolai, and Forman contemplated by their approved
incentive compensation plans and based on achievement of the specified goals for
fiscal 1999.
-13-
<PAGE> 17
POLICY ON DEDUCTIBILITY OF COMPENSATION
Under Section 162(m) ("Section 162(m)") of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"), the allowable deduction for
compensation paid or accrued with respect to persons who as of the end of the
year are employed as the chief executive officer and each of the four most
highly compensated executive officers of a publicly-held corporation is limited
to no more than $1 million per year for fiscal years beginning on or after
January 1, 1994. This limitation does not apply to compensation payable to the
Company's current executive officers consisting of stock options issuable under
Plan F or earlier stock option plans, nor to compensation payable under certain
performance-based compensation plans approved by shareholders. The Compensation
Committee has taken certain actions to minimize the adverse effects of Section
162(m) on the after-tax income of the Company. In particular, as recommended by
the Compensation Committee, the 1996 Incentive Compensation Plan for Executive
Officers (the "IC Plan") was presented to and approved by the shareholders at
the 1996 annual meeting of shareholders of the Company. Grants to executive
officers of incentive compensation based on pre-tax income are generally
expected to be covered by the IC Plan when such coverage is consistent with the
Compensation Committee's goals. The IC Plan significantly limits the
Compensation Committee's discretion regarding the structure and amount of
incentive compensation paid to an employee covered by such Plan. Accordingly,
not all incentive compensation payable to executive officers is paid pursuant to
the IC Plan. The Compensation Committee projects that it is unlikely that
deductions will be lost as a result of this practice. The Compensation Committee
will continue to monitor whether compensation that is limited by Section 162(m)
is likely to exceed the deduction limitations under Section 162(m), and the
Compensation Committee is expected to take appropriate actions to reduce the
likelihood of a loss of deductions.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Chief Executive Officer's annual base salary is established by
the Compensation Committee using the same criteria as discussed above for the
executive officers. Paul A. Brands, who has served as Chief Executive Officer of
the Company since September 1993, received an annual base salary of $400,000 for
1999, which represented an increase of approximately 14% over his base salary
for 1998. The increase was not based on any specific corporate performance
factors. Mr. Brands' incentive compensation payments are determined by the
Compensation Committee based on targets for the Company's pre-tax income,
collection of accounts receivable, and certain other financial and non-financial
goals. Mr. Brands met the financial targets for fiscal years 1998 and 1999, as
determined by the Compensation Committee in February 2000, entitling him to
payment of $727,500 in bonus for successful completion of his multi-year plan.
Based on Mr. Brands' successful completion of his 1998-1999 multi-year plan, the
Compensation Committee also determined to grant Mr. Brands 7,500 stock options
in February 2000, as contemplated by the incentive compensation program.
At its February 2000 meeting, the Compensation Committee also decided
to increase Mr. Brands' base salary to $425,000 as of March 1, 2000.
Daniel J. Altobello (Chairman)
James J. Forese
Dorothy Leonard
W. Walker Lewis
Frederic V. Malek
Alan G. Spoon
-14-
<PAGE> 18
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph and table provide a comparison of the cumulative
total return on the Common Stock of the Company for the five-year period
beginning December 31, 1994, with returns on the Standard & Poor's 500 Composite
Index and the Computer Software Sector Index of the Hambrecht & Quist Technology
Stock Index. The graph and table assume that the value of the investment in the
Common Stock of the Company and each of the aforementioned indices on December
31, 1994, was $100 and that all cash dividends were reinvested, although the
Company has never paid cash dividends on the Common Stock. The historical stock
price performance of the Common Stock of the Company shown below is not
necessarily indicative of future stock price performance.
[BAR GRAPH]
<TABLE>
<CAPTION>
==========================================================================================================================
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
AMSY Common Stock $100 $156 $191 $152 $312 $244
==========================================================================================================================
S&P 500 Composite Index $100 $138 $169 $226 $290 $351
==========================================================================================================================
Hambrecht & Quist Technology/Software $100 $143 $174 $211 $275 $626
==========================================================================================================================
</TABLE>
-15-
<PAGE> 19
COMMITTEES AND COMPENSATION OF THE BOARD OF DIRECTORS
COMMITTEES AND MEETINGS
The Company has a standing Executive Committee, Stock Option/Award
Committee, Compensation Committee, and Audit Committee. The Company does not
have a standing Nominating Committee.
The Executive Committee is presently composed of three directors, all
of whom are executive officers of the Company: Patrick W. Gross (Committee
Chairman), Paul A. Brands, and Frank A. Nicolai. The Executive Committee
generally has the power to authorize all corporate actions that the Board of
Directors has the power to authorize, except as may be limited by law. The
Executive Committee met once during 1999.
The Stock Option/Award Committee is presently composed of three
directors, all of whom are executive officers of the Company: Paul A. Brands
(Committee Chairman), Patrick W. Gross, and Frank A. Nicolai. The Stock
Option/Award Committee administers the Company's employee stock option plans,
except as noted below. These directors are eligible to receive options under the
plans, but options, if any, awarded to them are granted and administered by the
Compensation Committee. The Stock Option/Award Committee also administers the
Profit-Sharing Plan. Directors and executive officers are not eligible to
participate in the Profit-Sharing Plan. The Stock Option/Award Committee meets
as required and met twice during 1999.
The Compensation Committee is presently composed of the six Outside
Directors: Daniel J. Altobello (Committee Chairman), James J. Forese, Dorothy
Leonard, W. Walker Lewis, Frederic V. Malek, and Alan G. Spoon. The Compensation
Committee is responsible for developing and making recommendations to the Board
of Directors with respect to the Company's compensation policies generally. The
Compensation Committee approves the compensation plans for the Company's
executive officers, including the Chief Executive Officer, and on an annual
basis determines the compensation to be paid to the executive officers. The
Compensation Committee alone is responsible for the granting and administration
of stock options granted to the executive officers and to the Controller. In
1999, the Compensation Committee met three times.
The Audit Committee is presently composed of four Outside Directors:
James J. Forese (Committee Chairman), Daniel J. Altobello, Dorothy Leonard, and
Alan G. Spoon. This Committee has the responsibility for making recommendations
to the Board of Directors as to the independent accountants of the Company; for
reviewing with the independent accountants, upon completion of their audit, the
scope of their examination, any recommendations they may have for improving
internal accounting controls, management systems, or choice of accounting
principles, and other matters; and for reviewing generally the accounting
control procedures of the Company. In 1999, the Audit Committee met three times.
The Board of Directors met five times during 1999. All members
attended all of the meetings of the Board and Committees of the Board on which
they serve.
COMPENSATION
Directors who also serve as executive officers of the Company are not
separately compensated for attending Board meetings. Outside Directors were
entitled to receive a meeting fee of $5,000, plus travel expenses, for the first
Board meeting attended during 1999. Thereafter, the fee was increased to $6,000
per Board meeting attended, and the fee is currently at this level. Such fees
and expenses were, in fact, paid for all meetings attended during fiscal 1999.
In addition, Outside Directors were paid an annual retainer of $6,000 during
fiscal 1999. Under the Company's Outside Directors Stock-for-Fees Plan (the
"Stock-for-Fees Plan"), which was approved by shareholders in May 1995, Outside
Directors can elect to have the annual meeting fees and retainer, which would
otherwise be paid to the Outside Directors in cash, paid in the form of Common
Stock. Alternatively, Outside Directors can elect to defer receipt of the annual
meeting fees and retainer pursuant to the Company's Outside Director Deferred
Compensation Plan (the "Deferred Compensation Plan"). Under the terms of the
Deferred Compensation Plan, Outside Directors making such an election would be
credited with earnings on amounts deferred at an interest rate based on a
corporate bond index and such interest rate would be increased by 300 basis
points if the Company achieved certain annual performance goals. W. Walker Lewis
elected to have his meeting
-16-
<PAGE> 20
fees for the five Board meetings he attended during 1999 paid in the form of
Common Stock pursuant to the Stock-for-Fees Plan.
Prior to the amendment of Plan F by the Board of Directors and the
shareholders in May 1999, Outside Directors received automatic grants of stock
options. Plan F, as amended, eliminated the automatic, non-discretionary stock
option awards to Outside Directors and permits the Compensation Committee to
grant stock options to Outside Directors on a discretionary basis. On July 23,
1999, each Outside Director was granted 5,000 options to purchase shares of
Common Stock. All of such options vested immediately upon their grant to the
Outside Directors.
The following is a summary of the stock options that were granted to
Outside Directors pursuant to the Company's stock option plans prior to the May
1999 amendment of Plan F. The number of shares subject to grant, and subject to
outstanding options, are adjusted when stock splits occur. All options granted
to Outside Directors vest at the rate of 1/60th a month for each month the
Outside Director continues to serve as a director. Pursuant to a prior stock
option plan, each Outside Director in May 1988 was granted 5,000 options to
purchase shares of Common Stock. James J. Forese, who became a director in
November 1989, was granted 5,000 options on November 10, 1989. Dorothy Leonard,
who became a director in September 1991, was granted 5,000 options on September
27, 1991. Under 1992 Amended and Restated Stock Option Plan E, as amended ("Plan
E"), each new Outside Director was automatically granted 5,000 options (such
number subject to adjustments for splits) upon first becoming a director, and
each Outside Director was automatically granted an additional 5,000 options
(such number subject to adjustments for splits), vesting over five years, when
any options previously granted have fully vested. Pursuant to Plan E, Daniel J.
Altobello was granted 7,500 options on July 27, 1993 when he first became a
director, and Frederic V. Malek was granted 5,000 options in April 1993 because
his options granted in 1988 had fully vested. The grant to Mr. Malek was made
subject to shareholder approval, which was obtained in May 1993. In addition,
under Plan E, Mr. Forese was granted 7,500 options (after giving effect to the
October 1994 stock split) in November 1994 because his options granted in 1988
had fully vested, and W. Walker Lewis was granted 5,000 options on December 1,
1995 when he became a director. Dr. Leonard was granted 5,000 options under Plan
E in August 1996 because her options granted in 1991 had fully vested, and Alan
G. Spoon was granted 5,000 options under Plan E in September 1996 when he became
a director. Plan F, as in effect prior to its amendment in 1999, provided for
the automatic grant of the same amount of options to Outside Directors as
provided for under Plan E. Consequently, Mr. Malek was granted 5,000 options
under Plan F in April 1998 because his options granted in 1993 had fully vested.
In addition, Mr. Altobello was granted 5,000 options under Plan F in August 1998
because his options granted in 1993 had fully vested.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
Daniel J. Altobello, James J. Forese, Dorothy Leonard, W. Walker
Lewis, Frederic V. Malek, and Alan G. Spoon served as members of the
Compensation Committee during fiscal 1999 and continue to serve as members. Mr.
Altobello is Chairman of the Compensation Committee.
During 1999, there were no Compensation Committee interlocks, and
there was no insider participation in the executive compensation decisions of
the Company.
-17-
<PAGE> 21
INDEPENDENT PUBLIC ACCOUNTANTS
On July 31, 1998, at the Company's regularly scheduled meetings of
the Board of Directors and the Audit Committee, 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 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 these circumstances, the
Audit Committee and the Board of Directors thereupon appointed Deloitte & Touche
LLP as the Company's independent certifying accountants for the fiscal years
ending December 31, 1998 and December 31, 1999.
During the two fiscal years ended December 31, 1997 and December 31,
1996, 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.
A representative from Deloitte & Touche LLP is expected to be present
at the Annual Meeting, will have an opportunity to make a statement should the
representative desire to do so, and is expected to be available to respond to
appropriate questions during such Meeting.
The Board of Directors has not yet appointed an accounting firm to
audit the accounts of the Company for the fiscal year ending December 31, 2000.
The Board of Directors, upon the recommendation of the Audit Committee, expects
to make such appointment at its regularly scheduled meeting in September 2000.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented
at the Annual Meeting other than the election of directors. If any other
business should come before the Annual Meeting, including a vote to adjourn or
postpone such Meeting, the persons named in the enclosed Proxy will vote thereon
at the Meeting, or any adjournment or postponement thereof, as they determine to
be in the best interests of the Company.
PROPOSALS FOR 2001 ANNUAL MEETING OF SHAREHOLDERS
Under the rules of the Commission, the date by which proposals of
shareholders of the Company intended to be presented at the 2001 annual meeting
of shareholders must be received by the Company for inclusion in the proxy
statement and form of proxy to be distributed by the Board of Directors is
December 14, 2000. Shareholder proposals should be submitted to Frank A.
Nicolai, Secretary, American Management Systems, Incorporated, 4050 Legato Road,
Fairfax, Virginia 22033.
Under the Company's By-laws (the "By-laws"), a stockholder must
follow certain procedures to nominate persons for election as directors or to
propose other business to be considered at an annual meeting of shareholders.
These procedures provide that shareholders desiring to make nominations for
directors and/or to bring a proper subject before a meeting must do so by notice
timely received by the Secretary of the Company. The Secretary of the Company
generally must receive notice of any such proposal not less than sixty days and
no more than ninety days prior to the anniversary of the preceding year's annual
meeting of shareholders. In the case of proposals for the 2001 annual meeting of
shareholders, the Secretary of the Company generally must receive notice of any
such proposal no earlier than February 11, 2001, and no later than March 13,
2001 (other than proposals intended to be included in the proxy statement and
form of proxy, which, as noted above, must be received by December 14, 2000).
Generally, such shareholder notice must set forth (a) as to each nominee for
director, all information
-18-
<PAGE> 22
relating to such nominee that is required to be disclosed in solicitations or
proxies for election of directors under the proxy rules of the Commission; (b)
as to any other business, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder; and (c)
as to the shareholder, (i) the name and address of such shareholder, (ii) the
number of shares of Common Stock which are owned beneficially and of record by
such shareholder, (iii) a representation that the shareholder is a holder of
record of Common Stock entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to propose such nomination or other business,
and (iv) a representation as to whether the shareholder intends, or is part of a
group which intends, to solicit proxies from other shareholders in support of
such nomination or other business. The chairman of the annual meeting shall have
the power to declare that any proposal not meeting these and any other
applicable requirements imposed by the By-laws shall be disregarded. A copy of
the By-laws may be obtained without charge on written request to Frank A.
Nicolai, Secretary, American Management Systems, Incorporated, 4050 Legato Road,
Fairfax, Virginia 22033.
In addition, the form of proxy solicited by the Board of Directors in
connection with the 2001 annual meeting of shareholders will confer
discretionary authority to the named proxies to vote on any proposal, unless
with respect to a particular proposal the Secretary of the Company receives
notice of such matter no earlier than February 11, 2001, and no later than March
13, 2001, and such notice complies with the other requirements described in the
preceding paragraph.
ANNUAL REPORT
A copy of the 1999 Annual Report of the Company (which includes
condensed financial data and a letter to shareholders) accompanies this Proxy
Statement. Appendix 1 to this Proxy Statement, titled "1999 Financial Report,"
contains all of the financial information (including the Company's audited
financial statements), and certain general information, published in the
Company's 1999 Annual Report. Appendix 1 is incorporated herein by reference. A
copy of the Company's 1999 Annual Report on Form 10-K may be obtained without
charge by writing to Frank A. Nicolai, Secretary, American Management Systems,
Incorporated, 4050 Legato Road, Fairfax, Virginia 22033.
BY ORDER OF THE BOARD OF DIRECTORS,
Frank A. Nicolai
Secretary
April 12, 2000
Fairfax, Virginia
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE REMINDED TO
DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE PROVIDED
OR CAST YOUR VOTES BY TELEPHONE AT 1-800-840-1208. INSTRUCTIONS REGARDING
TELEPHONE VOTING ARE INCLUDED ON THE PROXY.
-19-
<PAGE> 23
APPENDIX 1
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> 24
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> 25
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> 26
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> 27
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> 28
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> 29
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> 30
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> 31
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> 32
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> 33
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> 34
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> 35
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> 36
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> 37
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> 38
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> 39
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> 40
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> 41
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> 42
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> 43
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> 44
<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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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> 53
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> 54
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
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<PAGE> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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.
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<PAGE> 62
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> 63
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- MAY 12, 2000
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
The undersigned hereby appoints Paul A. Brands, Patrick W. Gross, and
Frank A. Nicolai, and each of them, as proxies, with full power of substitution
in each, to vote all shares of the common stock of American Management Systems,
Incorporated (the "Company"), which the undersigned is entitled to vote at the
Annual Meeting of Shareholders of the Company to be held on May 12, 2000 at
10:00 A.M. local time, and at any adjournment(s) or postponement(s) thereof, on
all matters set forth in the Notice of Annual Meeting and Proxy Statement, dated
April 12, 2000, a copy of which has been received by the undersigned, as follows
on the reverse side.
(Continued and to be SIGNED on the reverse side.)
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN,
WILL BE VOTED "FOR" EACH OF THE MATTERS STATED.
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1. ELECTION OF DIRECTORS: GRANT AUTHORITY to vote for all nominees
listed to the right (except as marked to the
contrary). [ ]
WITHHOLD AUTHORITY to vote for all nominees
listed to the right. [ ]
01-Paul A. Brands, 02-Patrick W. Gross,
03-Frank A. Nicolai, 04-Daniel J. Altobello,
05-James J. Forese, 06-Dorothy Leonard, 07-W.
Walker Lewis, 08-Frederic V. Malek, 09-Alan
G. Spoon.
INSTRUCTION: To withhold authority to vote
for any individual nominee, write that
nominee's name in the space provided below.
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</TABLE>
GRANT AUTHORITY upon such other matters as may come before the meeting,
including any adjournment(s) or postponement(s) of the meeting, as they 2.
determine to be in the best interests of the Company:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Dated: , 2000
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Signature of Shareholder(s)
IMPORTANT: Please mark this Proxy, date and sign exactly as your name(s)
appear(s), and return in the enclosed envelope. If shares are held
jointly, signature need only include one name. Trustees and others
signing in a representative capacity should so indicate.
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FOLD AND DETACH HERE
VOTE BY TELEPHONE
QUICK * * * EASY * * * IMMEDIATE
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card.
VOTE BY PHONE: CALL TOLL-FREE ON A TOUCH-TONE TELEPHONE
1-800-840-1208 ANYTIME. THERE IS NO CHARGE FOR
THIS CALL.
You will be asked to enter a Control Number
located in the lower right of this form.
OPTION A: To vote as the Board of Directors recommends on
ALL items, press l.
OPTION B: If you choose to vote on each item separately,
press 0. You will hear these instructions:
Item 1: To vote FOR ALL nominees, press 1; to
WITHHOLD FOR ALL nominees, press 9. To WITHHOLD
FOR AN INDIVIDUAL nominee, press 0 and listen
to the instructions.
Item 2: To vote FOR, press 1; AGAINST, press 9;
ABSTAIN, press 0.
When asked, you must confirm your vote by
pressing 1.
THANK YOU FOR VOTING.
Call * * Toll-Free * * On a Touch-Tone Telephone
1-800-840-1208 - ANYTIME
There is NO CHARGE to you for this call.
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