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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------ EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From:________________ To:______________
Commission File No.: 0-9233
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
(Exact name of registrant as specified in its charter)
State of Incorporation: Delaware I.R.S. Employer
Identification No.: 54-0856778
4050 Legato Road
Fairfax, Virginia 22033
(Address of principal executive office)
Registrant's Telephone No., Including Area Code: (703) 267-8000
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock
Par Value $0.01
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ____
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 20, 1998 was $1,111,526,473.
As of March 20, 1998, 42,239,124 shares of common stock were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
1. Pursuant to Form 10-K General Instruction G(2), registrant
hereby incorporates by reference those portions of the American Management
Systems, Incorporated 1997 Financial Report necessary to respond to items 5, 6,
7, and 8 of this Form 10-K.
2. Pursuant to Form 10-K General Instruction G(3), registrant
hereby incorporates by reference those portions of the American Management
Systems, Incorporated definitive Proxy Statement for the Annual Meeting of
Shareholders to be held May 8, 1998 necessary to respond to items 10, 11, 12,
and 13 of this Form 10-K.
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CONTENTS
Page
----
Part I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . 4
Part II Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . 5
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . 5
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . 5
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . 5
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . 5
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . 5
Part III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . 6
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . 6
Part IV Item 14. Exhibits, Financial Statements and Schedules,
and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 7
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PART I
ITEM 1. BUSINESS
OVERVIEW
With 1997 revenues of $872 million, 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 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 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. Each
year, approximately 85-90% of the Company's revenue comes from clients it
worked with in previous years.
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.
Another significant component of AMS's business is the
development of proprietary software products, either with its own funds or on
a cost-shared 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 $50.6 million in 1997, $30.4
million in 1996, and $23.6 million in 1995 for research and development
associated with proprietary software; of which $30.7 million in 1997, $26.0
million in 1996, and $19.4 million in 1995 was expensed in the accompanying
financial statements. As a percentage of revenues, license and maintenance
fee revenues were less than 10% during each of the last three years.
In order to serve clients outside of the United States, AMS
has expanded internationally by establishing eighteen subsidiaries or foreign
branches. Exhibit 21 of this Form 10-K provides a complete listing of all
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 $248.6 million in 1997, $278.3 million in 1996,
and $178.2 million in 1995. Additional information on revenues, operating
profits, 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 7,100 full-time employees serve clients from corporate
headquarters in Fairfax, Virginia and from 55 offices worldwide.
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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 telephone companies. Most 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.
AMS's work for defense agencies often involves specialized expertise in
engineering and logistics.
OTHER CORPORATE CLIENTS
The Company also solves information systems problems for the
largest firms in other industries, including health care organizations and
firms in the gas and electric utilities industry. AMS has systems
integration and operations projects with several large organizations and
intends to pursue more. AMS provides technical training and technical
consulting services in software technology for large-scale business systems.
PEOPLE
People are AMS's most important asset and its success depends
on its ability to attract and motivate especially well-qualified people. The
Company's largest investment in recent years has been in recruiting,
assimilating, and developing its people.
AMS recruited and successfully assimilated approximately 2,100
new staff members in 1997, including 410 in Europe. About one-half of the
new staff members came from the Company's college and university recruiting
program.
AMS recruits individuals for a career and hires a balanced mix
of recent university graduates and experienced professionals who have
demonstrated extraordinary technical, analytical, or management skills. A
large number have advanced degrees in management, computer science, public
policy, or engineering.
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Individuals are assigned to one of the Company's
market-oriented groups to develop expertise in the areas needed for solving
its clients' problems. Performance, in terms of productivity, quality of
work, and creativity in solving problems, determines an individual's
advancement. This motivates staff members to increase their knowledge of
AMS's clients' businesses and industries, to stay current with the technology
most suited to AMS's clients, and to develop the consulting and managerial
skills needed to produce results.
COMPETITIVE FACTORS
AMS's competition comes primarily from the management services
units of large public accounting firms and consulting and systems integration
firms. In addition, prospective clients may decide to perform projects with
their in-house staff.
AMS seeks to meet this competition by exploiting its
industry-specific knowledge, its expertise with important business functions
and with new technologies, its proprietary computer application products, and
its experience in managing very large design and implementation projects.
Although price is always a factor in clients' decisions, it is typically not
the major factor. Other important factors are proven experience, the
capabilities of the proposed computer application products, the quality of
the proposed staff, and the proposed completion time for the project.
MARKETING, CONTRACTS, AND SIGNIFICANT CUSTOMERS
Marketing is performed principally by the senior staff
(executive officers, vice presidents, senior principals, and principals) and
by a relatively small number of full-time salespersons for each large market.
In the U.S. Government markets, AMS replies selectively to requests for
proposals, concentrating on those closely related to previous work done for
the same or similar customers. Certain of the Company's software products
and computer services are sold by a small group of full-time salespersons
and, for those products and services, AMS advertises in trade publications
and exhibits at industry conventions.
For large systems integration projects, AMS typically
contracts for one phase (design, development, and implementation) at a time.
Many contracts may be canceled by the customer on short notice with
appropriate compensation to the Company for actual work performed. Most
contracts with federal government agencies allow for termination for the
convenience of the government and for an annual audit. No contracts are
subject to renegotiation at the client's option. AMS generally contracts
either on the basis of reimbursement of costs plus a fixed fee, a fixed or
ceiling price for each phase, unit rates for time and materials used, or
services sold at unit prices. In most cases, AMS receives monthly or
milestone progress payments.
In 1997, the Company worked on projects directly for 93 U.S.
Government clients, representing a total of $171.5 million, or 19.7%, of
revenues. No other customer accounted for 10% or more of revenues in 1997.
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ITEM 2. PROPERTIES
Headquartered in Fairfax, Virginia, the Company's principal
operations occupy approximately 941,000 square feet of office space under
leases expiring through 2011. The Company also has other long-term lease
commitments totaling approximately 581,500 square feet with varying
expirations through 2014 at other locations throughout the United States.
Additionally, the Company's international staff occupies
approximately 258,700 square feet of office space outside of the U.S. at
locations under leases expiring through 2003.
With regard to its operating environment, the Company is
provided with a mainframe processor environment at the IBM Dedicated
Processor Center in Irving, Texas. In addition to the peripherals, power,
and environmentals provided by the Dedicated Processor Center, the Company
owns other mainframe peripheral equipment and microcomputers, and leases an
IBM communications processor.
The Company believes its facilities and equipment continue to
be adequate for its business as currently conducted.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the fourth quarter of 1997.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Market information for the Company's common stock contained in
the Company's 1997 Financial Report is incorporated herein by reference in
accordance with General Instruction G(2) of Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data contained in the Company's 1997
Financial Report is incorporated herein by reference in accordance with
General Instruction G(2) of Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition
and results of operations contained in the Company's 1997 Financial Report is
incorporated herein by reference in accordance with General Instruction G(2)
of Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, together
with the report thereon of Price Waterhouse LLP, and the supplementary
financial information, contained in the Company's 1997 Financial Report, are
incorporated herein by reference in accordance with General Instruction G(2)
of Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors and executive officers of the
Company contained in the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held May 8, 1998, is incorporated herein by
reference. The Company's definitive Proxy Statement will be filed within 120
days after the close of the Company's fiscal year in accordance with General
Instruction G(3) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation contained in the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held May 8, 1998, is incorporated herein by reference. The Company's
definitive Proxy Statement will be filed within 120 days after the close of
the Company's fiscal year in accordance with General Instruction G(3) of Form
10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information relating to the security ownership of certain beneficial
owners and management contained in the Company's definitive Proxy Statement
for the Annual Meeting of Shareholders to be held May 8, 1998, is
incorporated herein by reference. The Company's definitive Proxy Statement
will be filed within 120 days after the close of the Company's fiscal year in
accordance with General Instruction G(3) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related
transactions contained under the headings "Principal Stockholders",
"Compensation Committee Interlocks and Insider Participation" and "Certain
Transactions" in the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held May 8, 1998, is incorporated herein by
reference. The Company's definitive Proxy Statement will be filed within 120
days after the close of the Company's fiscal year in accordance with General
Instruction G(3) of Form 10-K.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The consolidated financial statements of American
Management Systems, Incorporated and subsidiaries filed are as follows:
Consolidated Statements of Operations for
1997-95
Consolidated Balance Sheets as of December
31, 1997 and 1996
Consolidated Statements of Cash Flows for
1997-95
Consolidated Statements of Changes in
Stockholders' Equity for 1997-95
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. FINANCIAL STATEMENT SCHEDULE
The financial statement schedule of American
Management Systems, Incorporated and subsidiaries filed is as follows:
Report of independent accountants on
financial statement schedules
Schedule II - Valuation and Qualifying
Accounts for 1997-1995
All other schedules are omitted because they are not
applicable, or the required information is shown in the financial statements
or the notes thereto or in Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Individual financial statements of the Company and
each of its subsidiaries are omitted because the Company is primarily an
operating company, and all subsidiaries included in the consolidated
financial statements being filed, in the aggregate, do not have a minority
equity interest in and/or indebtedness to any person other than the Company
or its consolidated subsidiaries in amounts which together exceed five
percent of the total assets as shown by the most recent year-end consolidated
balance sheet.
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3. EXHIBITS
The exhibits to the Annual Report on Form 10-K of
American Management Systems, Incorporated filed are as follows:
3. Articles of Incorporation and By-laws
3.1 Second Restated Certificate of
Incorporation of the Company, (incorporated herein by reference to Exhibit 3
of the Company's 1995 Annual Report on Form 10-K).
3.2 By-Laws of the Company, as amended
and restated February 27, 1998.
10. Material Contracts
10.1 1996 Amended Stock Option Plan F,
(incorporated herein by reference to Exhibit A to the Company's definitive
Proxy Statement filed on April 11, 1997).
10.2 Outside Directors Stock-for-Fees
Plan (incorporated herein by reference to Exhibit C to the Company's definitive
Proxy Statement filed on April 10, 1996).
10.3 1992 Amended and Restated Stock
Option Plan E, as amended (incorporated herein by reference to Exhibit B to the
Company's definitive Proxy Statement filed on April 17, 1995).
10.4 Executive Deferred Compensation
Plan, as amended September 1, 1997.
10.5 Outside Director Deferred
Compensation Plan, effective January
1, 1997.
10.6 Multi-Currency Revolving Credit
Agreement dated as of January 9, 1998 among the Company, certain of the
Company's subsidiaries, the Lenders named therein, and NationsBank N.A. as
administrative agent and Wachovia Bank N.A., as documentation agent.
10.7 Agreement of Lease between Joshua
Realty Corporation and the Company, dated August 10, 1992, as amended.
10.8 Office Lease Agreement between Hyatt
Plaza Limited Partnership and the Company, dated August 12, 1993, as amended.
10.9 Lease Agreement between Fairfax
Gilbane, L.P. and the Company, dated February 15, 1994, as amended.
10.10 Deed of Lease between Principal
Mutual Life Insurance Company and the Company, dated December 1996.
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23. Consent of Independent Accountants
27. Financial Data Schedules
27.1 Financial Data Schedule for the twelve
months ended December 31, 1997.
27.2 Restated Financial Data Schedule for the
twelve months ended December 31, 1996
27.3 Restated Financial Data Schedule for the
twelve months ended December 31, 1995.
27.4 Restated Financial Data Schedule for the
nine months ended September 30, 1997.
27.5 Restated Financial Data Schedule for the
six months ended June 30, 1997.
27.6 Restated Financial Data Schedule for the
three months ended March 31, 1997.
27.7 Restated Financial Data Schedule for the
nine months ended September 30, 1996.
27.8 Restated Financial Data Schedule for the
six months ended June 30, 1996.
27.9 Restated Financial Data Schedule for the
three months ended March 31, 1996.
(b) REPORTS ON FORM 8-K
None
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REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT
SCHEDULE
To the Board of Directors of
American Management Systems, Incorporated
Our audits of the consolidated financial statements referred to in our
report dated February 18, 1998 appearing on page 22 of the 1997 Financial
Report of American Management Systems, Incorporated (which report and
consolidated financial statements are incorporated by reference in this
Annual Report on Form 10-K) also included an audit of the Financial Statement
Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this
Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PRICE WATERHOUSE LLP
Washington, D.C.
February 18, 1998
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Schedule II
VALUATION AND QUALIFYING ACCOUNTS
(In millions)
1997 1996 1995
-----------------------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts
-------------------------------
Balance at Beginning of Period $ 18.9 $ 4.9 $ 3.3
Allowance Accruals 10.6 15.2 1.6
Charges Against Allowance (24.5) (1.2) -
------- ------ --------
Balance at End of Period $ 5.0 $ 18.9 $ 4.9
======= ====== ========
Deferred Tax Asset Valuation Allowance
--------------------------------------
Balance at Beginning of Period $ 0.4 $ 2.8 $ -
Allowance Accruals 0.1 0.4 2.8
Charges Against Allowance - (2.8) -
------- ------ --------
Balance at End of Period $ 0.5 $ 0.4 $ 2.8
======= ====== ========
Provision for Contract Loss
---------------------------
Balance at Beginning of Period $ 18.5 $ - $ -
Allowance Accruals - 18.5 -
Charges Against Provision (18.5) - -
------- ------ --------
Balance at End of Period $ - $ 18.5 $ -
======= ====== ========
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 27th of
March, 1998.
American Management Systems, Incorporated
by s/Philip M. Giuntini
--------------------------------
Philip M. Giuntini
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following officers and directors of the
Registrant in the capacities and on the date indicated.
Signature Title Date
--------- ------------- --------------
(i) Principal Executive Officer:
s/Paul A. Brands Chairman and March 27, 1998
------------------------------- Chief Executive
Paul A. Brands Officer
(ii) Principal Financial Officer:
s/Frank A. Nicolai Secretary and March 27, 1998
------------------------------- Treasurer
Frank A. Nicolai
(iii) Principal Accounting Officer:
s/Nancy Yurek Controller March 27, 1998
-------------------------------
Nancy Yurek
(iv) Directors:
s/Daniel J. Altobello Director March 27, 1998
-------------------------------
Daniel J. Altobello
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Signature Title Date
--------- --------------- --------------
s/Paul A. Brands Director March 27, 1998
-------------------------------
Paul A. Brands
s/James J. Forese Director March 27, 1998
------------------------------
James J. Forese
s/Philip M. Giuntini Director March 27, 1998
-------------------------------
Philip M. Giuntini
s/Patrick W. Gross Director March 27, 1998
-------------------------------
Patrick W. Gross
s/Dorothy Leonard Director March 27, 1998
-------------------------------
Dorothy Leonard
s/W. Walker Lewis Director March 27, 1998
-------------------------------
W. Walker Lewis
s/Frederic V. Malek Director March 27, 1998
-------------------------------
Frederic V. Malek
s/Frank A. Nicolai Director March 27, 1998
-------------------------------
Frank A. Nicolai
s/Alan G. Spoon Director March 27, 1998
-------------------------------
Alan G. Spoon
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EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3.1 Second Restated Certificate of Incorporation of the Company, *
(incorporated herein by reference to Exhibit 3 of the
Company's 1995 Annual Report on Form 10-K).
3.2 By-laws of the Company, as amended and restated February 27,
1998.
10.1 1996 Amended Stock Option Plan F, (incorporated herein by *
reference to Exhibit A to the Company's definitive Proxy
Statement filed on April 11, 1997).
10.2 Outside Directors Stock-for-Fees Plan (incorporated herein by *
reference to Exhibit C to the Company's definitive Proxy
Statement filed on April 10, 1996).
10.3 1992 Amended and Restated Stock Option Plan E, as amended *
(incorporated herein by reference to Exhibit B to the
Company's definitive Proxy Statement filed on April 17, 1995).
10.4 Executive Deferred Compensation Plan, as amended
September 1, 1997.
10.5 Outside Director Deferred Compensation Plan, effective January
1, 1997.
10.6 Multi-Currency Revolving Credit Agreement dated as of January 9,
1998 among the Company, certain of the Company's Subsidiaries,
the Lenders named therein, and NationsBank N.A. as
administrative agent and Wachovia Bank N.A., as Documentation
agent.
10.7 Agreement of Lease between Joshua Realty Corporation and the
Company, dated August 10, 1992, as amended.
10.8 Office Lease Agreement between Hyatt Plaza Limited Partnership
and the Company, dated August 12, 1993, as amended.
10.9 Lease Agreement between Fairfax Gilbane, L.P. and the Company,
Dated February 15, 1994, as amended.
10.10 Deed of Lease between Principal Mutual Life Insurance Company
and the Company, dated December 1996.
- ------------
*Previously filed.
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\ EXHIBIT INDEX
Exhibit
Number Description
------- -----------
23. Consent of Independent Accountants
27.1 Financial Data Schedule for the twelve months
ended December 31, 1997.
27.2 Restated Financial Data Schedule for the
twelve months ended December 31, 1996.
27.3 Restated Financial Data Schedule for the
twelve months ended December 31, 1995.
27.4 Restated Financial Data Schedule for the
nine months ended September 30, 1997.
27.5 Restated Financial Data Schedule for the
six months ended June 30, 1997.
27.6 Restated Financial Data Schedule for the
three months ended March 31, 1997.
27.7 Restated Financial Data Schedule for the
nine months ended September 30, 1996.
27.8 Restated Financial Data Schedule for the
six months ended June 30, 1996.
27.9 Restated Financial Data Schedule for the
three months ended March 31, 1996.
15
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Exhibit 13
Set forth following this page is the Company's 1997 Financial Report which
is Exhibit 13 to the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission. The 1997 Financial Report constitutes
pages 17 to 51 of the Form 10-K. Accordingly, the page immediately preceding
this page is numbered 15 and the page following Exhibit 13 is numbered 52.
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Exhibit 13
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
1997 FINANCIAL REPORT
CONTENTS
- --------------------------------------------------------------------------------
Business of AMS 1
Financial Statements and Notes 3
Report of Independent Accountants 22
Management's Discussion and Analysis of Financial
Condition and Results of Operations 23
Assumptions Underlying Certain Forward-Looking
Statements and Factors That May Affect Future Results 30
Five-Year Financial Summary 32
Five-Year Revenues by Target Market 33
Selected Quarterly Financial Data and Information
on AMS Stock 34
Other Information 35
21
BUSINESS OF AMS
OVERVIEW
With 1997 revenues of $872 million, 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 provides a full
range of consulting services from strategic business analysis to the full
implementation of solutions that provide genuine results, on time and within
budget. 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. Each year,
approximately 85-90% of the Company's business comes from clients it worked
with in previous years.
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.
Another significant component of AMS's business is the development of
proprietary software products, either with its own funds or on a cost-shared
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 $50.6 million in 1997, $30.4 million in
1996, and $23.6 million in 1995 for research and development associated with
proprietary software; of which $30.7 million in 1997, $26.0 million in 1996,
and $19.4 million in 1995 was expensed in the accompanying financial
statements. As a percentage of revenues, license and maintenance fee revenues
were less than 10% during each of the last three years.
In order to serve clients outside of the United States, AMS has
expanded internationally by establishing eighteen subsidiaries or foreign
branches. Exhibit 21 of this Form 10-K provides a complete listing of all
active AMS subsidiaries (and branches), showing name, year organized
(acquired), and place of incorporation. Revenues attributable to AMS's non-US
clients were approximately $248.6 million in 1997, $278.3 million in 1996, and
$178.2 million in 1995. Additional information on revenues, operating profits,
and assets attributable to AMS's geographic areas of operation is provided in
Note 12 of the consolidated financial statements appearing elsewhere in this
financial report.
Founded in 1970, AMS services clients worldwide. AMS's approximately
7,100 full-time employees serve clients from corporate headquarters in Fairfax,
Virginia and from 55 offices worldwide.
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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 telephone
companies. Most 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.
AMS's work for defense agencies often involves specialized expertise in
engineering and logistics.
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.
2
23
FINANCIAL STATEMENTS AND NOTES
American Management Systems, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
(In millions except per share data) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
REVENUES $872.3 $812.2 $632.4
EXPENSES
Client Project Expenses 502.3 525.9 348.6
Other Operating Expenses 266.2 210.4 192.3
Corporate Expenses 49.5 48.3 40.8
------- ------- -------
818.0 784.6 581.7
INCOME FROM OPERATIONS 54.3 27.6 50.7
OTHER (INCOME) EXPENSE
Interest Expense 5.8 3.2 2.3
Other Income (2.9) (1.8) (1.4)
------- ------- -------
2.9 1.4 0.9
INCOME BEFORE INCOME TAXES 51.4 26.2 49.8
INCOME TAXES 20.2 10.7 20.6
------- ------- -------
NET INCOME $ 31.2 $ 15.5 $ 29.2
======= ======= =======
WEIGHTED AVERAGE SHARES 41.4 40.7 39.7
======= ======= =======
BASIC NET INCOME PER SHARE $ 0.75 $ 0.38 $ 0.73
======= ======= =======
WEIGHTED AVERAGE SHARES AND EQUIVALENTS 42.3 41.9 40.7
======= ======= =======
DILUTED NET INCOME PER SHARE $ 0.74 $ 0.37 $ 0.72
======= ======= =======
- ----------------
See Accompanying Notes to Consolidated Financial Statements.
3
24
American Management Systems, Inc.
CONSOLIDATED BALANCE SHEETS
December 31 (In millions except per share data) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and Cash Equivalents $ 49.6 $ 62.8
Accounts and Notes Receivable 240.9 247.7
Prepaid Expenses and Other Current Assets 8.4 13.3
------ ------
298.9 323.8
FIXED ASSETS
Equipment 67.0 62.0
Furniture and Fixtures 22.4 18.4
Leasehold Improvements 13.9 10.7
------ ------
103.3 91.1
Accumulated Depreciation and Amortization (58.1) (43.1)
------ ------
45.2 48.0
OTHER ASSETS
Purchased and Developed Computer Software (Net of
Accumulated Amortization of $63,400,000 and
$50,500,000) 58.0 40.2
Intangibles (Net of Accumulated Amortization of
$3,200,000 and $2,600,000) 6.0 6.3
Other Assets (Net of Accumulated Amortization of
$815,000 and $15,700,000) 13.3 5.9
------ ------
77.3 52.4
------ ------
TOTAL ASSETS $421.4 $424.2
====== ======
- ----------------
See Accompanying Notes to Consolidated Financial Statements.
4
25
American Management Systems, Inc.
CONSOLIDATED BALANCE SHEETS
December 31 (In millions except per share data) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Notes Payable and Capitalized Lease Obligations $ 7.5 $ 53.5
Accounts Payable 10.5 19.6
Accrued Incentive Compensation 24.7 36.1
Other Accrued Compensation and Related Items 32.2 32.3
Deferred Revenues 39.8 20.6
Other Accrued Liabilities 3.5 2.7
Provision for Contract Losses - 18.5
Income Taxes Payable 8.8 7.8
------ ------
127.0 191.1
Deferred Income Taxes 3.0 7.7
------ ------
130.0 198.8
NONCURRENT LIABILITIES
Notes Payable and Capitalized Lease Obligations 27.9 13.7
Other Accrued Liabilities 9.5 1.4
Deferred Income Taxes 15.3 7.2
------ ------
52.7 22.3
------ ------
TOTAL LIABILITIES 182.7 221.1
STOCKHOLDERS' EQUITY
Preferred Stock ($0.10 Par Value; 4,000,000 Shares
Authorized, None Issued or Outstanding)
Common Stock ($0.01 Par Value; 100,000,000 Shares
Authorized, 50,115,057 and 49,598,673 Issued and
41,544,299 and 40,939,209 Outstanding) 0.5 0.5
Capital in Excess of Par Value 84.1 75.0
Retained Earnings 188.5 157.3
Currency Translation Adjustment (8.0) (1.1)
Common Stock in Treasury, at Cost (8,570,758 and
8,659,464 Shares) (26.4) (28.6)
------ ------
238.7 203.1
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $421.4 $424.2
====== ======
- ----------------
See Accompanying Notes to Consolidated Financial Statements.
5
26
American Management Systems, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 (In millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 31.2 $ 15.5 $ 29.2
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 17.9 16.1 13.6
Amortization 16.8 23.2 16.6
Deferred Income Taxes 3.2 (9.8) 6.0
Provision for Doubtful Accounts 10.6 15.2 1.6
Provision for Contract Losses (18.5) 18.5 -
Changes in Assets and Liabilities:
Increase in Trade Receivables (3.7) (56.8) (66.5)
Decrease (Increase) in Prepaid Expenses and Other
Current Assets 4.8 (4.3) (2.3)
Increase in Other Assets (8.2) (7.3) (9.1)
(Decrease) Increase in Accrued Incentive Compensation (9.1) 11.2 14.1
(Decrease) Increase in Accounts Payable and Other Accrued
Compensation and Liabilities (0.1) 19.0 8.7
Increase (Decrease) in Deferred Revenues 19.0 (5.7) 0.6
Increase in Income Taxes Payable 1.0 5.5 0.5
------- ------- -------
Net Cash Provided by Operating Activities 64.9 40.3 13.0
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (15.9) (27.5) (22.5)
Purchase of Computer Software (2.3) (5.6) (2.3)
Investment in Software Products (31.6) (13.8) (13.7)
Other Investments and Intangibles 0.4 0.5 0.4
Proceeds from Sale of Fixed Assets and Computer Software 0.9 0.7 0.5
------- ------- -------
Net Cash Used in Investing Activities (48.5) (45.7) (37.6)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 20.0 30.4 26.5
Payments on Borrowings (51.7) (6.7) (5.4)
Proceeds from Common Stock Options Exercised 9.1 9.5 5.3
Payments to Acquire Treasury Stock (0.1) (0.5) (0.8)
------- ------- -------
Net Cash (Used) Provided by Financing Activities (22.7) 32.7 25.6
------- ------- -------
(Decrease) Increase in Currency Translation Adjustment (6.9) (0.3) 0.6
------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (13.2) 27.0 1.6
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 62.8 35.8 34.2
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 49.6 $ 62.8 $ 35.8
======= ======= =======
NON-CASH OPERATING AND FINANCING ACTIVITIES:
Treasury Stock Utilized to Satisfy Accrued
Incentive Compensation Liability $ 2.3 $ 3.4 $ 2.9
- ----------------
See Accompanying Notes to Consolidated Financial Statements.
6
27
American Management Systems, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In millions)
Common
Stock Capital in Currency Total
(Par Value Excess of Translation Retained Treasury Stockholders'
$0.01) Par Value Adjustment Earnings Stock Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 $0.5 $60.2 $(1.4) $112.6 $(33.6) $138.3
Common Stock Options Exercised - 3.3 3.3
Tax Benefit Related to Exercise of
Common Stock Options 1.9 1.9
Currency Translation Adjustment 0.7 0.7
Common Stock Repurchased (0.8) (0.8)
Restricted Stock Awarded 2.9 2.9
1995 Net Income 29.2 29.2
---- ----- ----- ------ ----- -----
Balance, December 31, 1995 0.5 65.4 (0.7) 141.8 (31.5) 175.5
Common Stock Options Exercised - 5.1 5.1
Tax Benefit Related to Exercise of
Common Stock Options 4.5 4.5
Currency Translation Adjustment (0.4) (0.4)
Common Stock Repurchased (0.5) (0.5)
Restricted Stock Awarded 3.4 3.4
1996 Net Income 15.5 15.5
---- ----- ----- ------ ----- -----
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
==== ===== ===== ====== ====== ======
- ----------------
See Accompanying Notes to Consolidated Financial Statements.
7
28
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 offices in
55 cities worldwide. The Company's primary target markets include
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.
Revenues from licenses of "off-the-shelf" software products, where the
Company has insignificant remaining obligations, are recorded at the time of
delivery, less a proportionate amount deferred to cover the costs required to
complete the performance of the contract which is later recognized on a
percentage of completion basis. In contracts where the Company has significant
obligations to customize the software, all revenues are recognized on a
percentage of completion basis. Revenues from software maintenance contracts
are recognized ratably over the maintenance period.
On benefit-funded contracts (contracts whereby the amounts due the
Company are earned based on actual benefits derived by the client), the Company
defers recognition of revenues until that 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.
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 cost-shared 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". 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
8
29
over a period of 3 to 5 years, or other such shorter period as might be
required. For projects where the Company has a funding partner, the capital
asset is reduced by the amount collected from the partner. The Company
recorded $12.5 million of amortization in 1997, $9.3 million of amortization in
1996, and $9.5 million of amortization in 1995. Unamortized costs were $51.9
million and $32.7 million at December 31, 1997 and 1996, respectively. In
1997, the Company reduced the unamortized costs by $4 million representing
collections from a funding partner. The Company evaluates the net realizable
value of capitalized software using the estimated, undiscounted, net-cash flows
of the underlying products.
The Company expended $50.6 million in 1997, $30.4 million in 1996, and
$23.6 million in 1995 for research and development associated with proprietary
software; of which $30.7 million in 1997, $26.0 million in 1996, and $19.4
million in 1995 was expensed in the accompanying financial statements.
The Company capitalizes costs incurred for the development or purchase
of internal use software at the time when the evaluation and selection of
performance requirements are completed and management authorizes funding of the
project. Once the product is substantially complete, capitalized costs are
amortized on a straight-line basis over the estimated useful life of the
software.
Purchased software licenses are to be accounted for as set forth in
Note 1.C.
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 two
to five years using the straight-line method. Intangibles are generally
amortized over 5 to 15 years.
D. Income Taxes
Deferred tax liabilities and assets 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 timing 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
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings per Share". The Company adopted SFAS No. 128 in
the year ended December 31, 1997 as required and restated earnings per share
("EPS") data for all prior periods to conform with SFAS No. 128.
9
30
SFAS No. 128 replaces the presentation of Primary EPS with a
presentation of Basic EPS. SFAS No. 128 also requires dual presentation of
basic and diluted EPS on the face of the statement of operations and requires a
reconciliation of the numerator and denominator used in the basic and fully
diluted EPS computations. Basic EPS excludes dilution and is computed by
dividing net income by the weighted average 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.
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 that prepare financial
statements in 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
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.
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
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 credit or debit offset foreign exchange gains or
losses on those transactions. For 1997, the Company entered into two such
short-term contracts with de minimis value.
K. Reclassification
Certain prior year information has been reclassified to conform with
current year presentations.
10
31
L New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130 entitled "Reporting
Comprehensive Income", which became effective January 1, 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components. All items that are required to be recognized under accounting
standards as components of comprehensive income must be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company's principal components of comprehensive income are net
income and foreign currency translation adjustments. Given the uncertainty
with foreign exchange rates, the Company can not estimate the impact of this
pronouncement. This standard will become effective for the Company's 1998
quarterly reporting beginning in the first quarter of 1998.
In June 1997, the FASB also issued SFAS No. 131 entitled "Disclosures
about Segments of an Enterprise and Related Information" which will become
effective for the Company's 1998 calendar year financial statements and will
apply to quarterly reporting beginning in the first quarter of 1999. This
Statement may change the way public companies, having segments, report
information about their business in annual financial statements and may require
them to report selected segment information in their quarterly reports issued
to stockholders. It also requires entity-wide disclosures about the products
and services an entity provides, the material countries in which it holds
assets and reports revenues, and its major customers. The Company is currently
evaluating the standard to determine the impact on its reporting and disclosure
requirements.
In October 1997, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position 97-2, "Software Revenue
Recognition" (SoP 97-2), which provides guidance in recognizing revenue on
contracts with multiple elements including software licenses and services, and
superseded the previous authoritative literature (SoP 91-1). The SoP is
effective for the Company for transactions entered into after December 31,
1997. In February 1998, the AICPA proposed deferring, for one year, the
implementation date for certain provisions of SoP 97-2. The Company does not
currently believe that the application of SoP 97-2 will have a material impact
on its historical practice with respect to the timing of revenue recognition in
its consolidated financial statements, subject to the proposed one year
deferral of certain provisions. The Company has not determined the effect of
implementing SoP 97-2 if the provisions are not deferred when the one year
proposed deferral expires.
In March 1998, the AICPA issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SoP 98-1). The SoP is effective for the Company's 1999 fiscal
year and requires capitalization of costs related to developing or obtaining
internal-use software. Adoption of the SoP is not expected to materially
affect results of operations, as the Company is currently accounting for
internal-use software generally in accordance with the provisions of this SoP.
NOTE 2 -- SIGNIFICANT CUSTOMERS
Total revenues from the U.S. Government, comprising 93 clients in
1997, 90 clients in 1996, and 72 clients in 1995, were approximately $171.5
million in 1997, $113.0 million in 1996, and $97.1 million in 1995. No other
customer accounted for 10% or more of total revenues in 1997, 1996, or 1995.
11
32
NOTE 3 -- ACCOUNTS AND NOTES RECEIVABLE
December 31 (In millions) 1997 1996
- ----------------------------------------------------------------------------------------------------
Trade Accounts Receivable
Amounts Billed $193.1 $205.7
Amounts Not Billed 45.3 48.2
Contract Retention 5.4 11.7
------ ------
Total 243.8 265.6
Other Receivables 2.1 1.0
Allowance for Doubtful Accounts (5.0) (18.9)
------ ------
Total $240.9 $247.7
====== ======
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, 1997, the eight largest individual
receivable balances totaled approximately $72 million. No other receivable
exceeded $5 million. The Company expects to receive all funds due from these
clients.
Management believes that credit risk, with respect to the Company's
receivables, is low due to the credit worthiness 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 an evaluation of the
client's financial condition.
NOTE 4 -- NOTES PAYABLE AND CAPITALIZED LEASE OBLIGATIONS
On December 24, 1996, the Company entered into a syndicated $100
million Multi-Currency Revolving Credit ($80 million) and Term Loan ($20
million) Agreement with Wachovia Bank, NationsBank and Commerzbank. This
Agreement replaced the two revolving credit agreements (the NationsBank
Agreement and the Wachovia Agreement), totaling $70 million that the Company
had immediately preceding the execution of the new credit facility, although
outstanding borrowings under the NationsBank Agreement continued in force until
they matured in January 1997. On January 6, 1997, a Term Loan of $20 million
was funded. The Term Loan bears an interest rate of 6.94%, with monthly
interest payments on the unpaid principal balance and quarterly principal
payments commencing in April 1999.
The Agreement described above contains certain covenants with which
the Company must comply. These include (i) maintaining a total debt to total
capitalization ratio of not greater than 0.5 to 1.0, (ii) maintaining a fixed
charge cover ratio of not less than 2.5 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. At December 31, 1997,
the Company was in compliance with all covenants under the Agreement.
Effective January 9, 1998, the Company entered into a syndicated
five-year $120 million Multi-Currency Revolving Credit with NationsBank and
Wachovia Bank (the "1998 Agreement") as agents. This agreement replaces the
$100 million Multi-Currency Revolving Credit Agreement with Wachovia Bank,
NationsBank and Commerzbank; the Term Loan, which remains outstanding, is now
governed by the 1998 Agreement.
12
33
The aggregate weighted average borrowings under all revolving credit
agreements was approximately $41.3 million in 1997, and $29.2 million in 1996,
at daily weighted average interest rates of approximately 6.6% in 1997 and 5.2%
in 1996. The maximum borrowed under all agreements was $63.1 million in 1997
and $49.2 million in 1996. At December 31, 1997, the Company had $1.8 million
outstanding under its revolving credit facility, and $33.6 million in term
loans.
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 earnings before interest, taxes,
depreciation, and amortization. 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, 1997,
interest payments during 1998 will be based on LIBOR plus 22.5 basis points and
the facility fee will be 12.5 basis points.
The 1998 Agreement, and the term loan, contains 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.
The following schedule summarizes the total outstanding notes and
capitalized lease obligations. Differences between the face value and the fair
value are considered immaterial.
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------------------------------
Revolving Line-of-Credit $ 1.8 $46.8
Unsecured Notes With Interest at 5.25% - 6.94%
Principal and Interest Payable Monthly Through
January 2004 33.6 20.4
----- -----
Total Notes Payable and Capitalized Lease Obligations $35.4 $67.2
===== =====
Principal amounts are repayable as shown below:
1998 $ 7.5
1999 5.3
2000 5.2
2001 5.1
2002 and Beyond 12.3
-----
35.4
Less Current Portion 7.5
-----
Long-Term Portion $27.9
=====
Interest paid by the Company totaled $5.8 million in 1997, $3.2
million in 1996, and $2.3 million in 1995.
13
34
NOTE 5 -- EQUITY SECURITIES
At December 31, 1997, the Company had a stock option plan, 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"). 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 of Directors then adopted
certain amendments to Plan F resulting in 1996 Amended Stock Option Plan F
("Amended Plan F") which was approved by the shareholders at the May 9, 1997
annual meeting.
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 average 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 eight 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, 1997, there were 152,633 shares available for the
grant of future options under 1992 Plan E and 2,849,806 shares available under
Amended Plan F. No options remain available for grant under any previous stock
option plan. At its February 1998 meeting, the Board terminated 1992 Plan E.
No grants had been made under this plan since 1996. The following table
summarizes information with respect to stock options outstanding at December
31, 1997.
Options Exercisable
Total Options Outstanding at 12/31/97 at 12/31/97
----------------------------------------------- -----------------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Range of Number Life Exercise Number Exercise
Exercise Prices of Shares (Years) Price of Shares Price
- ---------------------------------------------------------------------------------------------------------------
$ 3.59 - $ 8.44 650,075 1.65 $ 7.51 550,265 $ 7.44
8.61 - 10.11 645,196 0.41 8.94 616,035 8.94
10.17 - 13.62 655,277 2.85 12.28 536,594 12.55
13.83 - 17.50 733,971 4.44 16.89 546,303 17.22
18.25 - 24.00 664,176 3.57 22.36 531,518 22.75
24.62 - 35.62 430,607 5.67 27.70 178,950 28.62
----------- -----------
3,779,302 2.98 $15.31 2,959,665 $14.52
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).
14
35
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 1997 and 1996 would have been decreased to the
pro-forma amounts indicated below:
December 31 (in millions, except per share data): 1997 1996
- ------------------------------------------------------------------------------------------------------------
Reported Net Income $31.2 $15.5
===== =====
Pro-Forma Net Income $26.8 $13.1
===== =====
Reported Basic Net Income per Share $0.75 $0.38
===== =====
Pro-Forma Basic Net Income per Share $0.65 $0.32
===== =====
Reported Diluted Net Income per Share $0.74 $0.37
===== =====
Pro-Forma Diluted Net Income per Share $0.64 $0.31
===== =====
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 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 eight-year options granted in 1997 and 1996 was
$2.2 million and $1.8 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 1997 and
1996 was $10.56 and $12.36, respectively. The total value of the five-year
stock options granted in 1997 and 1996 was $5.5 million and $5.0 million,
respectively, which 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 1997 and
1996 was $7.28 and $8.06, respectively.
Additionally, the following weighted-average assumptions were used for
both the eight-year and five-year stock options granted in 1997 and 1996,
respectively.
Eight Year Five Year
--------------------- --------------------
December 31 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------
Expected Volatility 39.96% 38.01% 39.65% 36.35%
Risk-Free Interest Rate 5.60% 6.48% 6.29% 5.58%
Expected Life 5 yrs 5 yrs 4 yrs 4 yrs
Expected Dividend Yield 0% 0% 0% 0%
15
36
Additional information with respect to stock options awarded pursuant
to such plans is summarized in the following schedule.
Number of Weighted
Option Average
Shares Exercise Price
- -------------------------------------------------------------------------------------------------------------
Balance At December 31, 1994: 3,242,551 $ 7.51
Options Granted 737,752 13.53
Options Canceled 9,486 8.36
Options Exercised 566,235 5.86
Balance Outstanding at December 31, 1995 3,404,582 9.09
For the Year Ended December 31, 1996:
Options Granted 769,451 23.84
Options Canceled 26,495 16.67
Options Exercised 730,782 7.16
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
At its February 1995 meeting, the Board authorized the Company to
expend up to $10 million to repurchase additional shares of its common stock,
from time to time, for its stock-based benefit plans or for other corporate
purposes. The Company repurchased 3,358, 24,600, and 60,000 shares of its
common stock during 1997, 1996, and 1995, respectively, totaling $1.4 million.
NOTE 6 - EARNINGS PER SHARE RECONCILIATION
Year Ended December 31 (In millions except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
Basic Earnings per Share Computation
------------------------------------
Net Income (Numerator) $ 31.2 $15.5 $29.2
------ ------ ------
Weighted Average Shares (Denominator) 41.4 40.7 39.7
------ ------ ------
Basic Net Income per Share $ 0.75 $ 0.38 $ 0.73
====== ====== ======
Diluted Earnings per Share Computation
- --------------------------------------
Net Income (Numerator) $ 31.2 $15.5 $29.2
------ ------ ------
Weighted Average Shares and Equivalents:
Weighted Average Shares 41.4 40.7 39.7
Shares Issuable Upon Exercise of Stock Options 2.9 3.5 3.5
Less Shares Assumed to be Repurchased at Fair Market Value (2.0) (2.3) (2.5)
------ ------ ------
Total Weighted Average Shares and Equivalents (Denominator) 42.3 41.9 40.7
------ ------ ------
Diluted Net Income per Share $ 0.74 $ 0.37 $ 0.72
====== ====== ======
16
37
NOTE 7 -- INCOME TAXES
Year Ended December 31 (In millions) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
Income before income taxes for the year ended
December 31 was derived in the following jurisdictions:
U.S. $ 25.7 $ 8.7 $ 42.6
Non-U.S. 25.7 17.5 7.2
------- ------- -------
$ 51.4 $ 26.2 $ 49.8
======= ======= =======
The provision for income taxes is comprised of the following:
Current:
U.S. $ 3.3 $ 10.4 $ 9.4
State 0.3 1.4 1.8
Non-U.S. 13.3 8.7 3.4
Deferred:
U.S. 3.2 (4.3) 5.4
State 0.6 (0.5) 0.6
Non-U.S. (0.5) (5.0) -
------- ------- -------
Total Provision $ 20.2 $ 10.7 $ 20.6
======= ======= =======
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 1.6% 1.9% 3.8%
Change in valuation allowance 0.2% (9.1%) 2.5%
Research tax credits (3.6%) (3.0%) (0.9%)
Meals and entertainment 3.7% 5.7% 2.2%
Goodwill and Other Non-deductibles 0.4% 1.6% -
Benefit of Subsidiary Conversion (1.7%) - -
Impact of Non-US jurisdictions 6.0% 4.3% (1.0%)
Other (2.3)% 4.4% (0.2%)
------- ------- -------
E ffective Rate 39.3% 40.8% 41.4%
======= ======= =======
17
38
Year Ended December 31 (In millions) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
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:
Deferred Revenue $ 1.5 $ 2.4 $ 2.9
Restricted Stock 3.6 3.2 3.0
Accrued Leave Costs 3.4 2.9 2.2
Allowance for Doubtful Accounts 4.2 13.9 2.2
Loss and Credit Carryforwards 9.0 5.4 2.8
Other 5.0 (1.9) 2.0
------- ------- -------
Subtotal 26.7 25.9 15.1
Valuation Allowance (0.5) (0.4) (2.8)
------- ------- -------
Total Deferred Tax Assets $ 26.2 $ 25.5 $ 12.3
------- ------- -------
Deferred Tax Liabilities:
Unbilled Receivables $ (20.4) $ (26.9) $ (20.4)
Capitalized Software (21.0) (12.6) (10.0)
Other (3.1) (0.9) (6.6)
------- ------- -------
Total Deferred Tax Liabilities (44.5) (40.4) (37.0)
------- ------- -------
Net Deferred Tax Liabilities $ (18.3) $ (14.9) $ (24.7)
======= ======= =======
The net changes in total valuation allowance for the years ending
December 31, 1997 and 1996 were an increase of $0.1 million and a decrease of
$2.4 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 U.S. federal income and foreign withholding
taxes on $26.6 million of non-U.S. subsidiaries' undistributed earnings as of
December 31, 1997, 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 $14.9 million, $14.3
million, and $16.4 million, in 1997, 1996, and 1995, respectively.
NOTE 8 - 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 1997 and 1996 the Company had accrued $10.4
million and $2.1 million, respectively, for its obligations under these plans.
The Company expensed $0.6 million in 1997, related to the earnings by the
deferred compensation plan participants.
18
39
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. The cash surrender value of these
policies, included in "Other Assets", was $9.6 million at December 31, 1997.
There were no outstanding loans at December 31, 1997 on these policies.
NOTE 9 -- EMPLOYEE PENSION PLAN
The Company has a simplified employee pension plan, which became
effective January 1, 1980. 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 $9.8 million
in 1997, $8.3 million in 1996, and $6.3 million in 1995.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Company occupies production facilities and office space (real
property) and uses various pieces of equipment under operating lease
agreements, expiring at various dates through the year 2014.
The commitments under these agreements, as of December 31, 1997, are
summarized in the table below. Payments under the real property leases are
generally subject to escalation based upon increases in the Consumer Price
Index, operating expenses, and property taxes.
Gross Rentals and Maintenance Payments
(In millions) Real Property Equipment Total
- ----------------------------------------------------------------------------------------------------------
1998 $ 33.7 $10.3 $ 44.0
1999 35.3 6.6 41.9
2000 32.3 1.9 34.2
2001 29.7 0.2 29.9
2002 26.8 - 26.8
2003 through 2014 151.9 - 151.9
------ ----- ------
Total $309.7 $19.0 $328.7
====== ===== ======
Operating lease expense for 1997, 1996, and 1995 was approximately
$46.5 million, $34.1 million, and $27.9 million, respectively.
The Company has an extended leave program for titled 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.
The Company has entered into a bank guarantee due upon request for
performance under one of its contracts. At December 31, 1997 the Company had
$6.3 million outstanding under such bank guarantee.
19
40
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.
As of December 31, 1997, management is not aware of any major contract where
there was a risk of suspension, termination or significant renegotiation which
would materially impact the Company's financial position or results of
operations other than those already provided for in the financial statements of
the Company.
NOTE 11 -- RELATED PARTY TRANSACTIONS
The Company incurred legal fees and reimbursable expenses payable to
Shaw, Pittman, Potts & Trowbridge, general counsel to the Company, totaling
approximately $4.0 million, $2.7 million, and $2.5 million, in 1997, 1996, and
1995, respectively. A member of the firm of Shaw, Pittman, Potts & Trowbridge
is the spouse of an executive officer of the Company who resigned in November
1997.
NOTE 12 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
AMS operates in one industry segment -- providing computer and
information technology products and services to large clients in targeted
vertical markets. However, AMS markets its services and products worldwide and
its operations can be grouped into two main geographic areas according to the
location of each AMS company. The two groupings consist of United States
locations and non-US locations (primarily in Australia, Belgium, Canada,
England, France, Germany, Mexico, Poland, Portugal, Spain, Sweden, Switzerland,
and The Netherlands). Pertinent financial data, by geographic area, is
summarized below.
Year Ended December 31 (In millions) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
Revenues
U.S. Companies $682.2 $645.2 $557.2
Non-US Companies 190.1 167.0 75.2
------ ------ ------
Consolidated Total 872.3 812.2 632.4
====== ====== ======
Income From Operations
U.S. Companies 26.8 8.0 44.4
Non-US Companies 27.5 19.6 6.3
------ ------ ------
Consolidated Total 54.3 27.6 50.7
====== ====== ======
Identifiable Assets
U.S. Companies 389.7 355.0 290.0
Non-US Companies 31.7 69.2 47.5
------ ------ ------
Consolidated Total $421.4 $424.2 $337.5
====== ====== ======
20
41
Revenues from AMS's U.S. Companies include export sales to non-US
clients of $58.5 million in 1997, $111.3 million in 1996, and $103.0 million in
1995. As a result, the Company's total non-US client revenues were as follows:
Year Ended December 31 (In millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
Exports By U.S. Companies $ 58.5 $111.3 $103.0
Non-US Companies 190.1 167.0 75.2
------ ------ ------
Total Non-US Client Revenues $248.6 $278.3 $178.2
====== ====== ======
Percent of Total Revenues 28.5% 34.3% 28.2%
====== ====== ======
21
42
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 3 to 21 of the 1997 Financial Report present fairly, in all
material respects, the financial position of American Management Systems,
Incorporated and its subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, 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.
PRICE WATERHOUSE LLP
Washington, D.C.
February 18, 1998
22
43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
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"). The effect of inflation and price changes on the
Company's revenues, income from operations, and expenses, is generally
comparable to the general rate of inflation in the U.S. economy.
Period-to-Period
Percentage of Total Revenues Change
---------------------------- ----------------
1997 1996
vs. vs.
1997 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------
Revenues 100.0% 100.0% 100.0% 7.4 28.4%
Expenses
Client Project Expenses 57.6 64.8 55.1 (4.5) 50.9
Other Operating Expenses 30.5 25.9 30.4 26.5 9.4
Corporate Expenses 5.7 5.9 6.5 2.5 18.4
------- ------- -------
93.8 96.6 92.0 4.3 34.9
Income from Operations 6.2 3.4 8.0 96.7 (45.6)
Other (Income) Expense 0.3 0.2 0.1 107.1 55.6
------- ------- -------
Income Before Income Taxes 5.9 3.2 7.9 96.2 (47.4)
Income Taxes 2.3 1.3 3.3 88.8 (48.1)
------- ------- -------
Net Income 3.6 1.9 4.6 101.3 (46.9)
Weighted Average Shares 1.7 2.5
Basic Net Income per Share 97.4 (47.9)
Weighted Average Shares and Equivalents 1.0 2.9
Diluted Net Income per Share 100.0 (48.6)
23
44
RESULTS OF OPERATIONS (continued)
This Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") contains certain forward-looking statements. In
addition, the Company or its representatives from time to time may make, or may
have made, certain forward-looking statements, orally or in writing, including,
without limitation, any such statements made in this MD&A, press releases, or
any such statements made, or to be made, in the MD&A contained in other filings
with the Securities and Exchange Commission. The Company wishes to ensure that
such forward-looking statements are accompanied by meaningful cautionary
statements so as to ensure, to the fullest extent possible, the protections of
the safe harbor established by the Private Securities Litigation Reform Act of
1995. Accordingly, such forward-looking statements made by, or on behalf of,
the Company are qualified in their entirety by reference to, and are
accompanied by, the discussion herein of important factors that could cause the
Company's actual results to differ materially from those projected in such
forward-looking documents.
REVENUES
Revenues increased 7% and 28% during 1997 and 1996 compared to the
preceding year. Approximately 85-90% of each year's revenues come from clients
for whom the Company performed services in prior years. Looking ahead to 1998,
the Company expects continued growth, at higher rates of increase than were
experienced in 1997.
Business with non-US clients decreased 11% during 1997 to $249 million
while it increased 56% in 1996 to $278 million. Business with non-US clients
represents 28% and 34% of the Company's total revenues for 1997 and 1996,
respectively. This was the first year (1997) since the Company began its
international expansion in 1989 in which non-US revenues have declined on a
comparative basis. These decreases were primarily due to two factors. The
first factor is the termination of work with the non-US telecommunications
client, Telecom Securicor Cellular Radio Limited ("Cellnet"), that had been the
subject of prior statements by the Company dating back to the fourth quarter of
1996. The Company announced the termination of the Cellnet contract in a press
release dated August 13, 1997. The second factor is the unexpected
cancellation at the end of August 1997 by Swiss Telecom of the second phase of
the Customer Care and Billing Systems project, after the successful completion
of phase one of such project. The Company announced the cancellation of the
Swiss Telecom contract in a press release dated September 4, 1997. If revenues
from both such contracts were excluded from total revenues for 1997 and 1996,
all other business with non-US clients increased 6% and 29%, during the twelve
months of 1997 and 1996, respectively. For the year 1998, the Company expects
non-US business, and European business in particular, to show little or no
growth over 1997, owing principally to the impacts of the two clients discussed
above.
In the Telecommunications Firms market, a market which is
characterized by large projects with relatively few clients, revenues decreased
16% compared to 1996 while there was an increase of 38% comparing 1996 to 1995.
Non-US revenues decreased 20% and increased 65%, again compared to the 1996 and
1995 periods. These decreases are predominantly attributable to the
termination of work on the Cellnet and Swiss Telecom contracts mentioned above,
especially Cellnet. Excluding revenues from these two contracts, non-US
revenues in this market from other contracts remained flat in 1997 and
increased 30% in 1996. Revenues from all other telecommunications clients
(both US and non-US, but excluding these two contracts) were approximately the
same in 1997 when compared to 1996, and such revenues increased 17% between
1996 and 1995.
For the year 1998, the Company expects revenues in this market to be
approximately equal to Telecommunications Firms revenues for 1997. The lack of
growth reflects several factors: the need to replace revenues from the Cellnet
and Swiss Telecom contracts, Company initiated slowdown in business development
in the fall of 1996 which market pipeline is just now increasing,
reorganization of
24
45
management and market orientation in this market, and the need to upgrade
software. The Company has begun development of its generation of customer
care and billing software, known as "Tapestry", well underway through a
significant contract with a European client. As that client is sharing part of
the cost of the development, collections from that contract will not contribute
to revenue growth in this market in 1998, but instead reduce capitalized
software costs. A majority of the development effort is being capitalized.
There remain 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 for the Telecommunication Firms market.
Additionally, the Company has entered various emerging markets. Contracts in
emerging markets can pose higher delivery risks, however, than the Western
European and U.S. markets in which the Company previously concentrated.
In the Financial Services Institutions target market, 1997 revenues
increased 17% over 1996, owing principally to build-ups in business with
clients who started large projects in the second half of 1996 and several new
projects in 1997. Revenues for this market, although strong generally, were
somewhat lower than expectations due to differences with a European client on
the scope of one project that led ultimately in the fourth quarter to
termination of that contract. Business with non-US clients, primarily European,
account for approximately 32% of the revenues in this market ($68 million).
Comparing 1996 to 1995, business in this market had increased 23% owing to new
business in late 1995. For 1998, the Company expects demand in the market to
remain strong, but faces staffing constraints in this market as well. The
Company anticipates revenue growth in this market to increase at rates somewhat
above the Company's overall revenue growth.
In the State and Local Governments and Education target market,
revenues increased 22% in 1997 and 32% in 1996. The 1997 increase was fueled
by several large contracts with state taxation departments looking to make
substantial improvements in their ability to collect delinquent taxes and
several new engagements for financial and revenue 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
earned based on actual benefits derived by the client), the Company defers
recognition of revenues until that 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. At the end of 1997, all such contracts had
provided enough benefits to fund the work. In 1998, because the Company has
begun several new large multi-year benefits-funded contracts, revenues from
certain of those contracts are not likely to be recognized until later periods.
The Company enjoys strong demand in this market. The Company has over $500
million in signed contracts in the State and Local Governments and Education
market, to be performed over the next several years. Revenues in the State and
Local Governments and Education market are expected to increase in 1998 at
rates exceeding the increase in the Company's overall revenues.
Revenues in the Federal Government Agencies target market increased
39% in 1997 and 22% in 1996. This increase was attributable to the award of a
significant multi-year contract with the Department of Defense for its Standard
Procurement System (SPS) which accounted for 40% of the 1997 growth in this
market. In addition, there was increased business with existing clients and
new business with both defense and civilian agencies. The Company expects
revenues in this target market, for 1998, to increase at rates ahead of the
overall growth rate of the Company, but not as high as the rates of increase in
this market when comparing 1997 to 1996. These revenue increases will
continue to be driven primarily by the SPS contract.
Revenues from Other Corporate Clients decreased 11% in 1997 and
increased 4% during 1996. For 1998, revenues from this market, which
represents business in smaller vertical markets, are expected to increase at
rates below the Company's overall growth in revenues owing to the expected
increased work with health care and electric and gas utilities clients, being
at least partially offset by decreases in various other projects.
25
46
EXPENSES
Client project expenses and other operating expenses together
increased 4% during 1997, which was slightly lower than the growth rate in
revenues. Comparing 1996 to 1995, client project and other operating expenses
increased 36%. Included in this increase for both 1997 and 1996 are the
provisions and charges the Company recorded with respect to various client
projects, totaling $7.2 million for 1997 and $31.1 million for 1996. The
relevant clients included Cellnet, Swiss Telecom, a Financial Services
Institutions client and in the fourth quarter of 1997 a receivable from a
foreign government experiencing cash flow difficulties which had been owing for
several years. In 1996, the Company recorded losses expected in 1997 related
to the Cellnet project. These expenses were partially offset by significant
reductions in performance-based incentive compensation accruals for the senior
managers in the business units. Without these provisions and charges, client
project and other operating expenses in 1996 would have increased by 31% over
1995, generally in line with the overall growth of the Company for 1996.
Looking to 1998, the Company anticipates that growth in these expenses
generally will be in line with the revenue growth.
Corporate Expenses increased 2% and 18%, in 1997 and 1996,
respectively. The 1997 and 1996 rates of increase were offset in part by
sharply reduced performance-based incentive compensation accruals for the
corporate officers and minimal profit-based compensation accruals under the
Company's restricted stock program, both owing to the material impact of the
Cellnet and Swiss Telecom contracts discussed earlier. In addition, the lower
rate of growth in corporate expenses reflects the Company's focus on
controlling expenses. For the year 1998, the Company expects these expenses to
grow slightly above the Company's revenue growth.
INCOME FROM OPERATIONS
Income from operations increased 97% in 1997 and decreased 46% in
1996. These fluctuations were principally due to the charges associated with
the non-US client projects discussed above. Absent these charges, income from
operations would have increased 31% in 1996, comparable to the growth in
revenues and in line with the Company's expectations. For 1997, as the Company
was successful in controlling its overall growth rate, the Company's profit
margins improved, but not at the level expected at the beginning of 1997, due
primarily to the significant amount of management and staff resources that have
been consumed in attempting to resolve the issues with the non-US client
projects, delays in redeploying personnel from those projects, and attrition of
personnel in that market higher than the Company's historical norms. For
1998, the Company will continue to manage growth and expects to improve on the
profit margins.
OTHER (INCOME) EXPENSE
Interest expense increased 81% in 1997, compared to 1996, because of
significant increases in short-term borrowing to finance accounts receivable,
especially those of one of its foreign subsidiaries and the addition of the $20
million term loan signed in January 1997. It is expected that interest expense
in 1998 will be significantly lower, compared to 1997, because of lower average
outstanding borrowings. Other income increased 61% in 1997, compared to 1996,
due primarily to additional income from landlord-initiated building moves,
which the landlord payments exceeded the actual costs to move.
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INCOME TAXES
The Company's effective tax rate for 1997 was 39.3% compared to 40.8%
in 1996. During the fourth quarter of 1997, the Company determined that it
would be able to take advantage of a recent change in U.S. tax law that allowed
certain U.S. tax benefits to accrue in cases where a U.S. company has foreign
subsidiaries with accumulated losses in excess of the equity invested. The
Company took advantage of this new law and was able to lower its 1997 tax rate,
which benefit will not be recurring. The 1995 effective tax rate was 41.4%.
The Company expects that its effective tax rate in 1998 will be generally
consistent with its historical rates.
FOREIGN CURRENCY EXCHANGE
Approximately 28% of the Company's total revenues in 1997, 34% in
1996, and 28% in 1995, 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 late 1997, the Company employed hedging
of intercompany balance sheet transactions through derivative instruments
(foreign currency swap contracts). For 1997, the Company entered into two such
short-term contracts with de minimis value, which gave the Company access to
additional sources of financing while limiting both the foreign exchange risk
and exposure to floating interest rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company provides for its operating cash requirements primarily
through funds generated from operations, and secondarily from bank borrowings,
which provide for cash and currency management with respect to the short term
impact of certain cyclical uses such as annual payments of incentive
compensation as well as financing to some degree accounts receivable. At
December 31, 1997, the Company's cash and cash equivalents totaled $49.6
million, down from $62.8 million at the end of 1996. Cash provided from
operating activities for 1997 was $64.9 million. Cash provided from operating
activities increased due to significant improvements in the rate of collection
of the Company's accounts receivable. Contributing to these improvements was
the collection of most of the outstanding accounts receivable related to
subcontract work with a prime contractor in the child support enforcement
business. At December 31, 1997 receivables outstanding from that prime
contractor are less than 5% of the overall accounts receivable balance. See
Note 3 to the consolidated financial statements for further discussion on
accounts receivable.
The Company invested over $48.5 million in fixed assets and software
purchases, and computer software development during 1997. Revolving line of
credit borrowings during 1997 decreased by $45.0 million over year-end 1996,
which borrowings consisted entirely of foreign currency borrowings by the
Company's non-US subsidiaries, only $1.8 million of which remained outstanding
at December 31, 1997. Additionally, the Company borrowed $20 million during
the first quarter of 1997 under the term loan provisions of its $100 million
syndicated debt facility then in effect. The aggregate weighted average
short-term borrowings during 1997 was approximately $41.3 million, at an
weighted average interest rate of 6.6%. During 1997, the Company made
approximately $51.7 million in installment payments of principal on outstanding
debt owed to banks; the Company also received proceeds of approximately $9.1
million during the period from the exercise of stock options and the tax
benefits related thereto.
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At December 31, 1997, the Company's debt-equity ratio, as measured by
total liabilities divided by stockholders' equity was 0.77, down from 1.09 at
December 31, 1996.
On December 24, 1996, the Company entered into a syndicated
$100 million Multi-Currency Revolving Credit ($80 million) and Term Loan ($20
million) Agreement with Wachovia Bank, NationsBank and Commerzbank. This
Agreement replaced the two revolving credit agreements (the NationsBank
Agreement and the Wachovia Agreement), totaling $70 million that the Company
had immediately preceding the execution of the new credit facility, although
outstanding borrowings under the NationsBank Agreement continued in force until
they matured in January 1997. On January 6, 1997, a Term Loan of $20 million
was funded. The Term Loan bears an interest rate of 6.94%, with monthly
interest payments on the unpaid principal balance and quarterly principal
payments commencing in April 1999.
Effective January 9, 1998, the Company entered into a syndicated
five-year $120 million Multi-Currency Revolving Credit with NationsBank and
Wachovia Bank (the "1998 Agreement") as agents. This agreement replaces the
$100 million Multi-Currency Revolving Credit Agreement with Wachovia Bank,
NationsBank and Commerzbank; the Term Loan, which remains outstanding, is now
governed by the 1998 Agreement.
The Company's material unused source of liquidity at the end of 1997
consisted of approximately $78.2 million under the revolving credit and term
debt facility then in effect. The Company believes that its liquidity needs
can be met from the various sources described above.
Companies in the business of providing information technology
services, software products or custom-developed software, such as the Company,
face "Year 2000 compliance" issues in at least two critical areas: internal
systems and client systems. "Year 2000 compliance" means the ability of
software and other processing capabilities to interpret and manipulate
correctly all data that includes the year 2000 or dates thereafter. Failure of
software and related capabilities used by the Company or, under certain
circumstances, furnished to clients, to be Year 2000 compliant could have a
material adverse impact on the Company. Accordingly, the Company is focusing
at the most senior levels on these issues, with the Audit Committee of the
Board of Directors, in conjunction with the Company's Chief Technology Officer
and others, monitoring the Company's analyses and status with respect to Year
2000 issues.
Early in 1997, the Company completed surveys of all of its major
internal systems for Year 2000 compliance. The Company began remediation
efforts for some systems in 1997, with others scheduled for upgrade or
replacement in 1998. Assessment of smaller software components and systems,
and interfaces with vendors, is continuing into 1998. The Company is
coordinating centrally all of its efforts to achieve Year 2000 compliance of
its internal systems by 1999. Total costs of achieving Year 2000 compliance in
its internal systems, which costs will be expensed as they are incurred, are
estimated to be approximately $3.0 million for 1998 and $2.5 million for 1999;
the Company expensed $1.1 million for Year 2000 costs in 1997.
With respect to its clients, the Company does not presently anticipate
material costs or risks allocable specifically to Year 2000 compliance issues,
but is continuing to assess the scope and status of such risks. Client
engagements for specific Year 2000 remediation work have not been a strategic
marketing focus for remediation work alone. In many of the Company's current
engagements, Year 2000 replacement work is implicit, as the Company's clients
are replacing systems for various business reasons but in the process are
gaining a new Year 2000 compliant system. The Company does not anticipate any
special risks or costs attributable to Year 2000 compliance issues in
performing such contracts. With respect to contractual obligations to active
clients (clients for whom the Company is still obligated to furnish products or
services, such as maintenance), the Company similarly does not anticipate in
the aggregate material costs or risks associated with Year 2000 compliance.
Its contracts
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with active clients generally are either for recent software that is Year 2000
compliant, or do not obligate the Company to furnish an updated release that is
Year 2000 compliant. Early in 1997, the Company inventoried its active
software products and status relative to Year 2000 compliance. It also has
been communicating with active clients regarding Year 2000 compliance, and
notifying them of the availability of updated Year 2000 compliant releases for
certain older software known to the Company still to be used by that client.
For example, AMS has made available to U.S. Federal Government clients since
early 1997 an updated release of the Federal Financial System software that is
Year 2000 compliant and many such clients are in the process of upgrading to
that release. Given the special emphasis on Year 2000 compliance in the
financial services sector, the Company's Finance Industry Group has notified
both active and former clients of Year 2000 compliance releases of all current
product offerings. The Company continues to assess the status of Year 2000
compliance of the Company-developed software in use by various clients.
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ASSUMPTIONS UNDERLYING CERTAIN FORWARD-LOOKING
STATEMENTS AND
FACTORS THAT MAY AFFECT FUTURE RESULTS
In the next couple of years, the Company expects growth in revenues
to be somewhat lower than the Company's historical long-term rates. The more
controlled and lower growth in revenues should enable the Company to improve
its profit margins. These margins were reduced during the last several years
owing to cancellations of two major projects and, related thereto, attrition
rates higher than historical rates for the Company, heavy investment in
building up staff capacity and infrastructure, and the stress of absorbing many
new professional staff.
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 schedules. 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 throughout North America, Europe, and other locations.
The Company must also manage and seek to reduce rates of attrition, which the
Company expects will continue to be somewhat higher than its historical norms
in view of increased competition for its talent, although not as high as in
1997 when affected by the cancellation of two major projects within one month.
There is also the risk of successfully managing large projects and the
risk of a material impact on results because of the unanticipated delay,
suspension, renegotiation or cancellation of a large project. As was the case
in the past two years, any such development in a project could result in a drop
in revenues or profits, the need to relocate staff, a potential dispute with a
client regarding money owed, and a diminution of AMS's reputation. These risks
are magnified in the largest projects and markets simply because of their size.
The Company's business is characterized by large contracts producing high
percentages of the Company's revenues. For example, 35% of the Company's total
revenues in 1997 were derived from business with fifteen clients. The
cancellation of phase two of the large Swiss Telecom project in the third
quarter of 1997 after the Company's successful completion of phase one of the
project, and the Company's subsequent reduction of net income for 1997 and
redeployment of personnel as a result of such unexpected cancellation,
together with a cancellation of a contract in the Financial Services
Institutions market following management and institutional changes at the
client, are recent examples of the risks inherent in the Company's business and
the Company's efforts to manage such risks. 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.
Finally, there is the risk of revenues not being realized when
expected, such as in certain contracts in the State and Local Governments and
Education Market. On certain contracts, the Company's fees are paid out of the
benefits (increased collections) that the client achieves. The Company
typically defers 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.
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Certain other risks, including, but not limited to, the Company's
increasing international scope of operations, are discussed elsewhere in this
Form 10-K. The Company is also expanding in several emerging markets.
Contracts being performed in such markets can have somewhat higher delivery
risks. 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, 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.
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FIVE-YEAR FINANCIAL SUMMARY
Year Ended December 31
(In millions except share and per share data) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
- ---------------------------------------------------------------------------------------------------------------------------
Revenues $ 872.3 $ 812.2 $ 632.4 $ 459.9 $ 364.0
Client Project Expenses 502 .3 525.9 348.6 246.9 189.3
Other Operating Expenses 266 .2 210.4 192.3 140.1 115.6
Corporate Expenses 49.5 48.3 40.8 32.6 28.4
-------- -------- -------- -------- --------
Total Operating Expense 818 .0 784.6 581.7 419.6 333.3
-------- -------- -------- -------- --------
Income From Operations 54.3 27.6 50.7 40.3 30.7
Other (Income) Expense 2 .9 1.4 0.9 0.8 -
-------- -------- -------- -------- --------
Income Before Income Taxes 51.4 26.2 49.8 39.5 30.7
Income Taxes 20.2 10.7 20.6 16.1 12.9
-------- -------- -------- -------- --------
Net Income 31.2 15.5 29.2 23.4 17.8
Dividends and Accretion on Series B
Preferred Stock - - - 0.3 0.8
-------- -------- -------- -------- --------
Net Income per Common Shareholders $ 31.2 $ 15.5 $ 29.2 $ 23.1 $ 17.0
======== ======== ======== ======== ========
PER COMMON SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------------
Basic Net Income per Common Share $ 0.75 $ 0.38 $ 0.73 $ 0.61 $ 0.47
Weighted Average Shares 41,361,967 40,656,760 39,736,747 38,126,715 35,844,296
Diluted Net Income per Common Share $ 0.74 $ 0.37 $ 0.72 $ 0.60 $ 0.46
Weighted Average Shares and Equivalents 42,304,018 41,925,353 40,707,633 38,731,422 36,663,440
Common Shares Outstanding at Year End 41,544,299 40,939,209 40,040,454 39,294,780 36,258,602
FINANCIAL POSITION
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $421.4 $424.2 $337.5 $252.2 $185.0
Fixed Assets, Net 45.2 48.0 37.1 28.7 21.3
Working Capital 168.9 125.0 115.6 89.4 67.3
Noncurrent Liabilities 52.7 22.3 26.8 21.3 19.6
Stockholders' Equity 238.7 203.1 175.5 138.3 99.0
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FIVE-YEAR REVENUES BY TARGET MARKET
Year Ended December 31 (In millions) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
Revenues
Telecommunication Firms $259.3 $310.1 $224.2 $128.6 $ 85.3
Financial Services Institutions 214.9 183.7 149.5 100.4 67.0
State and Local Governments and Education 171.4 140.7 106.9 92.3 76.7
Federal Government Agencies 189.2 135.7 111.5 104.4 104.8
Other Corporate Clients 37.5 42.0 40.3 34.3 30.2
------ ------ ------ ------ ------
Total Revenues $872.3 $812.2 $632.4 $459.9 $364.0
====== ====== ====== ====== ======
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SELECTED QUARTERLY FINANCIAL DATA AND INFORMATION ON AMS STOCK (UNAUDITED)
The following summary represents the results of operations for the two
years in the period ended December 31, 1997.
(In millions except per share data)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
- --------------------------------------------------------------------------------------------------------------------
1997:
- --------------------------------------------------------------------------------------------------------------------
Revenues $196.3 $220.9 $225.5 $229.6 $872.3
Income Before Income Taxes 9.7 13.3 8.5 19.9 51.4
Net Income 5.7 7.9 4.5 13.1 31.2
Basic Earnings per Share 0.14 0.19 0.11 0.31 0.75
Diluted Earnings per Share 0.14 0.18 0.11 0.31 0.74
1996:
- --------------------------------------------------------------------------------------------------------------------
Revenues $181.4 $188.8 $217.5 $224.5 $812.2
Income Before Income Taxes 11.3 14.3 18.5 (17.9) 26.2
Net Income (Loss) 6.6 8.3 10.7 (10.1) 15.5
Basic Net Income per Share 0.16 0.21 0.26 (0.25) 0.38
Diluted Net Income per Share 0.16 0.20 0.25 (0.24) 0.37
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 of Directors 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, Inc., is traded in
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.
1997 1996
----------------------------- -------------------------------
High Low High Low
- ---------------------------------------------------------------------------------------------------------------------------
1st Quarter $25.750 $15.750 $26.625 $18.250
2nd Quarter 26.750 19.000 33.375 24.375
3rd Quarter 27.750 17.625 31.125 21.625
4th Quarter 24.375 18.250 37.125 20.375
The approximate number of shareholders of record of the Company's
common stock as of March 20, 1998 was 524.
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OTHER INFORMATION
TRANSFER AGENT AND REGISTRAR
Chemical Mellon Shareholder Services, L.L.C.
Ridgefield Park, N.J.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
Washington, D.C.
COUNSEL
Shaw, Pittman, Potts & Trowbridge
Washington, D.C.
STOCKHOLDER AND 10-K INFORMATION
Financial inquiries should be directed to Frank A. Nicolai, Secretary of the
Company, 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 8, 1998 in Fairfax,
Virginia, for stockholders of record on March 20, 1998.
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