ITEM 1. BUSINESS
OVERVIEW
With 1996 revenues of $812 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 expensed $26.0 million in 1996, $19.4 million in 1995 and $20.4 million in 1994 for research and development associated with proprietary software. As a percentage of services and products (S&P) revenues, license and maintenance fee revenues were less than 15% during each of the last three years.
In order to serve clients outside of the United States, AMS has expanded internationally by establishing thirteen subsidiaries or branches. Exhibit 21 of this Form 10-K provides a complete listing of all AMS subsidiaries (and branches), showing name, year organized or acquired, and place of incorporation. Services and products revenues attributable to non-US operations of AMS were approximately $267.8 million in 1996, $170.0 million in 1995, and $92.1 million in 1994. Additional information on revenues, operating profits, and assets attributable to AMS's geographic areas of operation is provided in Note 10 of the consolidated financial statements appearing in Exhibit 13 of this Form 10-K.
Founded in 1970, AMS services clients worldwide. AMS's approximately 6,800 full-time employees serve clients from corporate headquarters in Fairfax, Virginia and from 53 offices worldwide.
TELECOMMUNICATIONS FIRMS
AMS markets systems consulting and integration services for order processing, customer care, billing, accounts receivable, and collections, both for local exchange and interexchange carriers and for cellular 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, global custody and securities control systems, and bank management information 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, revenue management, human resources, social services, and public safety functions. 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 knowledge 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 contracts 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 2,250 new staff members in 1996, including 525 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.
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 do 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 done 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. 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 per deliverable progress payments.
In 1996, the Company worked on projects directly for 90 U.S. Government clients, representing a total of $93.9 million, or 12.8%, of services and products revenues. No other customer accounted for 10% or more of services and products revenues in 1996.
ITEM 2.
ITEM 2. PROPERTIES
Headquartered in Fairfax, Virginia, the Company's principal operations occupy approximately 893,000 square feet of office space under leases expiring through 2011. The Company also has other long-term lease commitments totaling approximately 541,000 square feet with varying expirations through 2011 at other locations throughout the United States.
Additionally, the Company's international staff occupies approximately 212,000 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.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
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 1996.
PART II
ITEM 5.
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 1996 Financial Report is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data contained in the Company's 1996 Financial Report is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K.
ITEM 7.
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 1996 Financial Report is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K.
ITEM 8.
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 1996 Financial Report, are incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K.
ITEM 9.
ITEM 9. CHANGES IN ACCOUNTANTS AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
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 9, 1997, 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.
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 9, 1997, 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.
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 9, 1997, 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.
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 9, 1997, 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.
PART IV
ITEM 14.
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 1996-94
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Cash Flows for 1996-94
Consolidated Statements of Changes in Stockholders' Equity for 1996-94
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. FINANCIAL STATEMENT SCHEDULES
The financial statement schedules of American Management Systems, Incorporated and subsidiaries filed are as follows:
Report of independent accountants on financial statement schedules
Schedule II - Valuation and Qualifying Accounts for 1996-1994
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 twenty-five percent of the total assets as shown by the most recent year-end consolidated balance sheet.
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, (incorporated herein by reference to Exhibit 3 of the Company's 1992 Annual Report on Form 10-K).
10. Material Contracts
10.1 Stock Option Plan F, as amended (incorporated herein by reference to Exhibit A to the Company's definitive Proxy Statement filed on April 10, 1996).
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).
11. Computation of Net Income per Common Share
13. 1996 Financial Report
21. Subsidiaries of the Company
23. Consent of Independent Accountants
(b) REPORTS ON FORM 8-K
None.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of American Management Systems, Incorporated
Our audits of the consolidated financial statements referred to in our report dated March 5, 1997 appearing on page 19 of the 1996 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 Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules present 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. March 5, 1997
Schedule II
VALUATION AND QUALIFYING ACCOUNTS (In millions)
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 28th of March, 1997.
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.
EXHIBIT INDEX
- -------------------
* Previously filed.