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Proc-Type: 2001,MIC-CLEAR
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ACCESSION NUMBER: 0000950133-01-001211
CONFORMED SUBMISSION TYPE: DEF 14A
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20010511
FILED AS OF DATE: 20010410
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AMERICAN MANAGEMENT SYSTEMS INC
CENTRAL INDEX KEY: 0000310624
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370]
IRS NUMBER: 540856778
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: DEF 14A
SEC ACT:
SEC FILE NUMBER: 000-09233
FILM NUMBER: 1598903
BUSINESS ADDRESS:
STREET 1: 4050 LEGATO RD
CITY: FAIRFAX
STATE: VA
ZIP: 22033
BUSINESS PHONE: 7032678000
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
– ——————————————————————————–
(Name of Registrant as Specified in Its Charter)
N/A
– ——————————————————————————–
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was
determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid: (3) Filing Party:
(2) Form, Schedule or Registration Statement No.: (4) Date Filed:
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
4050 LEGATO ROAD
FAIRFAX, VIRGINIA 22033
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED will be held at 4050 Legato Road,
Fairfax, Virginia 22033 on Friday, May 11, 2001, at 10:00 a.m. local time, for
the following purposes:
To elect eight (8) directors to hold office until the next Annual
Meeting of Shareholders of American Management Systems, Incorporated and until
their successors are elected and qualified;
To approve an executive incentive compensation plan; and
To transact such other business as may properly come before the meeting
or any adjournment(s) or postponement(s) thereof.
Only shareholders of record at the close of business on March 22, 2001,
will be entitled to notice of, and to vote at, the meeting or any adjournment(s)
or postponement(s) thereof.
Shareholders are cordially invited to attend the meeting in person. IF
YOU WILL NOT BE ABLE TO ATTEND THE MEETING IN PERSON, PLEASE INDICATE YOUR
CHOICE ON THE MATTERS TO BE VOTED UPON, DATE AND SIGN THE ENCLOSED PROXY, AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. ALTERNATIVELY, YOU MAY VOTE BY
TELEPHONE AT 1-800-840-1208 OR VIA THE INTERNET AT
HTTP://WWW.PROXYVOTING.COM/AMSY. Instructions regarding telephone and Internet
voting are included on the Proxy.
BY ORDER OF THE BOARD OF DIRECTORS,
Frank A. Nicolai
Secretary
April 10, 2001
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
4050 LEGATO ROAD
FAIRFAX, VIRGINIA 22033
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 11, 2001
TABLE OF CONTENTS
GENERAL
The enclosed Proxy is being solicited by the Board of Directors (the
“Board of Directors” or the “Board”) of AMERICAN MANAGEMENT SYSTEMS,
INCORPORATED (the “Company” or “AMS”) in connection with the annual meeting of
shareholders of the Company to be held May 11, 2001 (the “Annual Meeting”), or
any adjournment(s) or postponement(s) thereof. The entire expense of
solicitation of proxies will be borne by the Company, except that certain
expenses for Internet access will be incurred by shareholders who choose to vote
over the Internet. Solicitation will be primarily by mail. However, directors,
executive officers, and employees of the Company may also solicit by telephone,
personal contact or electronic communication. The Company will reimburse brokers
and other persons holding shares in their names, or in the names of nominees,
for their expenses of sending proxy materials to beneficial owners and obtaining
their proxies. It is anticipated that the Proxy Statement and Proxy first will
be mailed to shareholders on or about April 10, 2001.
Any shareholder giving a Proxy by mail, via telephone or via the
Internet has the power to revoke it at any time before it is voted by giving
written notice of revocation to the Secretary of the Company or by delivering a
proxy in accordance with applicable law bearing a later date to the Secretary of
the Company. If you attend the Annual Meeting, you may, if you wish, revoke your
Proxy by voting in person. Proxies solicited herein will be voted, and if the
person solicited specifies in the Proxy a choice with respect to matters to be
acted upon, the shares will be voted in accordance with such specification. If
no choice is indicated, the Proxy will be voted “FOR” the election of the
nominees listed on pages 2 to 5 under the caption “Information Concerning
Nominees for Director”; and “FOR” the approval of the AMS 2001 Executive
Incentive Compensation Plan (the “2001 IC Plan”).
VOTING PROCEDURE
As of March 22, 2001, there were outstanding 41,590,108 shares of the
Company’s Common Stock, $0.01 par value per share (the “Common Stock”). Each
share of Common Stock is entitled to one vote at the Annual Meeting. Only
shareholders of record at the close of business on March 22, 2001 will be
entitled to vote at the Annual Meeting.
Votes cast in person or by Proxy at the Annual Meeting, abstentions and
Broker Non-votes (as defined below) will be tabulated by the election inspectors
appointed for such Meeting and will be counted for purposes of determining
whether a quorum is present. Directors will be elected by the affirmative vote
of the holders of a plurality of the shares present (in person or represented by
Proxy) and voted on the election of directors at the Annual Meeting. The
proposal to approve the 2001 IC Plan will be approved by the affirmative vote of
the holders of a majority of the votes cast with respect to such Plan (as
required by Internal Revenue Service (“IRS”) regulations). Any other matter
submitted to a vote at the Annual Meeting will be approved by the affirmative
vote of the holders of a majority of the shares present (in person or
represented by Proxy) and entitled to vote on each such matter. The election
inspectors will treat abstentions on a particular matter as shares that are
present and entitled to vote for purposes of determining the approval of such
matter. Abstentions, therefore, will have the same effect as a vote against a
particular matter. Notwithstanding the foregoing, with respect to the proposal
to approve the 2001 IC Plan, the election inspectors will not treat abstentions
as votes cast for purposes of determining the approval of such Plan (as required
by IRS regulations). If a broker submits a Proxy indicating that it does not
have discretionary authority as to certain shares to vote on a particular matter
(a “Broker Non-vote”), those shares will not be treated as present and entitled
to vote for purposes of determining the approval of such matter and will not be
treated as votes cast for purposes of determining the approval of the 2001 IC
Plan.
ELECTION OF DIRECTORS
Eight directors are to be elected at the Annual Meeting, each to hold
office until the next annual meeting of shareholders of the Company and until
his or her successor is elected and qualified. The directors will be elected by
the affirmative vote of the holders of a plurality of the shares present (in
person or represented by Proxy) and voted on the election of directors. Unless
otherwise directed, it is the intention of the persons named in the Proxy to
vote such Proxy for the election of the nominees listed under the caption
“Information Concerning Nominees for Director” on pages 2 to 5. All of the
nominees are now directors of the Company. In the event that any nominee should
be unable to accept the office of director, which is not anticipated, it is
intended that the persons named in the Proxy will vote for the election of such
other person in the place of such nominee for the office of director as the
Board of Directors may recommend. Descriptive information as to each nominee is
set forth below under the caption “Information Concerning Nominees for
Director.”
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL OF THE NOMINEES
DESCRIBED BELOW FOR ELECTION AS DIRECTORS.
INFORMATION CONCERNING NOMINEES FOR DIRECTOR
-2-
-3-
-4- Frederic V. Malek. . . . . . . . 64 Director 1985 Mr. Malek has been Chairman of Thayer Alan G. Spoon. . . . . . . . . . 49 Director 1996 Mr. Spoon has been Managing General
YEAR
FIRST
ELECTED
NAME AGE POSITION DIRECTOR BACKGROUND
—- — ——– ——– ———-
Capital Partners, a merchant bank, since
March 1993. He was Co-Chairman, CB
Commercial Real Estate Group (a real
estate brokerage and management firm)
from April 1989 to October 1996. He was
Campaign Manager for the re-election
campaign of President Bush and Vice
President Quayle from December 1991 to
November 1992. He was Vice Chairman of
Northwest Airlines from 1990 to December
1991, and was President of Northwest
Airlines from 1989 to 1990. From 1988 to
1989 he was Senior Advisor to The Carlyle
Group (investment bank), and from 1981 to
1988 he was President of Marriott Hotels
and Resorts. Mr. Malek also serves as a
director of Automatic Data Processing,
Inc.; various Paine-Webber mutual funds;
FPL Group; Northwest Airlines; CB
Richard Ellis Services, Inc.; Global
Vacation Group, Inc.; Aegis
Communications Group, Inc.; and Manor
Care, Inc., all of which are
publicly-held entities.
Partner of Polaris Venture Partners, a
venture capital firm, since May 2000.
From 1991 until he joined Polaris, Mr.
Spoon was Chief Operating Officer and
Director of The Washington Post Company,
a public company, and from 1993 until
joining the venture capital firm, he also
served as President of The Washington
Post Company. Mr. Spoon joined The
Washington Post Company in 1982. From
1989 to 1991, he was President of
Newsweek, Inc. During that time he also
was responsible for Post-Newsweek
television stations. From 1987 to 1989,
he was The Washington Post Company’s
Chief Financial Officer. He presently
serves as a director of Human Genome
Sciences, Inc., Ticketmaster, Inc., and
Danaher Inc., each of which are public
companies. Mr. Spoon also is a director
of International Data Group, a private
entity.
-5-
INFORMATION CONCERNING EXECUTIVE OFFICERS
Information concerning Patrick W. Gross, Chairman of the Executive
Committee of the Board of Directors; and Frank A. Nicolai, Executive Vice
President and Secretary, is set forth above under the caption “Information
Concerning Nominees for Director.”
-6- Donna S. Morea. . . . . . . . . . 46 Executive Ms. Morea has been an Executive Vice Ronald L. Schillereff. . . . . . 56 Executive Dr. Schillereff joined the Company in Larry R. Seidel. . . . . . . . . 51 Executive Mr. Seidel, who became an Executive Vice Paul A. Turner. . . . . . . . . . 61 Executive Mr. Turner became an Executive Vice
NAME AGE POSITION BACKGROUND
—- —- ——– ———-
Vice President President of AMS since May 2000. She is
currently the General Manager of the Company’s
State and Local Solutions Group. In this
capacity, she oversees the Company’s business
with state, local and provincial governments
and educational entities. Prior to taking on
this role, Ms. Morea established the Human
Services Group and led the Human Services
Group for six years. She joined AMS in 1980.
Ms. Morea serves on the Board of Directors of
the Crossway Community, a nationally
recognized social services innovator.
Vice President, February 1999. From 1993 to 1998, he was
Chief Financial with Electronic Data Systems Corporation
Officer, (“EDS”) serving as Managing Director of EDS
and Treasurer Australia (1997 to 1998); Managing Director
of A.T. Kearney for Southeast Asia, which is a
wholly-owned management consulting subsidiary
of EDS (1995 to 1997); and Principal and
Practice Leader in Management Consulting
Services, the consulting division of EDS (1993
to 1995).
Vice President President of the Company in May 2000, is
currently responsible for AMS’s Financial
Services Industry Group and the Management
Systems and Technology Group. In this
capacity, he oversees AMS’s business with
financial services companies, including
insurance, federal civilian agencies, and
environmental and health care organizations.
He joined the Company in 1973.
Vice President President of AMS in May 2000 and the Chief
and Chief Technology Officer of the Company in
Technology January 2000. He has the overall
Officer responsibility for identifying and
introducing new technology into AMS’s
system design and development activities.
Before joining AMS, Mr. Turner was the
founder and managing partner of the
PricewaterhouseCoopers (“PwC”) Global
Technology Center. Mr. Turner worked at
PwC for 13 years.
-7-
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 22, 2001, the number and
percentage of outstanding shares of Common Stock beneficially owned by (i) each
director of the Company, (ii) each executive officer of the Company, (iii) all
such executive officers and directors as a group, and (iv) all persons or
entities known by the Company to own more than 5% of the Common Stock. Unless
otherwise noted below, each person and entity named in the table has sole voting
and sole investment power with respect to each of the shares beneficially owned
by such person or entity.
-8-
(1) The amount of beneficial ownership includes stock options granted to
directors and executive officers which have vested and are or will
become exercisable within 60 days of March 22, 2001. Accordingly, Mr.
Altobello and Dr. Leonard each have 7,833 options vested and
exercisable; Mr. Forese has 6,583 options vested and exercisable;
Messrs. Gross and Nicolai each have 7,500 options vested and
exercisable; Mr. Hero has 29,881 options vested and exercisable; Mr.
Lewis has 5,416 options vested and exercisable; Mr. Malek has 8,166
options vested and exercisable; Ms. Morea has 6,755 options vested and
exercisable; Mr. Purdy has 24,444 options vested and exercisable; Dr.
Schillereff has 16,333 options vested and exercisable; Mr. Seidel has
40,750 options vested and exercisable; Mr. Spoon has 9,749 options
vested and exercisable; and Mr. Turner has 6,000 options vested and
exercisable. All executive officers and directors as a group (fourteen
persons) have beneficial ownership of 184,743 options vested and
exercisable within 60 days of March 22, 2001.
(2) The percentages of Common Stock were calculated to include stock
options vested and exercisable. The number of shares of Common Stock
was calculated as of March 22, 2001.
(3) Indicates a director of the Company.
(4) Indicates an executive officer of the Company.
(5) The amount includes 64,875 shares beneficially owned by Mr. Gross’
wife. Mr. Gross disclaims beneficial ownership with respect to the
shares owned by his wife, who has the sole power to vote and dispose of
such shares. The amount also includes 362,310 shares jointly owned by
Mr. and Mrs. Gross, who share joint power to vote and dispose of such
shares. Lastly, the amount includes 55,350 shares each owned by two
trusts, totaling 110,700 shares, for the benefit of Mr. Gross’ son and
daughter, respectively, of which Mr. and Mrs. Gross are co-trustees.
Mr. and Mrs. Gross share joint power to vote and dispose of such
shares.
(6) The amount includes 64,124 shares beneficially owned by Ms. Nicolai
with respect to which she has sole voting and dispositive power. Mr.
Nicolai disclaims beneficial ownership with respect to the shares owned
by Ms. Nicolai.
(7) The amount includes 3,410 shares each owned by two trusts, totaling
6,820 shares, for the benefit of Mr. Seidel’s two daughters. Mr. Seidel
does not have the power to vote or dispose of any such shares, and,
accordingly, disclaims beneficial ownership with respect to them.
(8) The amount includes 3,000 shares jointly owned by Mr. Spoon and his
spouse, who share joint power to vote and dispose of such shares.
(9) Based solely on the February 14, 2001 filing on Schedule 13G of
Westport Asset Management, Inc. (“Westport”), it is the Company’s
understanding that (i) Westport is a registered investment adviser and
a parent holding company, (ii) Westport owns 50% of Westport Advisors
LLC, which is also a registered investment advisor (“Westport LLC”),
(iii) Westport has sole voting and sole dispositive power with respect
to 896,400 of the reported shares, Westport and Westport LLC share
voting power with respect to 1,618,600 of the reported shares, and
Westport and Westport LLC share dispositive power with respect to
2,137,800 of the reported shares, and (iv) the reported shares do not
include 4,700 shares owned in the personal securities accounts of
employees of Westport and Westport LLC.
-9-
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), requires that the Company’s directors, executive officers, and
persons who own more than 10% of a registered class of the equity securities of
the Company (“reporting persons”) file with the Securities and Exchange
Commission (the “Commission”) initial reports of ownership, and reports of
changes in ownership, of shares of stock, and options to purchase such shares,
of the Company. Reporting persons are required by Commission rules to furnish
the Company with copies of all Section 16(a) reports they file.
Based solely upon a review of Section 16(a) reports furnished to the
Company for the fiscal year ended December 31, 2000 (the “2000 fiscal year”),
and representations by reporting persons that no other reports were required for
the 2000 fiscal year, all Section 16(a) reporting requirements were met, except
as follows. During 2000, W. Walker Lewis reported the acquisition of shares of
Common Stock for his service on the Board of Directors on two Forms 4 that were
filed late.
-10-
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid or accrued by the
Company during the three fiscal years ended December 31, 2000, to the following
executive officers of the Company (“named executive officers”).
(1) All amounts were awarded based on the achievement of annual performance
goals under multi-year incentive compensation plans.
(2) Each of these awards of shares of Common Stock is associated with
performance under individual or group incentive compensation plans and
was made by the appropriate Board committee pursuant to a
shareholder-approved stock option plan.
(3) All amounts represent the final cash payment for successful completion
of multi-year performance indicators of individual incentive
compensation plans.
(4) Except as otherwise indicated, these amounts represent the Company’s
contribution to special individual retirement accounts pursuant to the
AMS Simplified Employee Pension/IRA Plan (the “IRA Plan”).
(5) This amount consists of $550,000, which was paid by the Company in 2000
to Mr. Brands in connection with his departure from the Company, and
$8,731, which represents the Company’s contribution under the IRA Plan.
(6) This amount consists of $83,111 in foreign assignment related income
and $219,025 in foreign taxes paid by the Company in connection with
compensation paid to Dr. Forman for services performed for the Company
abroad.
(7) This amount consists of $142,315 in foreign assignment related income
and $124,061 in foreign taxes paid by the Company in connection with
compensation paid to Dr. Forman for services performed for the Company
abroad.
(8) This amount consists of $104,186 in foreign assignment related income
and $69,972 in foreign taxes paid by the Company in connection with
compensation paid to Dr. Forman for services performed for the Company
abroad.
(9) This amount represents a one-time hiring bonus.
-11-
OPTION GRANTS IN FISCAL 2000
Shown below is information concerning stock option grants to the
Company’s named executive officers who were granted options on Common Stock
during the Company’s 2000 fiscal year.
(1) Each option grant was awarded with an exercise price equal to the
market value of the Common Stock on the date of the grant.
(2) Such option grant is associated with a performance-based individual
incentive compensation plan and was made by the appropriate Board
committee pursuant to 1996 Amended Stock Option Plan F, as amended
(“Plan F”), a shareholder-approved stock option plan. On June 30, 2000,
3,600 of such options became exercisable. The remaining 5,000 options
vest in equal amounts from February 29, 2000 to February 28, 2003.
(3) Such option grant was made in connection with a performance-based group
incentive compensation plan and was made by the appropriate Board
committee pursuant to Plan F. The options vested on June 30, 2000.
(4) Such option grant is associated with a performance-based individual
incentive compensation plan and was made by the appropriate Board
committee pursuant to Plan F. Such options vested on June 30, 2000.
(5) Such option grant was made outside of an incentive compensation plan
and was made by the appropriate Board committee pursuant to Plan F. The
options vest in their entirety on May 12, 2005.
(6) Such option grant is associated with a performance-based individual
incentive compensation plan and was made by the appropriate Board
committee pursuant to Plan F. The options will vest in their entirety
on June 30, 2001.
-12-
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
Shown below is information with respect to exercises by the Company’s
named executive officers during the Company’s 2000 fiscal year of options to
purchase shares of Common Stock pursuant to Plan F, and earlier stock option
plans. Also shown is information with respect to certain unexercised options to
purchase shares of Common Stock held by the Company’s named executive officers
as of the end of the Company’s 2000 fiscal year.
(1) Based on the market value of the Common Stock on the date of exercise
(as measured by the closing bid price of the National Market of The
Nasdaq Stock Market), minus the option’s exercise price.
(2) Based on the market value of the Common Stock on the last trading day
of 2000 (as measured by the closing bid price of $19.81 of the National
Market of The Nasdaq Stock Market), minus the option’s exercise price.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
Shown below is information on the long-term incentive plans for the
Company’s named executive officers, which were approved by the Compensation
Committee in 2000 for the 2000-2001 performance period. If the performance goals
set forth in the plans had been met, the named executive officers would have
been entitled to receive the incentive compensation indicated in such table.
However, in view of the Company’s poor performance in 2000 and the unlikelihood
that any incentive compensation payments would be made pursuant to these
long-term incentive plans, the Compensation Committee terminated such plans at
its February 2001 meeting.
(1) If the Compensation Committee determines that the executive has
exceeded the performance goals set forth in his or her incentive
compensation plan, the Committee may increase his or her long-term
incentive compensation award above the target level indicated in the
preceding column. The increase would be based on a formula related to
pre-tax income.
EMPLOYMENT, CHANGE IN CONTROL AND SEPARATION AGREEMENTS WITH NAMED EXECUTIVE
OFFICERS
EMPLOYMENT AGREEMENTS. AMS entered into employment agreements
commencing on January 1, 2001 with each of William M. Purdy, Donna S. Morea and
Paul A. Turner. The employment agreements contain the same terms and conditions.
The term of each agreement is eighteen months, and each agreement renews
automatically for successive one-year terms, unless either party thereto
terminates the agreement within ninety days of the end of a term.
-13-
Under the employment agreements, each of Messrs. Purdy and Turner and
Ms. Morea was entitled to a base salary of $375,000 for 2001, which was
subsequently increased to $400,000 for 2001 by the Compensation Committee. The
base salary is reviewed annually by the Compensation Committee; provided,
however, that the Compensation Committee may not reduce the base salary of any
such named executive officer unless the reduction is part of a general program
of salary adjustment applicable to all AMS executives with equal or senior title
and responsibility. In addition to the base salary, each such named executive
officer is entitled to receive an additional $150,000 if he or she is in good
standing with AMS on June 30, 2001, and an additional $250,000 if he or she is
in good standing with the Company on June 30, 2002. If there is a change in
control of the Company (which is defined as a merger or acquisition, a change in
more than 50% of the voting power of the Company or a change in a majority of
the Board composition for a period of more than two years) prior to June 30,
2001, then each such named executive officer is entitled to receive the greater
of $450,000 or the amounts available under the change in control retention
agreement between the Company and such executive, which change in control
retention agreement is discussed below. Such named executive officers may not
receive payments under both agreements.
The employment agreements provide that incentive compensation plans for
each of Messrs. Purdy and Turner and Ms. Morea will be established for a one- or
two-year period. Incentive compensation payments will be made under such plans
upon the achievement of certain targets set forth in the plans. Each such named
executive officer also is entitled to AMS’s standard health and medical
benefits. The employment agreements contain certain confidentiality and
non-solicitation provisions.
AMS may terminate any of Messrs. Purdy or Turner or Ms. Morea for cause
if, after notice and a hearing by the Board of Directors, the Board determines
that such named executive officer has engaged in conduct justifying termination
for cause. If AMS terminates any such named executive officer without cause, the
Company must pay health care coverage premiums for such executive, severance
benefits that equal 250% of the base salary of the executive if the termination
occurs on or before June 30, 2002 and 100% of the base salary of the executive
if the termination occurs after June 30, 2002. Upon such termination without
cause, the Company will retain approximately 25% of any severance benefit each
year to help enforce compliance with the confidentiality and non-solicitation
provisions in the employment agreements. Any constructive termination of
employment by the Company, which includes a significant reduction in the
executive’s authority, duties, base salary or benefits (other than general
benefits plan reductions applicable to substantially all of the participants in
such plans), will be treated as an involuntary termination without cause.
CHANGE IN CONTROL RETENTION AGREEMENTS. AMS also has change in control
retention agreements with Messrs. Purdy and Turner and Ms. Morea. Under these
agreements, if AMS terminates any of such named executive officers for any
reason, other than gross misconduct, any such executive terminates employment
with the Company for good reason not involving gross misconduct and the
termination is within one year of a change in control, the Company will be
obligated to make a payment to such executive. A change in control is defined as
a merger or acquisition, a change in more than 50% of the voting power of the
Company or a change in a majority of the Board composition for a period of more
than two years. The payment to each such named executive officer will be equal
to two times the sum of the executive’s base salary immediately prior to the
change in control, plus two shares of incentive compensation, which are
calculated based on the target percentage set forth in such executive’s
incentive compensation plan. In order to receive the payment, the executive must
execute a waiver of substantially all employment-related claims against the
Company.
SEPARATION AGREEMENT. In November 2000, AMS entered into a letter
agreement with Paul A. Brands, former Chairman of the Board, Chief Executive
Officer and Director of the Company, in connection with his departure. Under the
terms of the agreement, AMS is obligated to pay Mr. Brands $3,000,000 (less
amounts for applicable federal, state and local employment and income taxes and
the costs of certain health benefits). AMS paid $550,000 of such amount in
fiscal 2000. It will pay all remaining amounts in the second quarter of 2001.
Notwithstanding anything to the contrary set forth in any of the
Company’s previous filings under the Securities Act of 1933, as amended, or the
Exchange Act that might incorporate future filings, including this Proxy
Statement, in whole or in part, the following Compensation Committee report,
Audit Committee report and Performance Graph shall not be incorporated by
reference into any such filings.
-14-
COMPENSATION COMMITTEE REPORT OF EXECUTIVE COMPENSATION
COMPOSITION AND RESPONSIBILITIES OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is responsible for
developing and making recommendations to the Board of Directors with respect to
the Company’s compensation policies generally. It is composed entirely of
outside directors who have never served as officers of the Company or its
affiliates (the “Outside Directors”). The Compensation Committee approves the
compensation plans for the Company’s executive officers, including the Chief
Executive Officer (the “CEO”), and on an annual basis determines the
compensation to be paid to the executive officers. The Compensation Committee is
responsible for the granting and administration of stock options and incentive
compensation granted to the executive officers.
The Compensation Committee has furnished the following report for
fiscal 2000:
COMPENSATION OBJECTIVES AND PHILOSOPHY
The objectives of the Company’s executive compensation program are to
provide a level of compensation that will attract and retain executives capable
of achieving long-term success for the Company’s shareholders and to structure
their compensation packages such that a significant portion generally is tied to
the achievement of multi-year targets for pre-tax income.
EXECUTIVE OFFICER COMPENSATION
GENERAL. The Company’s executive compensation program consists of three
main components: (i) annual base salary, (ii) potential for an annual cash bonus
and awards of stock options based on Company pre-tax income, the profit
contribution of a particular business unit, individual performance, or some
combination of these factors, and (iii) the opportunity to earn long-term cash
and stock-based incentives which are intended to encourage the achievement of
superior results over time and to align executive officer and shareholder
interests. In addition to research and recommendations furnished by the
Company’s senior management, the Compensation Committee has relied, inter alia,
on information furnished through executive compensation surveys by a recognized
compensation consulting firm, and information known to various members of the
Board of Directors. The Compensation Committee compares salaries and other
elements of executive compensation with the compensation paid to executives in
technology and consulting firms which are actual competitors of the Company. Few
of these companies are in the Hambrecht & Quist Technology Stock Index, the peer
index chosen by the Company for comparison in the “Shareholder Return
Performance Graph” below, because their shares are not publicly traded. They
include, for example, the consulting divisions of certain well recognized
accounting firms, other prominent consulting firms which are wholly-owned
subsidiaries of publicly-traded companies, and other software firms that are
privately held.
The executive officers, including the CEO, are eligible for the same
benefits, including group health and life insurance and participation in the IRA
Plan, as are available generally to the Company’s professional staff, except
that the executive officers do not participate in the Company’s Employee Stock
Purchase Plan and the executive officers whose compensation is subject to
Section 162(m) (“Section 162(m)”) of the Internal Revenue Code of 1986, as
amended (the “Internal Revenue Code”) do not participate in the Company’s
Restricted Stock and Stock Bonus Plan (the “Restricted Stock Plan”), a stock
award plan. The Company does not provide material perquisites to any of its
executive officers.
ANNUAL BASE SALARY. The Compensation Committee determines the annual
base salary of each of the Company’s executive officers, including the CEO.
Changes in base salary are generally made effective on January 1. The same
principles are applied in setting the salaries of all executive officers to
ensure that salaries are competitively established. Salaries are determined by
considering the executive officer’s potential duties and responsibilities within
the Company and his or her business unit, and the executive officer’s potential
impact on the operations and profitability of the Company. Unlike with respect
to the Company’s incentive compensation arrangements, the Compensation Committee
does not consider achievement of specific corporate performance factors in
establishing base salaries for its executive officers. In general, it is the
policy of the Company to set base salaries lower than would be typical for
comparable positions in similar firms, and to include more compensation in
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incentive plans, particularly incentive compensation plans tied to multi-year
performance periods. Employment contracts entered into in early 2001 by the
Company with each of William M. Purdy, Gregory S. Hero, Donna S. Morea, Ronald
L. Schillereff, Larry L. Seidel, and Paul A. Turner specify that their base
salaries for calendar year 2001 shall be $375,000 and may not be reduced during
the terms of the contracts except as part of an general program of salary
adjustment by the Company applicable to all vice presidents and above. The
Company subsequently increased the base salary for each of the foregoing
executive officers to $400,000 for 2001.
INCENTIVE COMPENSATION PLANS. Each executive officer of the Company
generally participates in incentive compensation plans of one to three years in
duration. These plans are similar to multi-year incentive plans in which other
members of the Company’s professional staff participate. Under such plans, the
executive officer is eligible for annual cash incentive awards, and cash awards
which may be made at the end of each plan if the Compensation Committee
determines that the executive officer has met the specified goals of the
executive’s programs. Some plans also contemplate awards of stock options under
the Company’s shareholder-approved stock option plans. Generally, each executive
officer has a plan which details the executive officer’s goals, which are
comprised of financial performance, including targets for the Company’s pre-tax
income. Each executive officer also generally has an incentive compensation plan
with targets based on the achievement of various individual goals.
The annual cash awards under the incentive compensation plans and the
cash portion of the award for completion of an incentive compensation plan
generally are based on multiples of a percentage of the executive officer’s
salary for the relevant fiscal period. The number of stock options which may be
awarded is determined at the time the performance goals are established. Such
number of stock options is not determined by reference to any specific criteria
other than the Company’s historical practice of awarding stock options in
connection with incentive compensation plans for certain executive officers. The
exercise price of all options granted in connection with the incentive
compensation plans for the executive officers is the fair market value of the
shares on the date of grant of the option. Achievement of the specified
financial or individual goals for plan years earlier than the final plan year in
a multi-year plan entitles the executive to specified interim cash payments and
stock option grants, all of which are considered advances against the multi-year
incentive compensation amounts. Such interim cash payments are significantly
less than a ratable percentage of the projected incentive compensation payable
on successful completion of a multi-year plan. For example, successful
completion of the first year of a two-year plan typically would entitle the
executive to payment of 25% of target cash incentive compensation. Stock options
in connection with multi-year plans also are granted according to a schedule
specified in the plan, typically including a small percentage of options granted
at the time the plans are approved by the Compensation Committee.
The foregoing description of the Company’s incentive compensation plans
for executive officers would be modified, as discussed in more detail below, if
the shareholders approved the Company’s adoption of the 2001 IC Plan.
Fiscal 2000 was the first year of two-year compensation plans for all
executive officers. All of these plans included the same pre-tax income target
as a financial goal and included individual goals based on the areas of
responsibility of each such executive officer. All plans required that a minimum
percentage of the stated goal must be achieved before any portion of the related
incentive compensation share was payable. The plans also took into account
projected pre-tax income for the year following the performance year just ended
in determining whether awards are payable and the amounts of such awards. Each
plan also included higher award multiples for performance which exceeded the
targets by a stated percentage.
In February 2001, the Compensation Committee determined that since the
Company did not meet its financial goals for 2000, no incentive compensation
based on financial or non-financial goals would be awarded to any executive
officer of the Company relative to the 2000-2001 incentive compensation plans.
However, the Compensation Committee determined that Ms. Morea exceeded her
financial and non-financial goals relative to her 1998-2000 incentive
compensation plan and determined that she earned an amount above her target
payment. Such amount is shown above in the Summary Compensation Table under
“Annual Compensation — Bonus” and “Long-Term Compensation — Payouts — LTIP
Payout.” The Compensation Committee in February 2001 also decided not to grant
stock options to the executive officers because the Company did not achieve the
financial performance specified in their incentive compensation plans. At its
February 2001 meeting, the Compensation Committee terminated the plans for the
2000-2001 period.
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POLICY ON DEDUCTIBILITY OF COMPENSATION
Under Section 162(m), the allowable deduction for compensation paid or
accrued with respect to persons who as of the end of the year are employed as
the chief executive officer and each of the four most highly compensated
executive officers of a publicly-held corporation is limited to no more than $1
million per year for fiscal years beginning on or after January 1, 1994. This
limitation does not apply to compensation payable under certain
performance-based compensation plans approved by shareholders, including stock
options issuable under Plan F or earlier stock option plans. The Compensation
Committee has taken certain actions to minimize the adverse effects of Section
162(m) on the after-tax income of the Company. In particular, as recommended by
the Compensation Committee, the 1996 Incentive Compensation Plan for Executive
Officers was presented to and approved by the shareholders at the 1996 annual
meeting of shareholders of the Company and the 2001 IC Plan is being presented
to the shareholders in this Proxy Statement. Grants to executive officers of
incentive compensation based on pre-tax income are generally expected to be
covered by the 2001 IC Plan when such coverage is consistent with the
Compensation Committee’s goals. The 2001 IC Plan significantly limits the
Compensation Committee’s discretion regarding the structure and amount of
incentive compensation paid to an employee covered by such Plan. Accordingly,
not all incentive compensation payable to executive officers will be paid
pursuant to the 2001 IC Plan. The Compensation Committee projects that it is
unlikely that deductions will be lost as a result of this practice. The
Compensation Committee will continue to monitor whether compensation that is
limited by Section 162(m) is likely to exceed the deduction limitations under
Section 162(m), and the Compensation Committee is expected to take appropriate
actions to reduce the likelihood of a loss of deductions.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Chief Executive Officer’s annual base salary is established by the
Compensation Committee using the same criteria as discussed above for the
executive officers. Paul A. Brands, who served as Chief Executive Officer of the
Company from September 1993 until October 2000, received an annual base salary
of $425,000 for 2000, which represented an increase of approximately 6.25% over
his base salary for 1999. The increase was not based on any specific corporate
performance factors. Mr. Brands did not receive any incentive compensation
payments for 2000. As disclosed above, Mr. Brands received $550,000 in 2000
pursuant to a separation agreement with the Company. William M. Purdy became
Interim Chief Executive Officer of the Company in October 2000. He received an
annual base salary of $375,000 for 2000.
At its February 2001 meeting, the Compensation Committee also decided
to increase Mr. Purdy’s base salary to $400,000 as of January 1, 2001.
Daniel J. Altobello (Chairman)
James J. Forese
Dorothy Leonard
W. Walker Lewis
Frederic V. Malek
Alan G. Spoon
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AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is composed of four
independent directors and operates under a written charter adopted by the Board
of Directors in June 2000, which is set forth in Exhibit A to this Proxy
Statement. The members of the Committee are James J. Forese (Chairman), Daniel
J. Altobello, Dorothy Leonard and Alan G. Spoon. The Committee recommends to the
Board of Directors the selection of the Company’s independent accountants.
Management is responsible for the Company’s internal controls and the
financial reporting process. The independent accountants are responsible for
performing an independent audit of the Company’s consolidated financial
statements in accordance with generally accepted auditing standards and to issue
a report thereon. The Audit Committee’s responsibility is to monitor and oversee
these processes.
In this context, the Audit Committee has met and held discussions with
management and the independent accountants. Management represented to the Audit
Committee that the Company’s consolidated financial statements were prepared in
accordance with generally accepted accounting principles, and the Audit
Committee has reviewed and discussed the consolidated financial statements with
management and the independent accountants. The Audit Committee discussed with
the independent accountants matters required to be discussed by Statements on
Auditing Standards No. 61 (Communication with Audit Committees).
The Company’s independent accountants also provided to the Audit
Committee the written disclosures required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), and the Audit
Committee discussed with the independent accountants that firm’s independence.
Based upon the Audit Committee’s discussion with management and the
independent accountants and the Audit Committee’s review of the representations
of management and the report of the independent accountants to the Audit
Committee, the Audit Committee recommended that the Board of Directors include
the audited consolidated financial statements in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2000 filed with the Commission.
James J. Forese (Chairman)
Daniel J. Altobello
Dorothy Leonard
Alan G. Spoon
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SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph and table provide a comparison of the cumulative
total return on the Common Stock of the Company for the five-year period
beginning December 31, 1995, with returns on the Standard & Poor’s 500 Composite
Index and the Computer Software Sector Index of the Hambrecht & Quist Technology
Stock Index. The graph and table assume that the value of the investment in the
Common Stock of the Company and each of the aforementioned indices on December
31, 1995, was $100 and that all cash dividends were reinvested, although the
Company has never paid cash dividends on the Common Stock. The historical stock
price performance of the Common Stock of the Company shown below is not
necessarily indicative of future stock price performance.
[LINE GRAPH]
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COMMITTEES AND COMPENSATION OF THE BOARD OF DIRECTORS
COMMITTEES AND MEETINGS
The Company has a standing Executive Committee, Stock Option/Award
Committee, Compensation Committee, and Audit Committee. The Company does not
have a standing Nominating Committee.
The Executive Committee is presently composed of two directors, both of
whom are executive officers of the Company: Patrick W. Gross (Committee
Chairman) and Frank A. Nicolai. The Executive Committee generally has the power
to authorize all corporate actions that the Board of Directors has the power to
authorize, except as may be limited by law. The Executive Committee met once
during 2000.
The Stock Option/Award Committee is presently composed of two
directors, both of whom are executive officers of the Company: Frank A. Nicolai
(Committee Chairman), and Patrick W. Gross. The Stock Option/Award Committee
administers the Company’s employee stock option plans, except as noted below.
These directors are eligible to receive options under the plans, but options, if
any, awarded to them are granted and administered by the Compensation Committee.
The Stock Option/Award Committee also administers the Restricted Stock Plan.
Directors and executive officers are not eligible to participate in the
Restricted Stock Plan. The Stock Option/Award Committee meets as required and
met twice during 2000.
The Compensation Committee is presently composed of the six Outside
Directors: Daniel J. Altobello (Committee Chairman), James J. Forese, Dorothy
Leonard, W. Walker Lewis, Frederic V. Malek, and Alan G. Spoon. The Compensation
Committee is responsible for developing and making recommendations to the Board
of Directors with respect to the Company’s compensation policies generally. The
Compensation Committee approves the compensation plans for the Company’s
executive officers, including the Chief Executive Officer, and on an annual
basis determines the compensation to be paid to the executive officers. The
Compensation Committee alone is responsible for the granting and administration
of stock options granted to the executive officers and to the Controller. In
2000, the Compensation Committee met three times.
The Audit Committee is presently composed of four Outside Directors:
James J. Forese (Committee Chairman), Daniel J. Altobello, Dorothy Leonard, and
Alan G. Spoon. All of the members of the Audit Committee are independent in
accordance with Rule 4200(a)(15) of the National Association of Securities
Dealers’ listing standards. The Audit Committee has the responsibility for
making recommendations to the Board of Directors as to the independent
accountants of the Company; for reviewing with the independent accountants, upon
completion of their audit, the scope of their examination, any recommendations
they may have for improving internal accounting controls, management systems, or
choice of accounting principles, and other matters; and for reviewing generally
the accounting control procedures of the Company. The Board adopted a written
charter for the Audit Committee in June 2000. The Audit Committee met three
times in 2000.
The Board of Directors met eight times during 2000. Except for one
meeting that was not attended by one director, all members attended all of the
meetings of the Board and Committees of the Board on which they serve.
COMPENSATION
Directors who also serve as executive officers of the Company are not
separately compensated for attending Board meetings. Outside Directors were
entitled to receive a meeting fee of $6,000 per Board meeting attended, plus
travel expenses, and such fees and expenses were, in fact, paid for all meetings
attended during fiscal 2000. In addition, Outside Directors were paid an annual
retainer of $6,000 during fiscal 2000. Under the Company’s Outside Directors
Stock-for-Fees Plan (the “Stock-for-Fees Plan”), which was approved by
shareholders in May 1995, Outside Directors can elect to have the annual meeting
fees and retainer, which would otherwise be paid to the Outside Directors in
cash, paid in the form of Common Stock. Alternatively, Outside Directors can
elect to defer receipt of the annual meeting fees and retainer pursuant to the
Company’s Outside Director Deferred Compensation Plan (the “Deferred
Compensation Plan”). Under the terms of the Deferred Compensation Plan, Outside
Directors making such an election would be credited with earnings on amounts
deferred at an interest rate based on a corporate bond index and such interest
rate would be increased by 300 basis points if the Company achieved certain
annual performance goals. W. Walker Lewis elected to have his meeting
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fees for the eight Board meetings he attended during 2000 paid in the form of
Common Stock pursuant to the Stock-for-Fees Plan.
The following is a summary of the stock options that have been granted
to Outside Directors pursuant to the Company’s stock option plans. The number of
shares subject to grant, and subject to outstanding options, are adjusted when
stock splits occur. All options granted to Outside Directors vest at the rate of
1/60th a month for each month the Outside Director continues to serve as a
director, except as otherwise indicated.
Each Outside Director in May 1988 was granted 5,000 options to purchase
shares of Common Stock pursuant to the Company’s stock option plan. James J.
Forese, who became a director in November 1989, was granted 5,000 options on
November 10, 1989. Dorothy Leonard, who became a director in September 1991, was
granted 5,000 options on September 27, 1991. Under 1992 Amended and Restated
Stock Option Plan E, as amended (“Plan E”), each new Outside Director was
automatically granted 5,000 options (such number subject to adjustments for
splits) upon first becoming a director, and each Outside Director was
automatically granted an additional 5,000 options (such number subject to
adjustments for splits), vesting over five years, when any options previously
granted have fully vested. Pursuant to Plan E, Daniel J. Altobello was granted
7,500 options on July 27, 1993 when he first became a director, and Frederic V.
Malek was granted 5,000 options in April 1993 because his options granted in
1988 had fully vested. The grant to Mr. Malek was made subject to shareholder
approval, which was obtained in May 1993. In addition, under Plan E, Mr. Forese
was granted 7,500 options (after giving effect to the October 1994 stock split)
in November 1994 because his options granted in 1988 had fully vested, and W.
Walker Lewis was granted 5,000 options on December 1, 1995 when he became a
director. Dr. Leonard was granted 5,000 options under Plan E in August 1996
because her options granted in 1991 had fully vested, and Alan G. Spoon was
granted 5,000 options under Plan E in September 1996 when he became a director.
Plan F, as in effect prior to its amendment in May 1999, provided for the
automatic grant of the same amount of options to Outside Directors as provided
for under Plan E. Consequently, Mr. Malek was granted 5,000 options under Plan F
in April 1998 because his options granted in 1993 had fully vested. Mr.
Altobello was granted 5,000 options under Plan F in August 1998 because his
options granted in 1993 had fully vested. In May 1999, Plan F was amended to
eliminate the automatic, non-discretionary stock option awards to Outside
Directors and to permit the Compensation Committee to grant stock options to
Outside Directors on a discretionary basis. On July 23, 1999, each Outside
Director was granted 5,000 options to purchase shares of Common Stock, all of
which vested immediately upon their grant to the Outside Directors. Mr. Forese
was granted 5,000 options under Plan F in October 1999, and Mr. Lewis was
granted 5,000 options under Plan F in December 2000.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
Daniel J. Altobello, James J. Forese, Dorothy Leonard, W. Walker Lewis,
Frederic V. Malek, and Alan G. Spoon served as members of the Compensation
Committee during fiscal year 2000 and continue to serve as members. Mr.
Altobello is Chairman of the Compensation Committee.
During 2000, there were no Compensation Committee interlocks, and there
was no insider participation in the executive compensation decisions of the
Company.
PROPOSAL TO APPROVE THE 2001 EXECUTIVE
INCENTIVE COMPENSATION PLAN
Section 162(m) generally prohibits a public company from deducting
compensation in excess of $1 million that it pays to its chief executive officer
and four most highly compensated executive officers (“Covered Employees”). The
statute exempts certain performance-based compensation from this limitation.
In 1994, the Company adopted and the shareholders approved the American
Management Systems, Incorporated Incentive Compensation Plan for Executive
Officers. The plan was designed to provide compensation that fit within the
statutory exemption for performance-based compensation. In 1996, the Company
adopted and the shareholders approved a revised version of the plan entitled the
American Management Systems, Incorporated 1996 Incentive Compensation Plan for
Executive Officers (the “1996 IC Plan”).
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The 1996 IC Plan must be reapproved, or a new plan that provides
compensation that qualifies for the exemption must be adopted and approved, at
the first stockholder meeting that occurs in the fifth year following the year
in which the 1996 IC Plan was approved by stockholders. Upon consideration, the
Board of Directors determined that a new plan would best serve the interests of
the Company. Accordingly, in a unanimous written consent dated March 26, 2001,
the Board of Directors approved the adoption of the American Management Systems,
Incorporated 2001 Executive Incentive Compensation Plan (i.e., the 2001 IC Plan)
as successor to the 1996 IC Plan. If approved by the shareholders, the 2001 IC
Plan would be effective January 1, 2001.
Stockholder approval of the 2001 IC Plan is recommended by the Board of
Directors in order to continue to provide an incentive to executive officers and
other selected key executives of the Company to contribute to the growth,
profitability and increased stockholder value of the Company, to retain such
executives, and to endeavor to maintain the tax-deductible status of such
incentive payments to the Company’s Covered Employees. The description of the
2001 IC Plan that follows is qualified in its entirety by reference to the plan,
which is set forth in Exhibit B to this Proxy Statement.
The 2001 IC Plan would permit the Compensation Committee to make an
award to a “covered employee” (as defined in Section 162(m)) for a performance
period that is equal to a percentage of a bonus pool (the “Bonus Pool”). The
Bonus Pool would be defined as four percent of the Company’s Income Before
Income Taxes, adjusted to eliminate the effects of charges for restructurings,
extraordinary items, discontinued operations, and cumulative effect of
accounting changes, each as defined by Generally Accepted Accounting Principles
(“adjusted Income Before Income Taxes”) for the performance period. The
performance period would be a fiscal year of the Company or another 12-month or
shorter period specified by the Compensation Committee that is the same for all
participants. The percentage awarded to any one participant could not exceed 40
percent of the Bonus Pool, and the percentages awarded to all participants could
not exceed 100 percent of the Bonus Pool. In order to comply with Section
162(m), both the performance period and the percentage awarded to each
participant would be specified by the Compensation Committee no later than 90
days after the beginning of the performance period or, if earlier, the date on
which 25 percent of the performance period has elapsed.
The Compensation Committee in its discretion would be allowed to reduce
a participant’s award to less than the maximum amount permitted under the 2001
IC Plan based on factors other than the adjusted Income Before Income Taxes of
the Company. These factors would not be required to be objectively determinable.
The Committee would not be allowed to increase the maximum award under the 2001
IC Plan to any participant.
Under the 2001 IC Plan, the Compensation Committee would be allowed,
among other things, to pay an award by issuing or delivering shares of stock or
other property of equivalent value in lieu of cash, to give the participant an
election to defer part or all of any payment, to require that the participant be
employed by AMS as of a particular date in order to receive the payment, or to
impose other accrual or vesting requirements on the award.
In the event of a change in control, the Bonus Pool would be computed
as if the performance period ended immediately before the change in control, and
by annualizing the amount of the adjusted Income Before Income Taxes achieved
during the performance period. However, the award to which a participant
otherwise would be entitled would be prorated based on the portion of the
performance period that had elapsed before the change in control.
The Board of Directors, or a committee designated by the Board of
Directors, could terminate, amend, modify or suspend the 2001 IC Plan and the
terms and provisions of any award granted to any participant that has not been
settled.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 2001
EXECUTIVE INCENTIVE COMPENSATION PLAN.
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INDEPENDENT PUBLIC ACCOUNTANTS
GENERAL
A representative from Deloitte & Touche LLP, independent public
accountants to the Company, is expected to be present at the Annual Meeting,
will have an opportunity to make a statement should the representative desire to
do so, and is expected to be available to respond to appropriate questions
during such Meeting.
The Board of Directors has not yet appointed an accounting firm to
audit the accounts of the Company for the fiscal year ending December 31, 2001.
The Board of Directors, upon the recommendation of the Audit Committee, expects
to make such appointment at its regularly scheduled meeting in September 2001.
AUDIT FEES
During the 2000 fiscal year, the Company retained its principal
independent accountant, Deloitte & Touche LLP, to provide services in the
following categories and amounts:
(1) Such amount represents consultant services rendered in connection with
the development of the Company’s internal audit plan.
The Audit Committee has considered whether the provision of non-audit
services by the Company’s principal independent accountant is compatible with
maintaining the principal accountant’s independence.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at
the Annual Meeting other than those stated above. If any other business should
come before the Annual Meeting, including a vote to adjourn or postpone such
Meeting, the persons named in the enclosed Proxy will vote thereon at the
Meeting, or any adjournment or postponement thereof, as they determine to be in
the best interests of the Company.
PROPOSALS FOR 2002 ANNUAL MEETING OF SHAREHOLDERS
Under the rules of the Commission, the date by which proposals of
shareholders of the Company intended to be presented at the 2002 annual meeting
of shareholders must be received by the Company for inclusion in the proxy
statement and form of proxy to be distributed by the Board of Directors is
December 11, 2001. Shareholder proposals should be submitted to Frank A.
Nicolai, Secretary, American Management Systems, Incorporated, 4050 Legato Road,
Fairfax, Virginia 22033.
Under the Company’s By-laws (the “By-laws”), a stockholder must follow
certain procedures to nominate persons for election as directors or to propose
other business to be considered at an annual meeting of shareholders. These
procedures provide that shareholders desiring to make nominations for directors
and/or to bring a proper subject before a meeting must do so by notice timely
received by the Secretary of the Company. The Secretary of the Company generally
must receive notice of any such proposal not less than sixty days and no more
than ninety days prior to the anniversary of the preceding year’s annual meeting
of shareholders. In the case of proposals for the 2002 annual meeting of
shareholders, the Secretary of the Company generally must receive notice of any
such proposal no earlier than February 10, 2002, and no later than March 12,
2002 (other than proposals intended to be included in the proxy statement and
form of proxy, which, as noted above, must be received by December 11, 2001).
Generally, such shareholder notice must set forth (a) as to each nominee for
director, all information relating to such nominee that is required to be
disclosed in solicitations or proxies for election of directors under the proxy
rules of the Commission; (b) as to any other business, a brief description of
the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in
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such business of such shareholder; and (c) as to the shareholder, (i) the name
and address of such shareholder, (ii) the number of shares of Common Stock which
are owned beneficially and of record by such shareholder, (iii) a representation
that the shareholder is a holder of record of Common Stock entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
propose such nomination or other business, and (iv) a representation as to
whether the shareholder intends, or is part of a group which intends, to solicit
proxies from other shareholders in support of such nomination or other business.
The chairman of the annual meeting shall have the power to declare that any
proposal not meeting these and any other applicable requirements imposed by the
By-laws shall be disregarded. A copy of the By-laws may be obtained without
charge on written request to Frank A. Nicolai, Secretary, American Management
Systems, Incorporated, 4050 Legato Road, Fairfax, Virginia 22033.
In addition, the form of proxy solicited by the Board of Directors in
connection with the 2002 annual meeting of shareholders will confer
discretionary authority to the named proxies to vote on any proposal, unless
with respect to a particular proposal the Secretary of the Company receives
notice of such matter no earlier than February 10, 2002, and no later than March
12, 2002, and such notice complies with the other requirements described in the
preceding paragraph.
ANNUAL REPORT
A copy of the 2000 Annual Report of the Company (which includes
condensed financial data and a letter to shareholders) accompanies this Proxy
Statement. Appendix 1 to this Proxy Statement, titled “2000 Financial Report,”
contains all of the financial information (including the Company’s audited
financial statements), and certain general information, published in the
Company’s 2000 Annual Report. Appendix 1 is incorporated herein by reference. A
copy of the Company’s 2000 Annual Report on Form 10-K may be obtained without
charge by writing to Frank A. Nicolai, Secretary, American Management Systems,
Incorporated, 4050 Legato Road, Fairfax, Virginia 22033.
BY ORDER OF THE BOARD OF DIRECTORS,
Frank A. Nicolai
Secretary
April 10, 2001
Fairfax, Virginia
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE REMINDED TO
DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE PROVIDED
OR CAST YOUR VOTES BY TELEPHONE AT 1-800-840-1208 OR VIA THE INTERNET AT
HTTP://WWW.PROXYVOTING.COM/AMSY. INSTRUCTIONS REGARDING TELEPHONE AND INTERNET
VOTING ARE INCLUDED ON THE PROXY.
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EXHIBIT A
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE AND POWERS OF THE AUDIT COMMITTEE
The primary purpose of the Audit Committee (the “Audit Committee”) of
the Board of Directors (the “Board”) of American Management Systems,
Incorporated (the “Corporation”) is to assist the Board in fulfilling its
responsibilities with respect to the oversight of the Corporation’s financial
affairs. In fulfilling its purpose, the Audit Committee will review, among other
things, the following:
– – the Corporation’s financial statements, financial reports and other
financial information submitted, distributed or otherwise made
available to or filed with any governmental authority, the Nasdaq Stock
Market, Inc., the Corporation’s shareholders or others;
– – the Corporation’s system of (1) internal controls as they pertain to
accounting, auditing, and other financial matters, (2) legal
compliance, (3) management systems, and (4) rules of ethics established
by management and the Board;
– – the performance of the Corporation’s independent auditors and the
Corporation’s Internal Audit Department;
– – the suitability, with respect to independence and other matters, of the
Corporation’s independent auditors (or prospective internal auditors)
to serve as independent auditors of the Corporation; and
– – the adequacy of the provisions of this Charter.
II. GENERAL PRECEPTS GOVERNING THE AUDIT COMMITTEE’S RESPONSIBILITIES
Consistent with its purpose, the Audit Committee shall encourage
continuous improvement of, and foster adherence to, the Corporation’s policies,
procedures and practices at all levels.
The Audit Committee shall maintain free and open communication with the
Corporation’s independent auditors, internal auditors and management.
The Audit Committee has the authority and power to investigate, in its
discretion, any matter of which it becomes aware and which pertains to the
Corporation’s accounting and auditing functions, internal controls or financial
reporting practices. The Audit Committee shall be entitled to obtain any
information relevant and helpful to any such investigation.
The Corporation’s independent auditors shall be accountable to the
Board and the Audit Committee, as representatives of the Corporation’s
shareholders, with respect to audit and non-audit services rendered to the
Corporation. The Board shall have the ultimate authority and responsibility to
appoint, and where appropriate, to replace, the Corporation’s independent
auditors, upon the recommendation of the Audit Committee.
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The Corporation’s management shall be responsible for determining that
the Corporation’s financial statements are complete, accurate and prepared in
accordance with generally accepted accounting principles. The independent
auditors shall be responsible for planning and conducting the audits and
performing the non-audit services rendered to the Corporation.
The Audit Committee shall operate in accordance with the provisions of
the Corporation’s Bylaws.
III. COMPOSITION OF THE AUDIT COMMITTEE
The Audit Committee shall consist of three or more directors, other
than officers or employees of the Corporation or any of its subsidiaries, who
are free from any relationship which, in the opinion of the Board, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a member of the Audit Committee. Each member of the Audit
Committee shall have a working knowledge of basic finance and accounting
practices and shall be able to read and understand financial statements. In
addition, at least one member of the Audit Committee shall have previous
employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background
which results in the person’s financial sophistication.
IV. MEETINGS OF THE AUDIT COMMITTEE
The Audit Committee shall meet at least four times annually, and may
meet more frequently if the members of the Audit Committee deem it necessary or
advisable.
The Audit Committee shall meet privately with the Director of Internal
Audit and the Corporation’s independent auditors at least once per year.
The Audit Committee shall meet with the Corporation’s independent
auditors and management on a quarterly basis (or, if required, on a more
frequent periodic basis), and as soon as practicable after the end of each
fiscal year, to review the Corporation’s financial statements.
V. DUTIES AND RESPONSIBILITIES OF THE AUDIT COMMITTEE
The Audit Committee shall take the actions described in the following
paragraphs in fulfillment of the responsibilities set forth in this Charter.
FINANCIAL REPORTING PROCESS
– – Review and discuss with management and the independent auditors, prior
to filing, submission or release, as the case may be (1) the interim
financial information contained in the Corporation’s Quarterly Reports
on Form 10-Q and material assumptions and estimates used to generate
the interim financial information; (2) the annual financial information
contained in the Corporation’s Annual Reports on Form 10-K and material
assumptions and estimates used to generate the annual financial
information; (3) the Corporation’s earnings announcements; (4) other
financial reports to be submitted, distributed or otherwise made
available to or filed with any governmental authority, the Nasdaq Stock
Market, Inc., the Corporation’s shareholders or others, as appropriate;
and (5) report to the Board the results of reviews of the information
referred to above in clauses (1) through (4).
– – Review, consider and discuss with the independent auditors matters
required to be discussed by Statement of Auditing Standards No. 61, as
the same may be amended from time to time.
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– – Discuss with management the Company’s exposure to material financial
risks and the measures taken to reduce such risks.
– – Discuss with management and/or legal counsel, any legal matters that
could have a material impact on the Corporation’s financial statements.
INTERNAL CONTROLS
– – Oversee the Corporation’s internal audit function, including, but not
limited to, the review of internal audit independence, objectivity,
responsibility, proposed annual audit plans, audit results, budget
processes, staffing, and coordination with the Corporation’s
independent auditors.
– – Review with the Corporation’s independent auditors, internal auditors
and management, the adequacy and effectiveness of, and compliance with
the Corporation’s internal controls.
– – Review with the Corporation’s independent auditors, internal auditors
and management, the adequacy and effectiveness of the Corporation’s
management systems.
– – Review with the independent auditors any recommendations they may have
for improving internal accounting controls and management systems.
CHARTER REVIEW AND PREPARATION OF AUDIT COMMITTEE REPORTS
– – Review and update this Charter on an annual basis, or more frequently
if deemed advisable.
– – Prepare a report for inclusion in the Corporation’s Proxy Statement
that describes the Committee’s composition and responsibilities as
required by the rules of the Securities and Exchange Commission and The
Nasdaq Stock Market, Inc. as the same may be amended from time to time.
– – Review annually reports of fees for audit, non-audit and legal fees for
services rendered.
INDEPENDENT AUDITORS
– – Recommend to the Board the selection of the Corporation’s independent
auditors.
– – Review the engagement of the independent auditors, including planning,
staffing and audit fees.
– – On an annual basis, review and discuss with the independent auditors
all significant transactions and relationships with the Corporation to
determine the auditors’ independence, including, the amount of audit
fees paid by the Corporation relative to the amount of non-audit fees
paid and other pertinent matters. The Audit Committee shall be
responsible for obtaining from the independent auditors a formal
written statement describing all relationships between the independent
auditors and the Corporation, in a form consistent with Independence
Standards Board Standard No. 1, as the same may be amended from time to
time.
– – Review with the independent auditors their reports or opinions, any
recommendations they may have regarding choice of accounting and
auditing principles and their perception of the adequacy of the
Corporation’s financial and accounting personnel and the cooperation
they received from such personnel during the audit.
– – Review the performance of the independent auditors, including
performance relating to non-audit services and fees charged for such
services, and recommend to the Board any proposed retention or
discharge of the independent auditors.
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– – Oversee the independent auditor relationship by reviewing the audit
process and audit reports and allowing the independent auditors full
access to the Audit Committee and the Board to discuss relevant issues.
– – Obtain from the independent auditors assurance that Section 10A of the
Securities Exchange Act of 1934, as amended, has not been implicated.
VI. TERM OF SERVICE OF AUDIT COMMITTEE MEMBERS
Members of the Audit Committee shall serve until their successors are
designated.
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EXHIBIT B
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
2001 EXECUTIVE INCENTIVE COMPENSATION PLAN
1. Purpose. The purpose of this 2001 Executive Incentive
Compensation Plan is to attract, motivate and retain highly qualified executives
of American Management Systems, Incorporated. The Plan is intended to promote
the interests of AMS and its shareholders by providing eligible officers with
the opportunity to earn incentive compensation that is linked to the financial
performance of AMS. Incentive compensation provided under the Plan is intended
to qualify as performance-based compensation under Section 162(m) of the
Internal Revenue Code of 1986, as amended, and the Plan shall be interpreted
consistent with such intent. The existence of this Plan is not intended to
preclude AMS from providing additional incentive compensation to eligible
officers or incentive compensation under other plans, agreements or arrangements
to an officer, whether such officer is eligible to participate in the Plan or
actually participates in the Plan.
2. Definitions. For purposes of the Plan, the following terms
shall be defined as set forth below:
(a) “Adjusted Income Before Income Taxes” shall mean
AMS’s income before income taxes, adjusted to eliminate the effects of charges
for restructurings, extraordinary items, discontinued operations, and the
cumulative effect of accounting changes, each as defined by Generally Accepted
Accounting Principles.
(b) “AMS” shall mean American Management Systems,
Incorporated, a Delaware corporation, and any entity that succeeds to all or
substantially all of its business.
(c) “Award” shall mean an award granted pursuant to
Section 4.
(d) “Board” shall mean AMS’s Board of Directors.
(e) “Change in Control” shall mean the first to occur of
any of the following events:
(i) Any person or group (within the meaning of
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Act”)),
other than AMS or a trustee or other fiduciary holding securities under an
employee benefit plan of AMS or a corporation owned directly or indirectly by
the stockholders of AMS in substantially the same proportions as their ownership
of stock of AMS, becomes the beneficial owner (within the meaning of Rule 13d-3
under the Act), directly or indirectly, of securities representing fifty percent
(50%) or more of the combined voting power of AMS’s then-outstanding securities
entitled generally to vote for the election of directors;
(ii) AMS’s stockholders approve an agreement to
merge or consolidate with another corporation (other than a majority-controlled
subsidiary of AMS) unless AMS’s stockholders immediately before the merger or
consolidation are to own more than two-thirds (66-2/3%) of the combined voting
power of the resulting entity’s voting securities entitled generally to vote for
the election of directors;
(iii) AMS’s stockholders approve an agreement
(including, without limitation, an agreement of liquidation) to sell or
otherwise dispose of all or substantially all of the business or assets of AMS;
or
(iv) During any period of two (2) consecutive
years, individuals who, at the beginning of the period, constituted the Board
cease for any reason to constitute at least a majority thereof, unless the
election or the nomination for election by AMS’s stockholders of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
Notwithstanding the foregoing, no Change in Control shall be deemed to have
occurred with respect to a Participant by reason of (A) any event involving a
transaction in which the Participant or a group of persons or entities with whom
or with which the Participant acts in concert, acquires, directly or indirectly,
fifty percent (50%) or more of the combined voting power of AMS’s
then-outstanding voting securities or the business or assets of AMS, or (B) any
event involving or arising out of a proceeding under Title 11 of the United
States Code or the provisions of any
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future United States bankruptcy law, an assignment for the benefit of creditors
or an insolvency proceeding under state or local law.
(f) “Code” shall mean the Internal Revenue Code of 1986,
as amended from time to time, including regulations thereunder and successor
provisions thereto.
(g) “Committee” shall mean the regularly appointed
compensation committee of the Board unless the Board appoints another
compensation committee of members of the Board to administer the Plan. In either
case, the Committee shall have at least two(2) members, and no member of the
Board may serve on the Committee unless such person is an “outside director”
within the meaning of Section 162(m)(4)(C)(i) of the Code, and applicable
guidance issued thereunder.
(h) “Effective Date” shall mean January 1, 2001.
(i) “Eligible Employee” for an Award with respect to a
Performance Period shall mean each “covered employee” as defined in Section
162(m) of the Code for the AMS fiscal year with which that Performance Period
ends or, if the Award is deductible by AMS in a later fiscal year, for such
later fiscal year.
(j) “GAAP” shall mean U.S. Generally Accepted Accounting
Principles.
(k) “Incentive Pool” shall equal four percent (4%) of
Adjusted Income Before Income Taxes for the Performance Period.
(l) “Participant” shall mean an Eligible Employee
designated by the Committee to participate in the Plan for a designated
Performance Period.
(m) “Performance Period” shall mean an AMS fiscal year or
such other twelve (12)-month or shorter period as is designated by the Committee
during which performance will be measured in order to determine a Participant’s
entitlement to receive payment of an Award. The Performance Period shall be the
same for all Participants.
(n) “Plan” shall mean this American Management Systems,
Incorporated 2001 Executive Incentive Compensation Plan, as amended from time to
time.
(o) “Stock” shall mean AMS’s common stock.
3. Administration.
(a) Authority. The Plan shall be administered by the
Committee. The Committee is authorized, subject to the provisions of the Plan,
in its sole discretion, from time to time to select Participants, grant Awards
under the Plan, establish, modify or rescind such rules and procedures as it
deems necessary for the proper administration of the Plan, and make such
determinations and interpretations and to take such steps in connection with the
Plan or the Awards granted thereunder as it deems necessary or advisable. All
such actions by the Committee under the Plan or with respect to the Awards
granted thereunder shall be final and binding on all persons.
(b) Manner of Exercise of Committee Authority. The
Committee may delegate its responsibility with respect to the administration of
the Plan to one or more officers of AMS, to one or more members of the Committee
or to one or more members of the Board; provided, however, that the Committee
may not delegate its responsibility to take any of the actions specified in
Section 4. The Committee may also appoint agents to assist in the day-to-day
administration of the Plan and may delegate the authority to execute documents
under the Plan to one or more members of the Committee or to one or more
officers of AMS.
(c) Limitation of Liability. The Committee may appoint
agents to assist it in administering the Plan. The Committee and each member
thereof shall be entitled to, in good faith, rely or act upon any report or
other information furnished to him or her by any officer or employee of AMS,
AMS’s independent certified public accountants, consultants or any other agent
assisting in the administration of the Plan. Members of the Committee and any
officer or employee of AMS acting at the direction or on behalf of the Committee
shall not be personally liable for any action or determination taken or made in
good faith with respect to the Plan, and shall, to the extent permitted by law,
be fully indemnified and protected by AMS with respect to any such action or
determination.
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4. Awards.
(a) Allocation of the Incentive Pool. Before or
reasonably promptly after the inception of a Performance Period but, to the
extent required by Section 162(m) of the Code, by no later than the earlier of
ninety (90) days after the commencement of the Performance Period or the day
before the date on which twenty-five percent (25%) of the Performance Period has
elapsed, the Committee shall allocate, in writing, on behalf of each Eligible
Employee designated as a Participant to receive an Award for such Performance
Period, a portion of the Incentive Pool to be paid for such Performance Period,
provided that (i) the aggregate of the portions of the Incentive Pool allocated
to Eligible Employees for the Performance Period may not exceed one hundred
percent (100%) of the Incentive Pool and (ii) no more than forty percent (40%)
of the Incentive Pool for the Performance Period may be allocated to any single
Participant.
(b) Adjustments to Awards. The Committee is authorized at
any time during or after a Performance Period to reduce or eliminate the
Incentive Pool or the portion of the Incentive Pool allocated to any Participant
for any reason, including without limitation, on account of any termination of
employment (including death, disability, retirement, voluntary termination, or
termination with or without cause), individual or business unit performance such
as cash generation targets, profit and revenue targets on an absolute and per
share basis (such as earnings before interest and taxes, earnings before
interest, taxes, depreciation and amortization, or earnings per share), market
share targets or profitability targets as measured through return ratios and
shareholder returns, or changes in the position or duties of any Participant
with AMS during or after a Performance Period, provided, however, that (i) no
adjustment hereunder may increase any Participant’s allocation of the Incentive
Pool and (ii) no adjustment hereunder shall be authorized or made if and to the
extent that the Committee determines that such authority or the making of such
adjustment would cause the Award(s) to fail to qualify as “qualified
performance-based compensation” under Section 162(m) of the Code.
(c) Payment of Awards.
(i) After the completion of each Performance
Period, the Committee shall certify, in writing, in accordance with the
requirements of Section 162(m) of the Code, the amount of the Incentive Pool, if
any, and the Awards, if any, payable to Participants. Unless the Committee
determines otherwise, no amounts payable in respect of the Awards shall be paid
for a Performance Period until the Performance Period has ended and the
Committee has certified the amount of the Awards payable for the Performance
Period in accordance with this Section 4(c).
(ii) Payment of an Award shall be subject to such
terms and conditions as shall be specified by the Committee, including without
limitation the timing of the payment of the Award, the payment of the Award by
the issuance or delivery of shares of Stock or other property of equivalent
value in lieu of cash, the right to elect to defer part or all of any payment
due with respect to the Award, a requirement that the Participant be employed by
AMS as of a particular date in order to receive the payment, and other accrual
or vesting requirements.
(iii) In the event of a Change in Control, the
Incentive Pool shall be computed as if the Performance Period ended immediately
before the Change in Control, and by annualizing the amount of the Adjusted
Income Before Income Taxes achieved during such Performance Period, provided
that a Participant’s Award to which he or she would otherwise be entitled shall
be multiplied by a fraction, the numerator of which is the number of days in the
Performance Period before the Change in Control and the denominator of which is
the total number of days in the Performance Period as originally specified.
5. General Provisions.
(a) Death of the Participant. In the event of the death
of a Participant, any payments hereunder due to such Participant shall be paid
to his or her beneficiary as designated in writing to the Committee or, failing
such designation, to his or her estate. No beneficiary designation shall be
effective unless it is in writing and received by the Committee before the date
of death of the Participant.
(b) Taxes. AMS is authorized to withhold from any Award
granted, any payment relating to an Award under the Plan, including from a
distribution of Stock, or any payroll or other payment to a Participant, amounts
of withholding and other taxes due in connection with any transaction involving
an Award, and to take such other action as the Committee may deem advisable to
enable AMS and Participants to satisfy obligations for the payment of
withholding taxes and other tax obligations relating to any Award. This
authority shall include authority
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for AMS to withhold or receive Stock or other property and to make cash payments
in respect thereof in satisfaction of a Participant’s tax obligations, either on
a mandatory or elective basis in the discretion of the Committee.
(c) Limitations on Rights Conferred under Plan and
Beneficiaries. Neither status as a Participant nor receipt or completion of a
deferral election form shall be construed as a commitment that any Award will
become payable under the Plan. Nothing contained in the Plan or in any documents
related to the Plan or to any Award shall confer upon any Eligible Employee or
Participant any right to continue as an Eligible Employee, Participant or in the
employ of AMS or constitute any contract or agreement of employment, or
interfere in any way with the right of AMS to reduce such person’s compensation,
to change the position held by such person or to terminate the employment of
such Eligible Employee or Participant, with or without cause, but nothing
contained in this Plan or any document related thereto shall affect any other
contractual right of any Eligible Employee or Participant. No benefit payable
under, or interest in, this Plan shall be transferable by a Participant except
by will or the laws of descent and distribution or otherwise be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge.
(d) Changes to the Plan and Awards. Notwithstanding
anything herein to the contrary, the Board, or a committee designated by the
Board, may, at any time, terminate or, from time to time, amend, modify or
suspend the Plan and any Award theretofore granted to any Participant which has
not been settled (either by payment or deferral). No Award may be granted during
any suspension of the Plan or after its termination. Any such amendment may be
made without stockholder approval.
(e) Unfunded Status of Awards; Creation of Trusts. The
Plan is intended to constitute an “unfunded” plan for incentive and deferred
compensation. With respect to any amounts payable to a Participant pursuant to
an Award, nothing contained in the Plan (or in any documents related thereto),
nor the creation or adoption of the Plan, the grant of any Award, or the taking
of any other action pursuant to the Plan shall give any such Participant any
rights that are greater than those of a general creditor of AMS; provided that
the Committee may authorize the creation of trusts and deposit therein cash,
Stock, or other property or make other arrangements, to meet AMS’s obligations
under the Plan. Such trusts or other arrangements shall be consistent with the
“unfunded” status of the Plan unless the Committee otherwise determines with
the consent of each affected Participant. The trustee of such trusts may be
authorized to dispose of trust assets other than Stock and reinvest the
proceeds in alternative investments, subject to such terms and conditions as
the Committee may specify in accordance with applicable law.
(f) Non-Exclusivity of the Plan. Neither the adoption of
the Plan by the Board (or a committee designated by the Board) nor submission of
the Plan or provisions thereof to the stockholders of AMS for approval shall be
construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem necessary.
(g) Governing Law. The validity, construction, and effect
of the Plan, any rules and regulations relating to the Plan, and any Award shall
be determined in accordance with the laws of the State of Virginia, without
giving effect to principles of conflicts of laws, and applicable federal law.
(h) Exemption Under Section 162(m) of the Code. The Plan,
and all Awards issued thereunder, are intended to be exempt from the application
of Section 162(m) of the Code, which restricts under certain circumstances the
federal income tax deduction for compensation paid by a public company to named
executives in excess of $1 million per year. The Committee may, without
stockholder approval, amend the Plan retroactively or prospectively to the
extent it determines necessary in order to comply with any subsequent
clarification of Section 162(m) of the Code required to preserve AMS’s federal
income tax deduction for compensation paid pursuant to the Plan.
(i) Effective Date. The Plan is effective for Performance
Periods beginning on and after the Effective Date, subject to subsequent
approval thereof by AMS’s stockholders at the first annual meeting of
stockholders to occur after the Effective Date, and shall remain in effect until
it has been terminated pursuant to Section 5(d). If the Plan is not approved by
the stockholders at such annual meeting, the Plan and all interests in the Plan
awarded to Participants before the date of such annual meeting shall be void ab
initio and of no further force and effect.
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APPENDIX 1
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
2000 FINANCIAL REPORT
CONTENTS
– ——————————————————————————–
BUSINESS OF AMS
OVERVIEW
The business of American Management Systems, Incorporated and its wholly
owned subsidiaries (“AMS” or the “Company”) is to partner with clients to
achieve breakthrough performance through the intelligent use of information
technology. AMS is the premier provider of Next Generation Enterprise business
and technology solutions that dramatically improve business performance and
create value for clients. AMS provides a full range of consulting services from
strategic business analysis to the full implementation of solutions. AMS’s suite
of next generation products, deep industry expertise and business alliances
provide a foundation of management and technology services that integrate the
latest technologies with existing IT infrastructures and internal processes
providing productivity gains for clients. AMS measures success based on the
results and business benefits achieved by its clients.
The Company focuses on expanding its delivery of enterprise-wide
business solutions – including eBusiness solutions – tailored to clients in
financial services, new media and communications, federal, state and local
governments as well as health care and utilities. These solutions help firms
achieve greater cost savings, deliver improved customer service and leverage
cross-sell and up-sell opportunities in their markets.
AMS is a trusted business partner for many of the largest and most
respected organizations in the markets in which it specializes. AMS is a company
that transforms organizations into Next Generation Enterprises. A key element of
this is establishing an extensive network of strategic alliances, partnerships
and joint ventures to provide “best of breed” solutions and to extend AMS’s
market reach in all of the Company’s target markets. Each year, approximately
85% of the Company’s business comes from clients it worked with in previous
years.
The Company, which operates as one segment, focuses on clients in
specific industries, which are referred to as target markets. The Company is
targeting high value sectors within these target markets and striving to be the
market leader in providing Next Generation Enterprise solutions. Organizations
in AMS’s target markets – new media and communications 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 ensuring quality
project execution and continuing to build a professional staff, which is
composed of experts in the necessary technical and functional disciplines. The
Company is focused on consolidating operating activities to create new
opportunities for growth and leveraging its deep industry knowledge and existing
client relationships to support that growth.
A significant component of AMS’s business is the development of
proprietary software products, either with its own funds or on a jointly funded
basis with other organizations. These products are principally licensed as
elements of custom tailored systems, and, to a lesser extent, as stand-alone
applications. The Company expended $76.2 million in 2000, $102.3 million in
1999, and $77.4 million in 1998 for development associated with proprietary
software. The Company expensed in the accompanying consolidated financial
statements $45.3 million in 2000, $47.1 million in 1999, and $35.4 million in
1998 for research and development associated with proprietary software,
including amortization. In 2000, the Company reduced the unamortized costs by
$5.9 million representing collections from funding partners, compared to $21.8
million in 1999. 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
established subsidiaries or foreign branches. Exhibit 21 of this Form 10-K
provides a complete listing of all twenty-six active AMS subsidiaries (and
branches), showing name, year organized or acquired, and place of incorporation.
1
Revenues attributable to AMS’s non-US clients were approximately $196.3 million
in 2000, $226.7 million in 1999, and $208.4 million in 1998. Additional
information on revenues and assets attributable to AMS’s geographic areas of
operation is provided in Note 12 of the consolidated financial statements
appearing in Exhibit 13 of this Form 10-K.
Founded in 1970, AMS services clients worldwide. AMS’s approximately
8,500 employees serve clients from corporate headquarters in Fairfax, Virginia
and from 51 offices worldwide.
NEW MEDIA AND COMMUNICATIONS FIRMS
AMS markets systems consulting and integration services to both local
exchange and interexchange carriers, cellular and wireless telephone companies
as well as cable, new media, DSL eCommerce, and eBusiness organizations. AMS’s
services encompass developing and implementing AMS’s next generation software
products specializing in customer care, billing, order processing, accounts
receivable, and collections, as well as integrating leading industry partner
products to create solutions for clients.
FINANCIAL SERVICES INSTITUTIONS
AMS provides systems consulting and integration services, as well as
application software products to financial institutions and insurance companies
worldwide. The Company specializes in corporate and international banking,
consumer credit management, customer value and global risk management. The
Company focuses on providing next generation solutions by incorporating its own
suite of products while partnering with leading industry providers as well as
clients to deliver Customer Value Management and facilitate business
transformation for clients.
STATE AND LOCAL GOVERNMENTS AND EDUCATION
AMS provides information technology consulting and systems integration
services to state, county, and municipal governments as well as universities and
colleges. AMS provides these organizations industry experience and expertise in
delivering financial, tax, and revenue management applications as well as
enhancing human resources, social services, public safety and transportation
functions, and environmental systems. The Company specializes in designing,
developing, and implementing next generation- eGovernment- services and
application software products that create productivity gains for clients through
integrating the latest technologies with existing IT infrastruture and internal
services. AMS is working with both clients and leading industry providers to
develop statewide electronic malls to allow all state and local agencies to
purchase goods and services from approved vendors over the web.
2
FEDERAL GOVERNMENT AGENCIES
AMS’s clients include civilian and defense agencies as well as aerospace
companies. AMS’s long-term relationships with Federal Government Agencies
continue to enhance a deep industry expertise that is central to providing
management consulting services and systems integration that generate solutions
for these clients. AMS’s services include developing and implementing
eProcurement and next generation financial solutions as well as providing
information technology consulting, systems re-engineering, large scale systems
integration and maintenance support.
OTHER CORPORATE CLIENTS
AMS provides enterprise-wide business and technology solutions for firms
in other industries, including health care and utilities. AMS’s suite of
management and technology solutions (including eBusiness) supports projects with
several large organizations in the healthcare and utilities market place, which
AMS intends to pursue further.
3
FINANCIAL STATEMENTS AND NOTES
American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
– —————-
See Accompanying Notes to Consolidated Financial Statements.
4
American Management Systems, Incorporated
CONSOLIDATED BALANCE SHEETS
– —————-
See Accompanying Notes to Consolidated Financial Statements.
5
American Management Systems, Incorporated
CONSOLIDATED BALANCE SHEETS
– —————-
See Accompanying Notes to Consolidated Financial Statements.
6
American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF CASH FLOWS
– —————-
See Accompanying Notes to Consolidated Financial Statements.
7
American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Year Ended December 31, 2000, 1999, and 1998 (In millions)
– —————-
See Accompanying Notes to Consolidated Financial Statements.
8
American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
– —————-
See Accompanying Notes to Consolidated Financial Statements.
9
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. The Company has a thirty-year history of designing, developing and
implementing technology solutions that redefine entire enterprises. AMS is an
international business and information technology consulting firm that provides
leading edge business and technology solutions featuring a full range of
services: eBusiness strategy, business re-engineering, change management,
systems integration, and systems development and implementation. AMS is
headquartered in Fairfax, Virginia, with 51 offices worldwide. The Company,
which operates as a leading international business and technology consulting
service provider, considers its business to be one segment that focuses on the
following primary target markets: new media communications, financial services
institutions, state and local governments and education, federal government
agencies and other corporate clients.
A. Revenue Recognition
Revenues on fixed-price contracts are generally recorded using the
percentage of completion method based on the relationship of costs incurred to
the estimated total costs of the project. Revenues on cost reimbursable
contracts and time and material contracts are recorded as labor and other
expenses are incurred.
The Company recognizes revenue from software license arrangements in
accordance with AICPA Statement of Position 97-2, “Software Revenue Recognition”
(SOP 97-2) and related interpretations as amended. SOP 97-2 requires that
revenue recognized from software arrangements be allocated to each element of
the arrangement based on the relative fair values of the elements, such as
software products and services, post contract customer support, web site design
and development. The Company recognizes revenues on the percentage of completion
method for contracts involving both software license fees and the provision of
significant software modifications and customized services or where services are
considered essential to the functionality of the software. For all other
software license contracts, where services are not considered essential to the
functionality of the software, revenues are recorded upon execution of the
contract, provided that all shipment obligations have been met, fees are fixed
or determinable, and collection is deemed probable. Revenues from software
maintenance contracts are recognized ratably over the maintenance period.
On benefit-funded contracts (contracts whereby the amounts due the
Company are payable based on actual benefits derived by the client), the Company
defers recognition of revenues until a point at which management can predict,
with reasonable certainty, that the benefit stream will generate amounts
sufficient to fund the contract. From that point forward, revenues are
recognized on a percentage of completion basis. All of the current large
multi-year benefit-funded contracts are currently recognized on a percentage of
completion basis.
When adjustments in the 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
10
The Company develops proprietary software products using its own funds,
or on a jointly funded basis with other organizations. These software products
are then licensed to customers, either as stand-alone applications, or as
elements of custom-built systems.
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards No. 86 — “Accounting for the Costs
of Computer Software to be Sold, Leased, or Otherwise Marketed” and for software
jointly developed in accordance with Statement of Position 97-2, “Software
Revenue Recognition”. For projects funded by the Company, significant
development costs incurred after technological feasibility has been established
are capitalized. After the product is available for general release to
customers, such costs are amortized on a straight-line basis over a period of 3
to 5 years or such other period as deemed appropriate. For projects where the
Company has a funding partner, the capital asset is reduced by the amount
collected from the partner. The Company recorded $19.5 million of amortization
in 2000, $16.6 million of amortization in 1999, and $14.5 million of
amortization in 1998. Unamortized costs were $133.4 million, $106.7 million, and
$79.1 million at December 31, 2000, 1999, and 1998, respectively. In 2000, the
Company reduced the unamortized costs by $5.9 million representing collections
from funding partners, compared to $21.8 million in 1999. The Company evaluates
the net realizable value of capitalized software using the estimated,
undiscounted, net-cash flows of the underlying products.
The Company capitalizes costs incurred for the development or purchase
of internal use software in accordance with Statement of Position 98-1,
“Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use.” Once the product is substantially complete and ready for its
intended use, capitalized costs are amortized on a straight-line basis over the
estimated useful life of the software.
The Company expended $76.2 million in 2000, $102.3 million in 1999, and
$77.4 million in 1998 for development associated with proprietary software. The
Company expensed in the accompanying consolidated financial statements $45.3
million in 2000, $47.1 million in 1999, and $35.4 million in 1998 for research
and development associated with proprietary software.
C. Fixed Assets, Purchased Computer Software Licenses and Intangibles
Fixed assets and purchased computer software licenses are recorded at
cost. Furniture, fixtures, and equipment are depreciated over estimated useful
lives ranging from 3 to 10 years. Leasehold improvements are amortized ratably
over the lesser of the applicable lease term or the useful life of the
improvement. For financial statement purposes, depreciation is computed using
the straight-line method. Purchased software licenses are amortized over 2 to 5
years using the straight-line method. Intangibles are generally amortized over 5
to 15 years.
11
D. Income Taxes
Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates for the year in which the differences are
expected to reverse.
Deferred income taxes are provided for temporary differences in
recognizing certain income, expense, and credit items for financial reporting
purposes and tax reporting purposes. Such deferred income taxes primarily relate
to the methods of accounting for revenue, capitalized software development
costs, restricted stock, and the timing of deductibility of certain reserves and
accruals for income tax purposes. A valuation allowance is recorded if it is
“more likely than not” that some portion or all of a deferred tax asset will not
be realized.
E. Earnings Per Share
Basic EPS excludes dilution and is computed by dividing net income by
the weighted average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
and is computed using the treasury stock method.
F. Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The carrying
amount approximates fair value because of the short maturity of these
instruments.
G. Currency Translation
For operations outside the United States with functional currencies
other than the U.S. dollar, the Company translates income statement amounts at
the average monthly exchange rates throughout the year. The Company translates
assets and liabilities at exchange rates prevailing as of the balance sheet
date. The resulting translation adjustments and gains and losses on intercompany
transactions which are long-term in nature are shown as other comprehensive
income.
H. Principles of Consolidation
The consolidated financial statements include the accounts of American
Management Systems, Incorporated and its wholly-owned subsidiaries. All
significant intercompany transactions have been eliminated. The Company’s
investments in companies in which it has the ability to exercise significant
influence over operating and financial policies are accounted for under the
equity method, with the remaining investments carried at cost.
I. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Future actual results could be different due to these
estimates. Significant estimates inherent in the preparation of the accompanying
consolidated financial statements include: management’s forecasts of contract
costs and progress towards completion which are used to determine revenue
recognition under the percentage-of-completion method, management’s estimates of
allowances for doubtful accounts, tax valuation allowances, and management’s
estimates of the net realizable value of purchased and developed computer
software and intangible assets.
12
J. Foreign Currency Hedging
From time to time, the Company has entered into foreign exchange
contracts as a hedge against market fluctuations. Hedges are established in
order to reduce the risk of market fluctuations associated with changes in
exchange rates. Market gains and losses are recognized, and the resulting
credits and debits offset foreign exchange gains and losses on those
transactions when settled. No contracts were outstanding as of December 31,
2000.
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133 as amended by statements No. 137 and 138 entitled “Accounting for
Derivative Instruments and Hedging Activities.” This Statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Company will adopt this new accounting standard effective January 1, 2001. The
adoption of this standard will have no material impact on the Company’s
consolidated financial statements.
K. Reclassifications
Certain prior year information has been reclassified to conform with the
current year presentation.
L. Comprehensive Income
The Company’s principal components of comprehensive income are net
income and foreign currency translation adjustments.
M. Investments
The Company’s uses the equity method of accounting for investments in
companies and other investments in which the Company has significant influence,
generally this represents common stock ownership or partnership equity of at
least 20% or more. Employing this method the Company records the initial
investment at cost and subsequently adjusts the carrying amount of the
investment to reflect the Company’s share of income or loss of the investee and
to reflect when applicable any dividends received from the investee.
NOTE 2 — ACCOUNTS AND NOTES RECEIVABLE
13
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, 2000, the ten largest individual receivable
balances totaled approximately $112.7 million.
Management believes that credit risk, with respect to the Company’s
receivables, is low due to the creditworthiness of its clients and the
diversification of its client base across different industries and geographies.
In addition, the Company is further diversified in that it enters into a range
of different types of contracts, such as fixed price, cost-plus, time and
material, and benefits funded contracts. The Company may also, from time to
time, work as a subcontractor on particular contracts. The Company performs
ongoing evaluations of contract performance as well as evaluations of the
client’s financial condition.
NOTE 3 – OTHER ASSETS
NOTE 4 — NOTES PAYABLE AND LINE OF CREDIT
Effective January 9, 1998, the Company entered into a syndicated
five-year $120 Million Multi-Currency Revolving Credit Agreement with Bank of
America and Wachovia Bank (the “1998 Agreement”) as agents. A term loan (the
“Term Loan”), which was funded by Wachovia Bank and Bank of America on January
6, 1997 under a term loan agreement, remains outstanding and is presently
governed by the 1998 Agreement.
The weighted average borrowings under all revolving credit agreements
was approximately $34.1 million in 2000, and $0.4 million in 1999 at weighted
daily average interest rates of approximately 6.5% in 2000, and 5.7% in 1999.
The maximum amount outstanding under all agreements was $106.1 million in 2000
and $37.8 million in 1999. At December 31, 2000 the Company had $35 million
outstanding under its revolving credit facility and $16.4 million in term loans
compared to no amounts outstanding under its revolving credit facility and $22.6
million outstanding in term loans at December 31, 1999.
The Company and most of its existing subsidiaries may borrow funds under
the 1998 Agreement in the approved currencies, subject to certain minimum
amounts per borrowing. Interest on such borrowings generally ranged from LIBOR
plus 12.5 basis points to LIBOR plus 45 basis points, depending upon the ratio
of total debt to EBITDA. The Company also was required to pay a facility fee
ranging from 12.5 basis points to 20 basis points of the total facility, based
upon the same performance measure. In addition, if 50% or more of the facility
was utilized, an additional usage fee of 12.5 basis points applied. Based upon
such measures, at December 31, 2000, interest payments were based upon an
interest rate of approximately 6.8%.
The 1998 Agreement, and the Term Loan, both contain certain financial
covenants with which the Company must comply. These covenants include: (i)
maintain at the end of each fiscal quarter for the four quarters ending on such
a date a fixed charge coverage ratio of not less than 2.5 to 1.0, (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
14
in any one fiscal year in excess of twenty-five percent of its net income for
such year. As of December 31, 2000, the Company was in compliance with these
covenants.
The following schedule summarizes the total outstanding notes; there are
no outstanding capitalized lease obligations.
Principal amounts are repayable as shown below:
Interest paid by the Company totaled $4.5 million in 2000, including
approximately $0.7 million related to additional borrowings associated with the
Mississippi settlement (see Note 11), $4.2 million in 1999, and $4.2 million in
1998.
NOTE 5 — EQUITY SECURITIES
The Company has an equity incentive plan which as amended (Plan F),
provides for the issuance of 5,800,000 shares of the Company’s common stock
either as incentive stock options (ISOs) or non-qualified stock options (NSOs).
The maximum lifetime for options range from five to ten years in the case of
NSOs and eight to ten years in the case of ISOs. Plan F allows the Compensation
Committee to grant stock options to Outside Directors generally on a
discretionary basis.
On December 3, 1999 the Board approved the 1999 Contractor Stock Option
Plan. The purpose of the plan is to offer certain non-employees (“contractors”),
who contribute materially to the successful operation of the Company, additional
incentive to continue to serve as contractors by increasing their participation
in the Company through stock ownership. Under the plan, the Company is
authorized to issue up to 20,000 shares of common stock as NSOs that will expire
on a date no later than five years from the date of issuance. During 2000, 1,500
options were granted under this plan for which the Company recorded compensation
expense of $23,760. No grants were made during 1999.
Under all plans, the exercise price of an ISO granted is not less than
the fair market value of the common stock on the date of grant and for NSOs, the
exercise price is either the fair market value of the
15
common stock on the date of the grant or, when granted in connection with
one-year performance periods under the Company’s incentive compensation program,
the exercise price may be determined by a formula selected by the Board or
appropriate Board committee that is based on the fair market value of the common
stock as of a date, or for a period, that is within three months of the date of
grant. In cases where the market value exceeds the exercise price on the date of
grant, the differential is recorded as compensation expense. 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, 2000 there were 826,346 shares available for grant under
Plan F. No options remain available for grant under any previous stock option
plan. The following table summarizes information with respect to stock options
outstanding at December 31, 2000 under all plans.
16
Additional information with respect to stock options awarded pursuant to such
plans is summarized in the following schedule.
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.” The Company has adopted, for disclosure purposes
only, Statement of Financial Accounting Standards No. 123, “Accounting for Stock
Based Compensation” (SFAS No. 123).
If the Company determined compensation cost for these plans in
accordance with SFAS No. 123, the Company’s pro-forma net income and earnings
per share for fiscal year 2000, 1999 and 1998 would have been decreased to the
pro-forma amounts indicated below:
17
The Company has ten-year, eight-year and five-year options. For
disclosure purposes, the fair value of each stock option grant is estimated on
the date of grant using the Black-Scholes option-pricing model. Under the
Black-Scholes model, the total value of the ten-year options granted in 2000 and
1999 was $38.9 million and $8.7 million, respectively, for which certain options
would be amortized on a graded vesting schedule on a pro-forma basis over a
seven-year period, and others would be amortized ratably on a pro-forma basis
over a ten-year period (which varies between four months and ten years). The
weighted-average fair value of the ten-year options granted in 2000 and 1999 was
$12.97 and $15.63, respectively. In accordance with the amendment to Plan F
ratified on May 21, 1999, there were no eight-year or five-year options granted
in 2000. The total value of the eight-year options granted in 1999 and 1998 was
$0.4 million and $2.8 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 1999 and
1998 was $17.82 and $12.37, respectively. The total value of the five-year stock
options granted in 1999 and 1998 was $8.0 million and $5.2 million,
respectively. These would be amortized ratably on a pro-forma basis over a
five-year period (which varies between four months and five years). The
weighted-average fair value of the five-year stock options granted in 1999 and
1998 was $16.00 and $10.18, respectively.
Additionally, the following weighted average assumptions were used for
the ten-year, eight-year and five-year stock options granted in 2000, 1999 and
1998 respectively.
On September 21, 1999, the Company announced that its Board of Directors
had authorized the purchase, from time to time, of up to 2 million shares of its
common stock through open market and negotiated purchases. This authorization is
in addition to the actions in August of 1998 and in February 1999, where in both
cases the Board of Directors authorized the purchase of 1 million shares. The
Company repurchased approximately 190,000, 1,900,000, and 720,000 shares of its
common stock during 2000, 1999, and 1998, respectively, for a total of $78.6
million. In addition, the Company has been funding stock option exercises
through the reissuance of previously acquired treasury shares.
The Company has a Restricted Stock Profit Sharing Plan whereby
restricted shares may be issued to employees if the Company meets performance
objectives. The Board of Directors specifies the total award pool as a fixed
dollar amount as set at the beginning of the performance period. The total
shares distributed are based upon the number of shares to which the pool
converts using the fair market value of the Company’s common stock on the date
of grant. These shares generally vest over a three year period. Total shares
issued were 0, 140,393 and 186,165 for the years ended December 31, 2000, 1999
and 1998 respectively, with compensation expense being recorded of $3.7 million,
$5.3 million and zero for the years then ended.
In fiscal year 2000 the Board authorized the issuance of 415,800
Restricted Shares under an employee retention program. These shares vest over a
three year period. The Company recorded compensation expense of $1,507,276 for
the year ended December 31, 2000, resulting in a remaining deferred compensation
balance of $5,275,463 at December 31, 2000.
18
NOTE 6 — EARNINGS PER SHARE RECONCILIATION
19
NOTE 7 — INCOME TAXES
20
Certain of the Company’s subsidiaries have net operating losses totaling
$22.4 million. Losses of $8.1 million expire on or before the close of year
2020. Losses of $14.3 million carry forward over an indefinite period. As a
result of restrictions on the utilization of certain losses, a valuation
allowance has been placed on those losses. The net changes in total valuation
allowance for the years ended December 31, 2000, 1999, and 1998 were a decrease
of $0.3 million, a decrease of $0.2 million, and an increase of $0.6 million
respectively. The Company also has jobs tax credits of $0.3 million that expire
between 2010 and 2012.
The Company has not provided for U.S. federal income and foreign
withholding taxes on $15.7 million of non-U.S. subsidiaries’ undistributed
earnings as of December 31, 2000, because such earnings are intended to be
reinvested indefinitely. It is not practicable to estimate the amount of any
additional taxes which may be payable on the undistributed earnings. 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.
The Company paid income taxes of approximately $13.0 million, $43.0
million, and $23.4 million, in 2000, 1999, and 1998, 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 2000 and 1999 the Company had accrued $36.4 million
and $28.3 million, respectively, for its obligations under these plans. The
Company
21
expensed $2.6 million,$1.8 million, and $1.4 million in 2000, 1999 and 1998,
respectively, related to the earnings by the deferred compensation plan
participants.
To fund these plans, the Company purchases corporate-owned life
insurance contracts. Proceeds from the insurance policies are payable to the
Company upon the death of the insured. During 1999 the Company received proceeds
of $1.2 million associated with one of the policies, which were subsequently
re-invested in the existing corporate-owned life insurance contracts. The cash
surrender value of these policies, included in “Other Assets”, was $32.6 million
at December 31, 2000 and $28.1 million at December 31, 1999. There were no
outstanding loans at December 31, 2000 or December 31, 1999 on these policies.
NOTE 9 — EMPLOYEE PENSION PLAN
The Company has a simplified employee pension plan, which became
effective January 1, 1980. This plan is a defined contribution plan whereby
contributions are based on the application of a percentage specified by the
Company to the qualified gross wages of eligible employees. The Company makes
annual contributions to the plan equal to the amount accrued for pension
expense. Total expense of the plan was $16.7 million in 2000, $14.0 million in
1999, and $11.5 million in 1998.
NOTE 10 — JOINT VENTURE AND ACQUISITION
In 1998, the Company established a joint venture with Bank of Montreal
to provide online loan application and decisioning services to small and
mid-size financial institutions via a new limited liability company, Competix
L.L.C. In October 1999, Competix converted from a limited liability company to a
C-corporation in which the Company currently maintains a 40% interest. Competix
is authorized to issue up to 20% of its stock to its employees, issuable upon
the exercise of stock options. At such time or times as Competix employees
exercise these stock options, AMS’s percent ownership in Competix will be
reduced. The Company recorded a gain of $3.5 million during fiscal year 2000 in
connection with the sale of a portion of the Company’s then current holdings. In
2000 and 1999, the Company invested $3.8 million and $1.8 million, respectively,
in connection with its interest in Competix, which investment was reduced by
$4.2 million and $4.3 million related to the Company’s share of the losses
incurred by Competix in 2000 and 1999 respectively. These losses have reduced
the Company’s investment to zero as of December 31, 2000. The Company has a note
receivable from Competix with a gross value of $4.3 million at December 31,
2000. Approximately $1.7 million was charged to earnings as a “Loss on Equity
Investment” which served to reduce this note receivable during fiscal year 2000
bringing the net balance to $2.6 million.
In September 2000, the Company acquired Synergy Consulting, Inc., a
California based provider of systems integration, eBusiness and management
consulting services in a purchase business combination for a cash payment of $20
million. The Company recorded Goodwill associated with the acquisition of
approximately $20.0 million, which will be amortized over 15 years. In addition,
the Company has a contingent obligation to pay the seller up to an additional
$15 million based upon certain financial and/or project related targets being
met. These payments, if made, will be added to the acquisition price and
recorded as additional Goodwill. The results of Synergy have been included in
the Company’s Statement of Operations since September 1, 2000.
NOTE 11 — COMMITMENTS AND CONTINGENCIES
The Company occupies production facilities and office space (real
property) and uses various equipment under operating lease agreements, expiring
at various dates through the year 2011.
22
The commitments under these agreements, as of December 31, 2000, 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
Operating lease expense for 2000, 1999, and 1998 was approximately $67.4
million, $51.0 million and $45.1 million, respectively.
The Company has an extended leave program for certain employees that
provides for compensated leave of eight weeks after seven years of service. The
leave is not vested and can be taken only at the discretion of management.
Because of the extended period over which the leave accumulates and the highly
discretionary nature of the program, the amount of extended leave accumulated at
any period end which will ultimately be taken is indeterminable. Consequently,
the Company expenses such leave as it is taken.
On April 22, 1999 the Company was served with a complaint alleging that
it failed to deliver software conforming to a contract that it entered into with
the State of Mississippi (the State). The matter proceeded to trial and on
August 23, 2000, a jury awarded the State actual and punitive damages totaling
$474.5 million. On August 28, 2000 the Company reached a fully negotiated
settlement with the State for $185.0 million and on the same day the court
signed an order dismissing the matter with prejudice in recognition of the
settlement. The present value of the settlement was approximately $135.0
million, of which approximately $102.0 million was paid by the Company’s
insurers.
The Company recorded a charge of $35.2 million to earnings for the
quarter ended September 30, 2000 for the settlement and the related expenses.
Approximately $34.4 million of this liability was paid during fiscal year 2000,
$12.3 million of which was used to purchase guaranteed funding contracts. The
guaranteed funding contracts were purchased from two large insurance companies,
in the names of the State agencies which are to receive the settlement payments
to fund all remaining amounts owed under the settlement. In the remote event
that the insurance companies are unable to pay the amounts, the Company remains
contingently liable. The Company’s balance sheet does not reflect either the
assets (guaranteed funding contracts) or the contingent liability.
On September 11, 2000 the Company filed a lawsuit against National Union
Fire Insurance Company, one of its insurance carriers, seeking damages arising
from National Union’s failure to take advantage of opportunities to settle the
Mississippi litigation (discussed in the preceding paragraph) well within
National Union’s policy limits. Federal Insurance Company (Federal) has joined
in that claim to recover the amount of secondary excess coverage that it
contributed to the Mississippi settlement. On November 13, 2000, National Union
filed a motion to dismiss the case, to stay the matter pending decision in a
case that it filed against the Company and Federal in the Fairfax County Circuit
Court (discussed in the following paragraph), or in the alternative, to transfer
the case from the United States District Court for the Southern District of
Mississippi to the United States District Court for the Eastern District of
Virginia. The
23
Company and Federal have responded to the motion and it is pending before the
court. The motion to stay may be rendered moot by actions of the Fairfax County
Circuit Court (discussed below). The court has set a schedule under which
discovery is to be completed by June 1, 2001, substantive motions are to be
filed by June 15, 2001, and a pretrial conference is to be held on September 14,
2001. The case is scheduled for trial during the period from October 1, 2001 to
October 19, 2001.
On September 22, 2000 the Company was served with a declaratory
judgement complaint filed by National Union in the Circuit Court for Fairfax
County, Virginia. National Union seeks a determination that it did not breach
its obligation to the Company in the failure to settle the Mississippi action
and further seeks a court determination that its excess policy has been
exhausted as a consequence of National Union’s payment toward the settlement.
The Company and Federal have filed a motion to dismiss or stay the Virginia
lawsuit in favor of the lawsuit filed by the Company and Federal in Mississippi.
On January 11, 2001, the Fairfax County Court denied the requests to dismiss or
stay the case. The court invited the parties to move for reconsideration of its
order and both the Company and Federal have done so. On February 9, 2001, the
Company and Federal asserted defenses to National Union’s complaint. On the same
day, National Union filed a motion to amend its complaint to add (i) a request
for a declaration that National Union has no liability for any existing or
potential claim that otherwise would be within the coverage of the National
Union policy and (ii) a claim that the Company breached duties of cooperation
and participation under the National Union policy and that the Company is liable
to National Union for damages in the amount of $37 million plus interest. On
March 28, 2001, the Court issued a ruling dismissing National Union’s claims
without prejudice, with the exception of the counterclaim for $37 million plus
interest, which is stayed pending the outcome of the case pending in
Mississippi.
On September 9, 1999 Bezeq, an Israeli Company, filed suit against a
subsidiary of the Company alleging that the subsidiary was in breach of a
contract with Bezeq. In the complaint, Bezeq sought damages in the approximate
amount of $39.0 million, which amount included amounts secured by bank
guarantees made in favor of Bezeq. On January 19, 2000, the Company’s subsidiary
filed a counterclaim against Bezeq alleging, among other things, breach of
contract and seeking approximately $58.8 million in damages. On September 21,
2000, the Company’s subsidiary and Bezeq entered into a settlement agreement,
pursuant to which, among other things, neither party admitted any fault and each
party released the other and the other’s affiliates from any claims. The total
amount paid by the Company’s subsidiary to Bezeq pursuant to the settlement
agreement did not exceed the amount previously reserved for potential losses
under the contract. In light of the settlement, the applicable court dismissed
both the claim and counterclaim with prejudice on October 24, 2000. The
settlement agreement has been performed fully and the mutual releases contained
therein are effective. The Company recorded approximately $3.7 million in other
income for the year ended December 31, 2000 related to the recovery of certain
previously recorded costs associated with this project.
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.
24
NOTE 12 — SEGMENT REPORTING AND SIGNIFICANT CUSTOMERS
The Company has adopted Statement of Financial Accounting Standards No.
131, “Disclosures about Segments of an Enterprise and Related Information” as
required and comparative information for earlier years is presented below. The
Company engages in business activities in one operating segment that provides
information technology consulting services to large clients in targeted vertical
markets. The chief operating decision-maker is provided information about the
revenues generated in key client industries. The resources needed to deliver the
Company’s services are not separately reported by industry. The Company markets
its services worldwide, and its operations are grouped into two main geographic
areas according to the location of each of the Company’s subsidiaries. The
Company’s long-lived assets are located primarily in the United States. The two
groupings consist of United States locations and non-US locations. Pertinent
financial data is summarized below.
Revenues from AMS’s U.S. Companies include export sales to non-US
clients of $17.2 million in 2000, $34.8 million in 1999, and $23.9 million in
1998. As a result the Company’s total non-US client revenues, primarily in
Western Europe, were as follows:
Long lived assets located within the U.S. were approximately $166.9
million, $135.7 million and $108.2 million for fiscal year 2000, 1999 and 1998,
respectively. Long lived assets held outside the U.S. were approximately $10.0
million, $10.2 million and $13.0 million for 2000, 1999 and 1998, respectively.
25
Significant Customers:
Total revenues from the U.S. Government, comprising 91 clients in 2000,
112 clients in 1999, and 109 clients in 1998, were approximately $342.2 million
in 2000, $288.2 million in 1999, and $224.8 million in 1998. No other customer
accounted for 10% or more of total revenues in 2000, 1999, or 1998.
26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
American Management Systems, Incorporated
Fairfax, Virginia
We have audited the accompanying consolidated balance sheets of American
Management Systems, Incorporated and subsidiaries (the Company) as of December
31, 2000 and 1999, and the related consolidated statements of operations,
comprehensive income, changes in stockholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of American Management Systems,
Incorporated and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
McLean, Virginia
February 14, 2001
27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) contains certain forward-looking statements. In
addition, the Company or its representatives from time to time may make, or may
have made, certain forward-looking statements, orally or in writing, including,
without limitation, any such statements made in this MD&A, press releases, or
any such statements made, or to be made, in the MD&A contained in other filings
with the Securities and Exchange Commission. The Company wishes to ensure that
such forward-looking statements are accompanied by meaningful cautionary
statements so as to ensure, to the fullest extent possible, the protections of
the safe harbor established by Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended.
Accordingly, such forward-looking statements made by, or on behalf of, the
Company are qualified in their entirety by reference to, and are accompanied by,
the discussion herein of important factors that could cause the Company’s actual
results to differ materially from those projected in such forward-looking
statements.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
of total revenues of major items in the Consolidated Statements of Operations
and the percentage change in such items from period to period (see “Financial
Statements and Notes”), excluding percentage changes in de minimus dollar
amounts. The effect of inflation and price changes on the Company’s revenues,
income from operations, and expenses, is generally comparable to the general
rate of inflation in the U.S. economy.
28
RESULTS OF OPERATIONS (continued)
REVENUES
Revenues increased 3% for the year ended December 31, 2000, compared to
17% for the fiscal year ended December 31, 1999. Approximately 85% of each
year’s revenues came from clients for whom the Company performed services in
prior years. Looking ahead to 2001, the Company expects revenue growth to
continue at rates moderately above the rates experienced in 2000. Through
leveraging existing client relationships, ensuring quality execution, and
targeting new clients, the Company expects revenues within the Federal
Government market and Other Corporate clients market to grow faster than the
overall growth rate of the Company while revenues in all other markets will
approximate the Company’s overall growth rate.
The Company continues to focus on expanding its delivery of
enterprise-wide business and technology solutions – including eBusiness
solutions- tailored to clients in financial services, new media and
communications, federal, state and local governments as well as health care and
utilities. These solutions help our clients to improve business performance by
creating tools for businesses to achieve greater cost savings, deliver improved
customer service, and leverage cross-sell and up-sell opportunities in their
markets.
Business with non-US clients decreased 14% to $196 million during 2000
compared to an increase of 9% to $227 million during 1999. The decrease in
revenues during 2000 was a result of lower than expected revenue growth in the
New Media and Communications Firms market driven by the ramping down of large
projects across Europe and slower than expected project starts. A principal
contributor to this decrease in revenues was a slowdown in the growth of the
telecommunications industry worldwide, which experienced significant industry
market consolidations, and larger than expected decreases in industry wide
spending. Business with non-US clients represented 15% and 18% of the Company’s
total revenues for 2000 and 1999, respectively. The Company continues to focus
on positioning itself to achieve growth in non-US business going forward and
expanding the number of services offered to these clients. For fiscal year 2001,
the Company expects revenues for non-US business to be in line with the overall
Company revenue growth rate when compared to the same 2000 periods.
In the New Media and Communications Firms market, a market characterized
by large projects with relatively few clients, revenues decreased 6% in fiscal
2000 when compared to 1999 and increased 27% during 1999 when compared to 1998.
The completion of large projects in 1999, as well as certain new projects not
ramping up as quickly as anticipated, produced lower revenues than the Company
expected in 2000. Non-US revenues decreased 21% in 2000 and increased 19% in
1999 when compared to 1998. As previously discussed, a principal contributor to
these decreases in revenues was a slowdown in the growth of the
telecommunications industry world-wide that experienced significant industry
market consolidations and larger then expected decreases in spending. Despite
industry slow-downs throughout 2000, the Company experienced continued success
with key clients and emerging work in this market. By continuing to focus on key
client relationships and quality project execution during 2001, the Company
expects revenue growth in this market to increase at rates similar to the
Company’s overall revenue growth rate. In the first half of 2000, the Company
substantially completed work related to its joint development contract with a
European client for its next generation customer care and billing software known
as “Tapestry.” The Company therefore began amortizing this asset which resulted
in approximately $6.4 million of amortization expense for fiscal 2000. The asset
will continue to be amortized in the amount of approximately $3.9 million each
quarter. On October 19, 2000 the Company announced a multi-year, multi-million
dollar contract for implementation of its Tapestry customer care and billing
product suite to its first North American client, a multi-billion dollar Fortune
100 company. The Company has since signed a second smaller contract and there
continues to be significant market interest in Tapestry.
29
Notwithstanding projected revenue growth, there continues to be risks in
this market. Competition for experienced staff is especially intense in the
telecommunications field, and staffing remains one of the Company’s critical
challenges. Additionally, the Company works in countries located in regions
other than Western Europe and North America from time to time and the delivery
risks in some of these other countries may be higher. Revenues in the New Media
and Communications Firms market in these other locations were less than 3% of
the Company’s total revenues for the years ended 2000 and 1999.
In the Financial Services Institutions target market, revenues increased
10% in 2000 and decreased 8% in 1999. The increase in revenues during 2000 was
driven by increased business with new clients and a rebounding of the retail
banking and insurance marketplace from last year’s slowdown associated with Year
2000 “lockdowns” and business consolidation activity. Business with non-US
clients accounted for approximately 34% of both fiscal 2000 and 1999 revenues in
this market (approximately $73 million and $67 million respectively). In 2001,
industry projections point to a slower demand for IT services in the financial
services sector and increased competition for new client business. Throughout
2001, the Company expects to leverage its existing client relationships, next
generation product solutions and strategic alliance relationships with leading
industry providers to achieve revenue growth at rates in line with the Company’s
overall anticipated revenue growth rate for 2001.
In the State and Local Governments and Education target market, revenues
decreased 5% in fiscal 2000 and increased 23% in 1999. The Company’s reduction
in revenues was driven by the completion of several large projects as well as a
longer than expected slowdown in the marketplace from Year 2000 “lockdowns,”
which led to slower project starts. During 2001, the Company will focus on
repositioning itself for continued growth in revenues by consolidating
operations to establish a targeted enterprise-wide focus for our clients as well
as expand and leverage our eGovernment capabilities and existing client
relationships. Revenues in the State and Local Governments and Education target
market are expected to increase in 2001 at rates below the company’s overall
growth rate. On certain contracts with state taxation departments, the Company’s
fees are paid out of the benefits (increased collections) that the client
achieves. The Company defers recognition of revenues on these contracts 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.
Revenues on all of the current large multi-year benefits-funded contracts are
currently recognized on a percentage of completion basis.
Revenues in the Federal Government Agencies target market increased 18%
in 2000 and 24% in 1999. The Company’s leadership in financial systems and
procurement business solutions combined with the continued expansion and
extension of contracted work with the Department of Defense for its Standard
Procurement System (“SPS”) continued to drive the growth rate in revenues in
this market above the Company’s overall growth rate in 2000. Revenues with the
Department of Defense accounted for approximately one-third of revenue growth in
2000 and 1999. For fiscal year 2001, the Company expects revenue growth in this
market to exceed the Company’s overall revenue growth rate when compared to the
same 2000 period. These revenue increases will continue to be driven by the SPS
contract, contracts with clients using the Company’s federal financial systems
and contracts leveraging the Company’s strategic alliance relationships with
both Seibel and Ariba.
Revenues in the Other Corporate Clients market increased 8% in both
fiscal years 2000 and 1999. The Company continues to expand its business with
clients in the utilities and healthcare marketplace. For fiscal year 2001, the
Company expects revenue growth in this market to increase at rates above the
Company’s overall growth rate.
30
EXPENSES
Client project expenses and other operating expenses together increased
4% during 2000, which was slightly above the growth rate in revenues. Comparing
1999 to 1998, client project and other operating expenses increased 17%, which
was in line with the growth in revenues. The Company has made significant
expenditures related to development of the “Tapestry” software which have been
capitalized. Key software deliveries were completed late in the first half of
2000 and the Company began amortization of this asset yielding approximately
$6.4 million of amortization expense for 2000. Amortization expense is expected
to be approximately $3.9 million per quarter going forward.
In February 2001, the Company announced a restructuring plan that will
realign the Company’s internal operations to a shared services model to
significantly streamline support activities across the corporation. In addition,
the Company is placing increased emphasis on employee skill-fit and performance.
During fiscal 2001 the Company will take a restructuring charge of between $14
million and $19 million related to these efforts of which approximately $13
million will be recorded in the first quarter. The Company expects the increased
emphasis on employee skill-fit and performance and the move to shared services
to impact approximately 10% of the Company’s US- based workforce by year end of
2001.
Corporate expenses increased 3% and 12% in 2000 and 1999 respectively.
The Company slowed the increase in Corporate expenses during fiscal year 2000 by
focusing on reducing overall corporate expenses. In addition in 2000 there were
no longer any significant Y2K remediation expenses that were part of corporate
expenses driving the comparable 1999 period. As part of the restructuring plan
previously discussed, in 2001 the Company will realign internal operations to
streamline support activities by moving to a shared services model for internal
functions such as Human Resources and internal IT support. For fiscal 2001, the
Company expects corporate expenses to grow at rates corresponding to the
Company’s overall revenue growth rate due to focused efforts on streamlining the
Company’s business model as well as reductions in corporate level performance
based incentive compensation and profit based compensation under the Company’s
restricted stock program.
As discussed more fully in the section of this Form 10-K entitled “Legal
Proceedings,” the Company recorded a charge of $35.2 million to pre-tax earnings
in the second half of 2000 due to the settlement of a lawsuit filed by the State
of Mississippi and the payment of related expenses. During the second half of
2000 the Company made payments of approximately $34.4 million in relation to the
settlement, and expects to pay the remaining liability of $0.8 million through
the first quarter of fiscal year 2001. Approximately $12.3 million of the $34.4
million paid, as well as amounts paid by the Company’s insurers, was used to
purchase guaranteed funding contracts in the names of the State agencies which
are to receive the settlement payments. In the remote event that the insurance
companies from which the Company purchased the guaranteed funding contracts are
unable to make the settlement payments, the Company remains contingently liable.
INCOME FROM OPERATIONS
Income from operations decreased 23% in 2000 compared to an increase of
9% in 1999. The 2000 decrease was primarily driven by the above-mentioned
contract litigation settlement with the State of Mississippi. Additionally,
throughout 2000 the Company made substantial investments in marketing, training,
and infrastructure focusing on the Company’s strategic alliances as well as
business development efforts. Importantly, the Company’s operating profit
margins have continued to remain strong due to an ongoing emphasis on
well-structured and well-priced engagements, tightly managed delivery risk, and
focused reductions in indirect costs company-wide. For 2001, the Company will
continue to focus on streamlining its corporate support activities and
controlling expenses while emphasizing managed growth.
31
OTHER (INCOME) EXPENSE
The Company incurred $3.4 million of interest expense net of interest
income in 2000 compared to no interest (income) expense in 1999 and $0.8 million
net interest expense in 1998. The increase in 2000 was due to temporary
increases in the amounts of short-term borrowings driven by the Company’s
increased investments in strategic alliances, the Company’s acquisition of
Synergy Consulting, Inc. and the Company’s settlement with the State of
Mississippi. Other Expense decreased in both 2000 and 1999 over the preceding
years. The continued decrease in 2000 was primarily driven by approximately $3
million in expenses recovered related to the finalization of the contract
settlement with an Israeli telecommunications firm, Bezeq, discussed in detail
in “Legal Proceedings,” which offset losses recorded for the Company’s
investment in Competix, which is described below.
The Company continues to develop its investment strategy and evaluate
opportunities presented by certain business relationships that would generate
additional income for its core business, leverage its existing assets
(customers, competencies, relationships, and technologies) and maximize
shareholder value. In late 1998, the Company established a joint venture with
Bank of Montreal to provide online processing services for loan applications to
small and mid-size financial institutions via a new firm, Competix.com (formerly
Competix, L.L.C.). The Company’s share of Competix.com’s losses was $5.9 million
in 2000, $4.3 during 1999, and $0.7 in 1998, related to the Competix.com joint
venture. During the first half of 2000 the Company sold a small portion of its
investment in Competix.com. This sale generated a $3.5 million gain. At year-end
2000, the Company’s remaining basis in its investment is a $2.6 million note
receivable due from Competix.com. In 2001, the Company will continue to
recognize its share of losses to write-down this receivable.
INCOME TAXES
The Company’s effective tax rate for 2000 and 1999 was 41% compared to
40.7% in 1998. The Company expects that its effective tax rate in 2001 will be
generally consistent with its historical rates.
FOREIGN CURRENCY EXCHANGE
Approximately 15% of the Company’s total revenues in 2000, 18% in 1999,
and 20% in 1998 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. In a further effort to mitigate foreign currency exchange risk,
the Company has established a notional cash pool with a European bank. This
arrangement allows the Company to better utilize its cash resources among all of
the Company’s subsidiaries, without incurring foreign currency conversion risks,
thereby mitigating foreign currency exposure for these transactions. The Company
also actively manages the excess cash balances in the cash pool, which tends to
increase net interest income. In the past, the Company had employed limited
hedging of inter-company balance sheet transactions through derivative
instruments (foreign currency swap contracts); however, as of December 31, 2000
the Company had no such outstanding derivative contracts.
32
LIQUIDITY AND CAPITAL RESOURCES
The Company provides for its operating cash requirements primarily
through funds generated from operations. Through an available bank facility, the
Company can also provide for cash and currency management with respect to the
short-term impact of certain cyclical uses, such as annual payments of incentive
compensation as well as financing, from time to time, accounts receivable and
other obligations. At December 31, 2000, the Company’s cash and cash equivalents
totaled $43.2 million, down from $111.3 million at the end of 1999. Cash used in
operating activities during 2000 was $1.4 million compared to cash provided by
operating activities of $109.1 million in 1999. The primary drivers of cash used
in operating activities during 2000 were payments associated with the losses
related to Bezeq and the litigation settlement with the State of Mississippi.
Other drivers include payments for incentive compensation and a reduction in
contract pre-payments (deferred revenue).
During 2000, the Company invested approximately $97.5 million in fixed
assets, software purchases, internally developed computer software and other
investments compared to $67.1 in 1999. The Company’s expansion of its strategic
alliances and business ventures as well as the creation of the next generation
software products drive these investments for the State and Local Government and
Financial Services markets. During the second half of 2000 the Company invested
approximately $20 million in the purchase of Synergy Consulting, Inc., a
California based provider of systems integration, eBusiness, and management
consulting services. This investment continues to build on the Company’s core
competencies in the State and Local Governments and Education markets. This
investment has been accretive to earnings in fiscal 2000 and is expected to be
so in fiscal 2001 and beyond.
Revolving line of credit borrowings were $35 million at December 31,
2000 compared to zero at December 31, 1999. During 2000, the Company made
principal payments of $59.1 million on outstanding debts owed to banks compared
to $5.4 million in 1999. The aggregate weighted average short-term borrowings
were approximately $34.1 million in 2000 and $0.4 million in 1999 at weighted
daily average interest rates of 6.5% and 5.7% respectively. In 2000, the Company
received proceeds of approximately $12.3 million from the exercise of stock
options compared to $14.2 million in 1999. The Company repurchased approximately
190,000 shares of common stock in the open market during 2000 at a cost of
approximately $4.5 million compared to 1.9 million shares repurchased in 1999 at
a cost of approximately $52 million. The Company has authorization from the
Board of Directors to purchase up to an additional 1.2 million shares.
The Company’s material unused source of liquidity at the end of 2000
consisted of approximately $85 million under the $120 million multi-currency
revolving credit agreement with Bank of America and Wachovia Bank as agents
(“the 1998 Agreement”).
In March 2001, the Company and certain of its subsidiaries amended the
1998 Agreement (the “March 2001 Amendment”), and the 1998 Agreement, as amended
(the “Amended 1998 Agreement”) became effective as of March 21, 2001. Under the
Amended 1998 Agreement, interest on borrowings will generally range from LIBOR
plus 62.5 basis points to LIBOR plus 77.5 basis points, dependent upon the fixed
charge coverage ratio. In addition, under the Amended 1998 Agreement, the
facility fee will range from 25 to 35 basis points of the total facility, based
upon the same performance measure. Previously under the 1998 Agreement, if 50%
or more of the facility was utilized, an additional usage fee of 12.5 basis
points applied. The March 2001 Amendment eliminated the utilization fee. The
Company believes that its liquidity needs can be met from the sources described
above.
33
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133 as amended by statements No. 137 and 138 entitled “Accounting for
Derivative Instruments and Hedging Activities.” This Statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Company will adopt this new accounting standard effective January 1, 2001. The
adoption of this standard will have no material impact on the Company’s
consolidated financial statements.
34
ASSUMPTIONS UNDERLYING CERTAIN FORWARD-LOOKING
STATEMENTS AND
FACTORS THAT MAY AFFECT FUTURE RESULTS
Over the next several years, the Company expects to continue to
experience managed growth in revenues. The continuing controlled growth in
revenues should enable the Company to continue improving its profit margins,
which have been reduced from time to time for after-tax reserves related to
troubled contracts.
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
that delivers on time and in accordance with specifications regardless of the
complexity of the application and the technology. The Company’s customers often
have a great deal at stake in being able to meet market and regulatory demands,
and demand very ambitious delivery requirements. In order to meet its
contractual commitments, AMS must continue to recruit, train, and assimilate
successfully large numbers of entry-level and experienced employees annually, as
well as to provide sufficient senior managerial experience on engagements,
especially on large, complex projects. Moreover, this staff must be re-deployed
on projects globally. Staffing projects in certain less industrialized countries
can pose special risks and challenges. The Company must also manage rates of
attrition, in view of increased competition for its talent.
There is also the risk of failing to successfully manage large projects
and the risk that the unanticipated delay, suspension, renegotiation or
cancellation of a large project could have an adverse impact on operating
results. Any such development in a project could result in a decline in revenues
or profits, the need to relocate staff, a lawsuit or other dispute with a client
regarding money owed, or damages incurred as a result of alleged non-performance
by AMS and a diminution of AMS’s reputation. Changing client requirements, such
as scope changes and process issues, and delays in client acceptance of interim
project deliverables, are other examples of risks of non-performance, especially
in large complex projects. All of these risks are magnified in the largest
projects and markets simply because of their size. The Company’s business is
characterized by large contracts producing high percentages of the Company’s
revenues. For example, 40% of the Company’s total revenues in 2000 was derived
from business with 17 clients.
There is also the risk of revenues not being realized when expected,
such as in certain contracts in the State and Local Governments market. On
certain large contracts, the Company’s fees are paid out of the benefits (for
example, increased revenues from tax collections) that the client achieves. The
Company historically has deferred recognition of such revenues until management
can predict, with reasonable certainty, that the benefit stream will generate
amounts sufficient to fund the contract. From that point forward revenues are
recognized on a percentage of completion basis. As the number of such contracts,
and the Company’s experience with predicting the timing and certainty of such
revenues, have increased over time, the Company expects to be able to recognize
revenues earlier on such contracts in the future.
The Company also faces the risk of increased competition in the markets
in which it participates. In addition to any risk that the Company’s competitors
may create, some of the Company’s current or prospective clients may decide to
perform projects with their in-house staff that the Company might otherwise have
undertaken. The Company also faces the risk of shrinking markets resulting from
mergers and other consolidations of clients or prospective clients. Increased
competition from industry rivals, as well as decisions by clients to outsource
fewer projects or to consolidate with others in the Company’s markets, could
have a negative effect on pricing, revenues and margins.
35
Events such as declines in revenues or profits, downturns in the
industry in which the Company operates and downturns in the stock markets
generally could result in immediate fluctuations in the trading price and volume
of the Company’s stock. Certain other risks, including, but not limited to, the
Company’s international scope of operations, are discussed elsewhere in this
Form 10-K. The Company conducts business in countries other than Western Europe
and North America. Contracts being performed in such non-Western countries can
have higher delivery risks for a variety of reasons. Because the Company
operates in a rapidly changing and highly competitive market, additional risks
not discussed in this Form 10-K may emerge from time to time. The Company cannot
predict such risks or assess the effect, if any, that such risks may have on its
business. Consequently, the Company’s various forward-looking statements, made,
or to be made, should not be relied upon as a prediction of actual results.
36
FIVE-YEAR FINANCIAL SUMMARY
37
FIVE-YEAR REVENUES BY TARGET MARKET
– —————————-
(1) Formerly referred to as Telecommunications Firms
38
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summary represents the results of operations for the two
years in the period ended December 31, 2000. (In millions except per share data)
The Company has never paid any cash dividends on its common stock and
does not anticipate paying dividends in the foreseeable future. Its policy is to
invest retained earnings in the operation and expansion of its business. Future
dividend policy with respect to its common stock will be determined by the Board
based upon the Company’s earnings, financial condition, capital requirements,
and other then-existing conditions.
STOCK MARKET INFORMATION
The common stock of American Management Systems, Incorporated, is traded
on the NASDAQ over-the-counter market under the symbol AMSY. References to the
stock prices are the high and low bid prices during the calendar quarters.
The approximate number of shareholders of record of the Company’s common
stock as of March 23, 2001 was 1,158.
39
OTHER INFORMATION
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C.
Ridgefield Park, N.J.
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
McLean, Virginia
COUNSEL
Shaw Pittman
Washington, D.C.
STOCKHOLDER AND 10-K INFORMATION
Financial inquiries should be directed to Ronald L. Schillereff, Chief Financial
Officer, American Management Systems, Incorporated, 4050 Legato Road, Fairfax,
Virginia 22033. Telephone (703) 267-8000. A complimentary copy of the Company’s
Annual Report on Form 10-K filed with the Securities and Exchange Commission
will be provided upon written request.
ANNUAL MEETING
The annual shareholders meeting has been scheduled for May 11, 2001 in Fairfax,
Virginia, for stockholders of record on March 22, 2001.
40
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS — MAY 11, 2001
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
The undersigned hereby appoints Patrick W. Gross and Frank A.
Nicolai, and each of them, as proxies, with full power of substitution in each,
to vote all shares of the common stock of American Management Systems,
Incorporated (the “Company”), which the undersigned is entitled to vote at the
Annual Meeting of Shareholders of the Company to be held on May 11, 2001 at
10:00 A.M. local time, and at any adjournment(s) or postponement(s) thereof, on
all matters set forth in the Notice of Annual Meeting and Proxy Statement, dated
April 10, 2001, a copy of which has been received by the undersigned, as follows
on the reverse side.
(Continued and to be SIGNED on the reverse side.)
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED
“FOR” EACH OF THE MATTERS STATED.
1 FOR [ ] AGAINST [ ] ABSTAIN [ ] Dated: , 2001 ———————————— ————————————
3. GRANT AUTHORITY upon such other matters as may come before the meeting,
including any adjournment(s) or postponement(s) of the meeting, as they
determine to be in the best interests of the Company:
———————-
Signature of Shareholder(s)
IMPORTANT: Please mark this Proxy, date, sign exactly as your name(s) appear(s),
and return in the enclosed envelope. If shares are held jointly,
signature need only include one name. Trustees and others signing in
a representative capacity should so indicate.
By checking the box to the right, I consent to future delivery of the Company’s
Annual Reports, Proxy Statements, notices, prospectuses and other communications
via electronic transmission in the event that the Company makes such electronic
transmission. By so consenting, I understand that I will receive an e-mail in
the event that the Company makes such electronic transmission (at the e-mail
address I have indicated below) which will provide a link to these documents on
the Internet. I understand that the Company may no longer distribute printed
materials to me for any future shareholder meeting until such consent is
revoked. I understand that I may revoke my consent at any time by written notice
to the Company’s transfer agent, Mellon Investor Services, P.O. Box 3337, South
Hackensack, NJ 07606, and that costs normally associated with electronic access,
such as usage and telephone charges, will be my responsibility.
e-mail address:
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VOTE BY INTERNET OR TELEPHONE OR MAIL
24 Hours a Day, 7 Days a Week
Your telephone or Internet vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed and returned your
proxy card.
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.
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