1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the Transition Period From: ______________ To: ____________
Commission File No.: 0-9233
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
(Exact name of registrant as specified in its charter)
State or other Jurisdiction of I.R.S. Employer
Incorporation or Organization: Delaware Identification No.: 54-0856778
4050 Legato Road
Fairfax, Virginia 22033
(Address of Principal Executive Offices)
Registrant's Telephone No., Including Area Code: (703) 267-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
---- ----
As of November 7, 1996, 40,835,953 shares of common stock were outstanding.
2
DOCUMENTS INCORPORATED BY REFERENCE
1. Pursuant to Form 10-Q General Instruction D(1), in response to
item 2 of Part I of this Form 10-Q, registrant hereby incorporates by reference
the section entitled, "Assumptions Underlying Certain Forward-Looking Statements
and Factors That May Affect Future Results," which is contained in Exhibit 13 to
the registrant's Annual Report on Form 10-K for its fiscal year ended December
31, 1995 (File No. 0-9233), filed with the Securities and Exchange Commission on
April 1, 1996.
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CONTENTS
Page
----
Part I Financial Information
Item 1. Financial Statements ...................................... 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................. 7
Part II Other Information
Item 1. Legal Proceedings ......................................... 11
Item 2. Changes in Securities ..................................... 11
Item 3. Defaults Upon Senior Securities ........................... 11
Item 4. Submission of Matters to a Vote of Security Holders ....... 11
Item 5. Other Information ......................................... 11
Item 6. Exhibits and Reports on Form 8-K .......................... 12
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
The information furnished in the accompanying Consolidated Statements of
Operations, Consolidated Revenues by Market, Consolidated Balance Sheets, and
Consolidated Statements of Cash Flows reflects all adjustments which are, in
the opinion of management, necessary for a fair statement of the results of
operations and financial condition for the interim periods. The accompanying
financial statements and notes thereto should be read in conjunction with the
financial statements and notes for the year ended December 31, 1995, included
in the American Management Systems, Incorporated (the "Company" or "AMS")
Annual Report on Form 10-K (File No. 0-9233) filed with the Securities and
Exchange Commission on April 1, 1996.
1
5
American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In millions except per share data)
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
------- -------- ------ ------
REVENUES
Services and Products ................. $197.2 $143.8 $532.8 $406.1
Reimbursed Expenses ................... 20.3 18.9 54.9 49.8
------- ------- ------ ------
217.5 162.7 587.7 455.9
EXPENSES
Client Project Expenses ............... 130.0 92.7 354.9 259.0
Other Operating Expenses .............. 53.9 44.7 149.9 133.4
Corporate Expenses .................... 14.2 12.1 37.0 30.5
------- ------- ------ ------
198.1 149.5 541.8 422.9
INCOME FROM OPERATIONS ................... 19.4 13.2 45.9 33.0
OTHER (INCOME) EXPENSE
Interest Expense ...................... 1.0 0.5 2.4 1.2
Other (Income) Expense ................ (0.1) (0.3) (0.7) (0.9)
------- ------- ----- -----
0.9 0.2 1.7 0.3
INCOME BEFORE INCOME TAXES ............... 18.5 13.0 44.2 32.7
INCOME TAXES ............................. 7.8 5.5 18.6 13.7
------- ------- ------ ------
NET INCOME ............................... $ 10.7 $ 7.5 $ 25.6 $ 19.0
======= ======= ====== ======
WEIGHTED AVERAGE SHARES AND EQUIVALENTS .. 41.9 40.8 41.8 40.6
------- ------- ------ ------
NET INCOME PER SHARE ..................... $ 0.25 $ 0.19 $ 0.61 $ 0.47
======= ======= ====== ======
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American Management Systems, Incorporated
CONSOLIDATED REVENUES BY MARKET
Unaudited
(In millions)
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
------ ------ ------ ------
Telecommunications Firms ................... $85.7 $ 53.9 $215.3 $146.7
Financial Services Institutions ............ 41.9 34.7 118.9 94.0
State and Local Governments and Education .. 31.7 22.0 90.9 68.1
Federal Government Agencies ................ 29.3 25.2 81.0 72.4
Other Corporate Clients .................... 8.6 8.0 26.7 24.9
------ ------ ------ ------
Total Services and Products Revenues ....... 197.2 143.8 532.8 406.1
Reimbursed Expenses Revenues ............... 20.3 18.9 54.9 49.8
------ ------ ------ ------
Total Revenues ............................. $217.5 $162.7 $587.7 $455.9
====== ====== ====== ======
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American Management Systems, Incorporated
CONSOLIDATED BALANCE SHEETS
(In millions except per share data)
9/30/96
ASSETS (Unaudited) 12/31/95
----------- --------
CURRENT ASSETS
Cash and Cash Equivalents ...................................... $ 26.2 $ 35.8
Accounts and Notes Receivable .................................. 272.7 206.1
Prepaid Expenses and Other Current Assets ...................... 5.8 8.9
----------- --------
304.7 250.8
FIXED ASSETS
Equipment ...................................................... 57.8 47.4
Furniture and Fixtures ......................................... 15.6 14.2
Leasehold Improvements ......................................... 8.9 11.4
----------- --------
82.3 73.0
Accumulated Depreciation and Amortization (40.1) (35.9)
----------- --------
42.2 37.1
OTHER ASSETS
Purchased and Developed Computer Software (Net of Accumulated
Amortization of $47,400,000 and $47,700,000) ................. 37.8 33.0
Intangibles (Net of Accumulated Amortization of $2,500,000 and
$2,100,000) ................................................... 6.5 6.8
Other Assets (Net of Accumulated Amortization of $11,400,000 and
$4,900,000) ................................................... 13.1 9.8
----------- --------
57.4 49.6
----------- --------
TOTAL ASSETS ........................................................ $404.3 $337.5
=========== ========
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American Management Systems, Incorporated
CONSOLIDATED BALANCE SHEETS
(In millions except per share data)
9/30/96
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 12/31/95
----------- --------
CURRENT LIABILITIES
Notes Payable and Capitalized Lease Obligations .................. $ 43.1 $ 23.1
Accounts Payable ................................................. 14.5 8.6
Accrued Incentive Compensation ................................... 31.0 28.3
Other Accrued Compensation and Related Items ..................... 29.2 25.3
Deferred Revenues ................................................ 27.8 26.3
Other Accrued Liabilities ........................................ 2.2 2.3
Income Taxes Payable ............................................. - 2.3
----------- --------
147.8 116.2
Deferred Income Taxes ............................................ 26.1 19.0
----------- --------
173.9 135.2
NONCURRENT LIABILITIES
Notes Payable and Capitalized Lease Obligations .................. 15.3 20.4
Other Accrued Liabilities ........................................ 0.9 0.7
Deferred Income Taxes ............................................ 5.7 5.7
----------- --------
21.9 26.8
----------- --------
TOTAL LIABILITIES ..................................................... 195.8 162.0
STOCKHOLDERS' EQUITY
Preferred Stock ($0.10 Par Value; 4,000,000 Shares Authorized,
None Issued or Outstanding)
Common Stock ($0.01 Par Value; 100,000,000 Shares Authorized,
49,449,894 and 48,867,891 Issued and 40,793,580 and 40,040,454
Outstanding) .................................................... 0.5 0.5
Capital in Excess of Par Value ................................... 69.5 65.4
Retained Earnings ................................................ 167.4 141.8
Currency Translation Adjustment .................................. (0.9) (0.7)
Common Stock in Treasury, at Cost (8,656,314 and 8,827,437 Shares) (28.0) (31.5)
----------- --------
208.5 175.5
----------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................ $404.3 $337.5
=========== ========
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American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In millions)
For the Nine Months
Ended September 30,
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .......................................................... $ 25.6 $ 19.0
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization .................................... 27.3 21.9
Deferred Income Taxes ............................................ 7.0 2.3
Provision for Doubtful Accounts .................................. 1.8 1.2
Changes in Assets and Liabilities:
Increase in Trade Receivables ................................ (68.5) (48.1)
Decrease in Prepaid Expenses and Other Current Assets ........ 3.2 1.2
Increase in Other Assets ..................................... (10.3) (5.7)
Increase in Accrued Incentive Compensation ................... 6.1 2.5
Increase in Accounts Payable, Other Accrued Compensation,
and Other Accrued Liabilities ............................... 9.9 14.8
Increase (Decrease) in Deferred Revenue ...................... 1.5 (6.5)
Decrease in Income Taxes Payable ............................. (2.3) (1.8)
---------- ----------
Net Cash Provided by Operating Activities ........................ 1.3 0.8
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets ............................................ (16.9) (18.4)
Purchase of Computer Software ....................................... (4.7) (1.8)
Investment in Software Products ..................................... (9.1) (10.9)
Decrease in Other Investments ....................................... 0.5 0.3
Proceeds from Sale of Fixed Assets and Purchased Computer Software .. 0.4 0.3
---------- ----------
Net Cash Used by Investing Activities ............................ (29.8) (30.5)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings .......................................................... 20.2 33.1
Payments on Borrowings .............................................. (5.1) (3.7)
Proceeds from Common Stock Options Exercised ........................ 4.0 1.8
Payments to Acquire Treasury Stock .................................. (0.0) (0.8)
---------- ----------
Net Cash Provided by Financing Activities ........................ 19.1 30.4
(Increase) Decrease in Currency Translation Adjustment .............. (0.2) 0.6
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ................... (9.6) 1.3
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....................... 35.8 34.2
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................. $ 26.2 $ 35.5
========== ==========
NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
Treasury Stock Utilized to Satisfy Accrued Incentive Compensation
Liabilities ........................................................ $ 3.4 $ 2.9
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated
the percentage of revenues of major items in the Consolidated
Statements of Operations and the percentage of change in such items
from period to period, excluding percentage changes in de minimus
dollar amounts.
Percentage of
Total Revenues Period-to-Period Change
-------------- -----------------------------------------
Quarter Ended Quarter Ended Nine Months Ended
September 30, September 30, 1996 September 30, 1996
vs. vs.
1996 1995 September 30, 1995 September 30, 1995
------- ------ ------------------- -------------------
Revenues
Services and Products ................. 90.6% 88.4% 37.1% 31.2%
Reimbursed Expenses ................... 9.4 11.6 7.4 10.3
----- -----
Total ................................. 100.0 100.0 33.7 29.0
Expenses
Client Project Expenses ............... 59.8 57.0 40.2 37.0
Other Operating Expenses .............. 24.8 27.5 20.6 12.4
Corporate Expenses .................... 6.5 7.4 17.4 21.3
----- -----
Total ................................. 91.1 91.9 32.5 28.1
Income from Operations ................... 8.9 8.1 47.0 39.1
Other (Income) Expense ................... 0.4 0.1 - -
Income Before Income Taxes ............... 8.5 8.0 42.3 35.2
Income Taxes ............................. 3.5 3.4 41.8 35.8
Net Income ............................... 5.0 4.6 42.7 34.8
Weighted Average Shares and Equivalents .. - - 2.7 3.0
Net Income per Share ..................... - - 31.6 29.8
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RESULTS OF OPERATIONS (continued)
This Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") contains certain forward-looking statements. In
addition, the Company or its representatives from time to time may make, or may
have made, forward-looking statements, orally or in writing, including, without
limitation, in the MD&A contained in other filings with the Securities and
Exchange Commission. The Company wishes to ensure that such forward-looking
statements are accompanied by meaningful cautionary statements so as to ensure
to the fullest extent possible the protections of the safe harbor established
by the Private Securities Litigation Reform Act of 1995. Accordingly, such
forward-looking statements made by, or on behalf of, the Company are qualified
in their entirety by reference to, and are accompanied by, the discussion in
this Form 10-Q and in documents incorporated by reference herein of important
factors that could cause the Company's actual results to differ materially from
those projected in such forward-looking statements.
REVENUES
Services and products revenues ("S&P revenues") increased 37% during the
third quarter and 31% for the first nine months of 1996, compared to the same
1995 periods, with growth occurring, in both the quarter and the nine months,
in all of the Company's target markets. The Company expects continued
substantial growth for the remainder of the year, at rates of increase
comparable to that experienced in the first nine months of 1996.
Business with non-US clients increased 70% (to $74.9 million) during the
third quarter and 72% (to $202.1 million) for the first nine months of 1996,
compared to the same 1995 periods. These increases account for approximately
58% and 67% of the total S&P revenue increase of the Company in the third
quarter and first nine months, respectively. Business with European clients,
which has dominated the rise in non-US business, increased 80% (to $65.1
million) for the quarter and 89% (to $176.7 million) for the first nine months,
with revenues from Telecommunications Firms being the principal factor. For
the year as a whole, the Company expects the rate of increase in non-US
business, and European business in particular, to be somewhat lower than the
rates of increase realized in the first nine months of 1996.
In the Telecommunications Firms target market, S&P revenues increased 59%
and 47% in the third quarter and first nine months of 1996, respectively,
compared to the same 1995 periods. The majority of this increase is
attributable to business with non-US clients, which increased 80% during the
quarter (to $61.4 million) and 84% for the nine-month period (to $162.7
million). Business in this market is characterized by very large projects,
with relatively few clients. For all of 1996, the Company expects the growth
in this market to continue to be greater than the Company's overall growth.
In the Financial Services Institutions target market, S&P revenues
increased 21% in the quarter, and 27% in the first nine months of 1996, over
the comparable 1995 periods, owing principally to build-ups in business with
clients who started large projects in early 1996 or in the second half of 1995.
Business with non-US clients, which increased 39% (to $12.3 million) in the
quarter and 42% (to $35.9 million) in the first nine months, now accounts for
approximately 30% of the revenues in this market. The Company expects S&P
revenue growth in this market for the year to increase at rates in line with
the Company's overall revenue growth.
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RESULTS OF OPERATIONS - REVENUES (continued)
In the State and Local Governments and Education target market, third
quarter S&P revenues increased 44% while S&P revenues for the first nine months
increased 33%, compared to the same 1995 periods. The increases have been
fueled by several large contracts with state taxation departments that are
looking to make substantial improvements in their ability to collect delinquent
taxes. The Company expects S&P revenues in the State and Local Governments and
Education target market to increase for all of 1996, at rates commensurate with
the increase in the Company's overall S&P revenues.
S&P revenues in the Federal Government Agencies target market increased
16% in the quarter and 12% for the first nine months of 1996 compared to the
same 1995 periods. The Company expects S&P revenues in this target market, for
all of 1996, to increase but at rates below the Company's overall growth in S&P
revenues.
S&P revenues from Other Corporate Clients increased 8% during the third
quarter and 7% during the first nine months, compared to the same 1995 periods.
S&P revenues from this market, which represents business not covered by the
Company's other markets, for all of 1996, is expected to increase, but at rates
below the Company's overall growth in S&P revenues.
EXPENSES
Client project expenses and other operating expenses combined increased
34% during the third quarter of 1996 and 29% for the first nine months, which
are approximately the same rates as the S&P revenue growth rate. For 1996 as a
whole, the Company anticipates that these expenses will continue to be in line
with the revenue growth.
Corporate expenses increased 17% and 21% during the third quarter and
first nine months of 1996, respectively. While some expenses, such as
corporate sponsored technology, corporate management, and corporate level
performance-based compensation, increased at rates greater than the increase in
revenues, other expenses, such as corporate sponsored recruiting and training,
and other corporate activities, grew at rates slower than the revenue increase.
INCOME FROM OPERATIONS
Income from operations increased 47% and 39% for the third quarter and
first nine months, respectively, compared to the same 1995 periods. This rate
of increase was greater than the S&P revenue increase. For the year as a whole
the Company expects profit margins to improve over 1995.
OTHER (INCOME) EXPENSE
Interest expense increased 100% in the third quarter and 97% in the first
nine months of 1996 because of interest payments on additional debt incurred by
the Company during the prior year and first nine months of 1996. Other income
decreased 65% during the third quarter and 33% during the first nine months,
when compared to 1995, due primarily to lower levels of investments.
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FOREIGN CURRENCY EXCHANGE
Approximately 38% of the Company's total S&P revenues in the first nine
months of 1996 were derived from non-US business. 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, and the
Company does take some risk that profits will be adversely affected by foreign
currency exchange fluctuations. However, these risks may be mitigated to the
extent the Company: 1) successfully negotiates short-term contracts of one
year or less, or 2) negotiates provisions that allow pricing adjustments
related to currency fluctuations.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has provided for its operating cash requirements
primarily through funds generated from operations, using bank borrowings
primarily for cash and currency management with respect to the short term
impact of certain cyclical uses such as annual payments of incentive
compensation. At September 30, 1996, the Company's cash and cash equivalents
totaled $26.2 million, down from $35.5 million at the end of 1995. Cash
provided by operating activities was $1.3 million, with the increase in
accounts receivable offsetting increases in other operating activities. The
Company has been successful in slowing down the growth of its accounts
receivable, as these assets increased at a slower rate than revenues during the
third quarter of 1996. The Company is continuing to review closely its
receivables balances and to emphasize collection efforts. Also, while the
Company continued, during the first nine months of 1996, to experience delays
in collecting accounts receivable related to subcontract work with a prime
contractor in the child support enforcement business and a receivable related
to a contract with a foreign government which is experiencing continued cash
flow problems, the Company continued to receive payments from each of these
clients during this period and expects to receive all funds due from each of
them.
The Company's cash flows used in investing activities were approximately
$29.8 million, primarily for fixed assets and software purchases, and computer
software development during the nine months. During the first nine months of
1996, the Company borrowed $20.2 million under the Company's revolving line of
credit facilities with U.S. banks, increasing the total borrowed under such
lines of credit to $36.5 million at September 30, 1996. During the first nine
months, the Company made approximately $5.1 million in installment payments of
principal on outstanding debt owed to banks; the Company also received
approximately $4.0 million during the period from the exercise of stock
options.
At September 30, 1996, the Company's debt-equity ratio, as measured by
total liabilities divided by common stockholders' equity, was 0.94, up from
0.92 at December 31, 1995.
The Company's material unused source of liquidity at the end of the third
quarter of 1996 consisted of approximately $33.5 million under its revolving
lines of credit. During the second quarter of 1996, the Company increased its
borrowing limit under its multi-currency line of credit facility to $40
million, and under its US dollar facility to $30 million, which raised the
aggregate borrowing capacity, under line of credit facilities, to $70 million.
One of these committed lines of credit expires by its terms at the end of 1996.
Consequently, the Company has obtained commitments to fund up to $100 million
from various financial institutions for a new multi-currency revolving credit
and term loan facility. The Company believes that its liquidity needs can be
met from the various sources described above.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
As reported in AMS's Form 10-K for the year ended December 31, 1995 and
filed April 1, 1996, Andersen Consulting LLP ("Andersen") sued AMS on July 20,
1995, claiming copyright infringement and appropriation of trade secrets, and
seeking injunctive relief as well as damages. On August 25, 1995, the United
States District Court for the Southern District of New York, in which the suit
is pending, denied Andersen's request for a preliminary injunction.
AMS vigorously contested Andersen's claims. On August 30, 1995, AMS
served its answer together with counterclaims against Andersen. In its answer,
AMS denied any liability to Andersen. AMS claimed no trade secret protection
exists in the concepts cited by Andersen and that AMS had utilized no
confidential information of Andersen. In its counterclaim, AMS alleged that
Andersen had defamed AMS and had attempted to interfere with AMS's contracts and
opportunities by disseminating false statements regarding AMS. On April 29,
1996, AMS amended its answer and counterclaim to add additional counterclaims
against Andersen for trade secret misappropriation and unfair competition.
On June 28, 1996, AMS and Andersen settled their disputes. On July 8,
1996, the parties filed with the Court a notice of dismissal with prejudice of
all claims and counterclaims.
Item 2. Changes in Securities
NONE.
Item 3. Defaults Upon Senior Securities
NONE.
Item 4. Submission of Matters to a Vote of Security Holders
NONE.
Item 5. Other Information
NONE.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
NONE.
(b) Reports on Form 8-K
NONE.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
Date: November 13, 1996 /s/ Philip M. Giuntini
----------------- -----------------------------------------
Philip M. Giuntini, President
Date: November 13, 1996 /s/ James E. Marshall
----------------- -----------------------------------------
James E. Marshall, Controller
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