-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LAETCr7f33PWkl+Ma9ClUcWYC+UKNHTfjHhH9M+3I6gA+0asBRgXD4/eQ6mzXcoq 2nterpfs2W97XOelEHDxHg== 0000950133-98-001349.txt : 19980410 0000950133-98-001349.hdr.sgml : 19980410 ACCESSION NUMBER: 0000950133-98-001349 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980508 FILED AS OF DATE: 19980409 SROS: NASD 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: 98590673 BUSINESS ADDRESS: STREET 1: 4050 LEGATO RD CITY: FAIRFAX STATE: VA ZIP: 22033 BUSINESS PHONE: 7032678000 DEF 14A 1 DEFINITIVE PROXY STATEMENT 1 SCHEDULE 114A (RULE 14a-101) SCHEDULE 14A INFORMATION INFORMATION REQUIRED IN PROXY STATEMENT 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 Pursuant to Rule 14a-11(c) or 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)(4) 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: 2 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 4050 LEGATO ROAD FAIRFAX, VIRGINIA 22033 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of AMERICAN MANAGEMENT SYSTEMS, INCORPORATED will be held at 4050 Legato Road, Fairfax, Virginia 22033 on Friday, May 8, 1998, at 10:00 a.m. local time, for the following purposes: To elect ten (10) directors to hold office until the next Annual Meeting of Shareholders of American Management Systems, Incorporated and until their successors are elected and qualified; and To transact such other business as may properly come before the meeting or any adjournment or adjournments thereof. Only shareholders of record at the close of business on March 20, 1998, will be entitled to notice of, and to vote at, the meeting or any adjournment 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. BY ORDER OF THE BOARD OF DIRECTORS, Frank A. Nicolai Secretary April 10, 1998 3 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 4050 LEGATO ROAD FAIRFAX, VIRGINIA 22033 PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS MAY 8, 1998 TABLE OF CONTENTS
PAGE ---- General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Voting Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Information Concerning Nominees FOR Director . . . . . . . . . . . . . . . . . . . . . . . . 2 Information Concerning Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . 9 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Compensation Committee Report OF Executive Compensation . . . . . . . . . . . . . . . . . . . 12 Shareholder Return Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Committees and Compensation of the Board of Directors . . . . . . . . . . . . . . . . . . . . 17 Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . 18 Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 American Management Systems, Incorporated 1997 Financial Report . . . . . . . . . . . Appendix 1
4 GENERAL The enclosed Proxy is being solicited by the Board of Directors of AMERICAN MANAGEMENT SYSTEMS, INCORPORATED (the "Company" or "AMS") in connection with the annual meeting of shareholders of the Company to be held May 8, 1998 (the "Annual Meeting"), or any adjournment or adjournments thereof. The entire expense of solicitation of proxies will be borne by the Company. Solicitation will be primarily by mail. However, directors, executive officers, and employees of the Company may also solicit by telephone or personal contact. The Company will reimburse brokers and other persons holding shares in their names, or in the names of nominees, for their expenses of sending proxy materials to beneficial owners and obtaining their proxies. It is anticipated that the Proxy Statement and Proxy first will be mailed to shareholders on or about April 10, 1998. Any shareholder giving a Proxy has the power to revoke it at any time before it is voted by giving written notice of revocation to the Secretary of the Company or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary of the Company. If you attend the Annual Meeting, you may, if you wish, revoke your Proxy by voting in person. Proxies solicited herein will be voted, and if the person solicited specifies in the Proxy a choice with respect to matters to be acted upon, the shares will be voted in accordance with such specification. If no choice is indicated, the Proxy will be voted for the election of the nominees listed on pages 2 to 6 under the caption "Information Concerning Nominees for Director." VOTING PROCEDURE As of March 20, 1998, there were outstanding 42,239,124 shares of the Company's Common Stock, $0.01 par value per share (the "Common Stock"). Each share of Common Stock is entitled to one vote at the Annual Meeting. Only shareholders of record at the close of business on March 20, 1998, will be entitled to vote at the Annual Meeting. Votes cast in person or by Proxy at the Annual Meeting, abstentions and Broker Non-votes (as defined below) will be tabulated by the election inspectors appointed for such Meeting and will be counted for purposes of determining whether a quorum is present. Directors will be elected by the affirmative vote of the holders of a plurality of the shares present (in person or represented by Proxy) and voted on the election of directors at the Annual Meeting. Any other matter submitted to a vote at the Annual Meeting will be approved by the affirmative vote of the holders of a majority of the shares present (in person or represented by Proxy) and entitled to vote on such matter. The election inspectors will treat abstentions on a particular matter as shares that are present and entitled to vote for purposes of determining the approval of such matter. Abstentions, therefore, will have the same effect as a vote against a particular matter. If a broker submits a Proxy indicating that it does not have discretionary authority as to certain shares to vote on a particular matter (a "Broker Non-vote"), those shares will not be treated as present and entitled to vote for purposes of determining the approval of such matter. 1 5 ELECTION OF DIRECTORS Charles O. Rossotti resigned as Chairman of the Board of Directors and Director of the Company on November 7, 1997, to become Commissioner of the Internal Revenue Service. Upon Mr. Rossotti's resignation, the directors voted to reduce the number of directors constituting the Board from eleven members to ten members. Accordingly, ten directors are to be elected at the Annual Meeting, each to hold office until the next annual meeting of shareholders of the Company and until his or her successor is elected and qualified. The directors will be elected by the affirmative vote of the holders of a plurality of the shares present (in person or represented by Proxy) and voted on the election of directors. Unless otherwise directed, it is the intention of the persons named in the Proxy to vote such Proxy for the election of the nominees listed under the caption "Information Concerning Nominees for Director" on pages 2 to 6. All of the nominees are now directors of the Company. In the event that any nominee should be unable to accept the office of director, which is not anticipated, it is intended that the persons named in the Proxy will vote for the election of such other person in the place of such nominee for the office of director as the Board of Directors may recommend. Descriptive information as to each nominee is set forth below under the caption "Information Concerning Nominees for Director." INFORMATION CONCERNING NOMINEES FOR DIRECTOR
YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- Paul A. Brands................ 56 Chairman of the 1992 Mr. Brands has served as Chairman of Board of the Board of Directors since December Directors, Chief 1997 and as a member of the Board of Executive Directors since October 1992. Mr. Officer, and Brands served as Vice Chairman of the Director Board of Directors from October 1992 to December 1997. He was designated Chief Executive Officer in September 1993. He supervised the Federal Consulting and Systems Group from 1977 to 1992; Data Base Management, Inc. from 1990 to 1992; and the Company's interest in Bell Atlantic Systems Integration Corporation from 1989 to 1992. Mr. Brands joined the Company in 1977. Philip M. Giuntini............ 51 President and 1992 Mr. Giuntini has served as President Director and a member of the Board of Directors since October 1992. He supervised the business units responsible for the energy market from 1989 to 1992, the business units responsible for the telecommunications market from 1985 to 1992, and the business units responsible for other systems integration and services markets from 1982 to 1992. Mr. Giuntini joined the Company in 1970.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- Patrick W. Gross................ 53 Chairman of the 1974 Mr. Gross is one of the Company's Executive founders and has served AMS Committee of the continuously as an executive officer Board of since 1970. Since December 1997, Mr. Directors and Gross has served as Chairman of the Director Executive Committee of the Board of Directors, an office he also held from 1983 to 1989. He also served as Vice Chairman of the Board of Directors from February 1989 to September 1997. He is a director of Capital One Financial Corporation, Computer Network Technology Corporation, and Landmark Systems Corporation, all of which are publicly-held entities. He is also Chairman of the Board of Directors of Baker & Taylor Holdings, Inc., which is a non-publicly held entity. Frank A. Nicolai................ 56 Executive Vice 1974 Mr. Nicolai is one of the Company's President, founders and has served continuously Secretary, as an executive officer since 1970. Treasurer, and He was elected Treasurer in 1980 and Director Secretary in 1987. Daniel J. Altobello............. 57 Director 1993 Mr. Altobello has been Chairman and Director of ONEX Food Services, Inc. since September 1995 and President of Caterair International Corporation since December 1989. He served as Chairman of the Board and Chief Executive Officer of Caterair International Corporation from December 1989 through September 1995. From April 1988 through December 1989, Mr. Altobello was Executive Vice President of Marriott Corporation and President of Marriott Airport Operations. He presently serves as a director of MESA Air Group, Inc. and World Airways, Inc., both of which are public companies. He also currently serves as a director of CareFirst, Inc., CareFirst of Maryland, Inc., Colorado Prime Corporation, and Atlantic Aviation Holdings, and a member of the Advisory Board of Thayer Capital Partners, a merchant bank. None of these entities is publicly held.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- James J. Forese................ 62 Director 1989 Mr. Forese is currently Executive Vice President and President, International Operations of IKON Office Solutions. From 1995 to 1996 he served as Executive Vice President, Chief Operating Officer, and Director of ALCO Standard Corporation. From 1993 to 1995 he served as General Manager of IBM Customer Financing and Chairman of IBM Credit Corporation. He served as IBM Vice President, Finance from 1990 to 1993 and IBM Vice President and Group Executive, IBM World Americas Group from 1988 to 1990. He currently serves as a director of NUI Corporation and Unisource Worldwide, both of which are publicly-held corporations. He joined ALCO/IKON in 1996. Dorothy Leonard................ 56 Director 1991 Dr. Leonard has been a Professor at the Harvard University Graduate School of Business Administration since 1993. Prior to this, she served as an Associate Professor from 1989 to 1993, and an Assistant Professor from 1983 to 1989, at the Harvard University Graduate School of Business Administration. Dr. Leonard also serves as an independent industrial consultant to various companies including, among others, AT&T Bell Laboratories, Digital Equipment Corporation, and IBM Corporation.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- W. Walker Lewis................ 53 Director 1995 Mr. Lewis presently is Chairman of Devon Value Advisers. From January 1995 to April 1998 he was a Senior Advisor with SBC Warburg Dillon Read Inc. (previously Dillon, Read & Co., Inc.). He was Managing Director, Strategic Services, and a member of the Management Committee of Kidder, Peabody & Co., Inc. from April 1994 to December 1994. From April 1992 through December 1993 he served as President of Avon North America, and from March 1992 to December 1992 he served as Executive Vice President of Avon Corporate. He currently serves as a director of Jostens, Inc. and Owens Corning, which are publicly-held corporations, and Marakon Associates and Mrs. Fields Original Cookies, which are non-publicly held entities. Mr. Lewis previously served as a director of AMS from February 1981 through May 1992. Frederic V. Malek.............. 61 Director 1985 Mr. Malek has been Chairman of Thayer Capital Partners, a merchant bank, since March 1993. He was Co-Chairman, CB Commercial Real Estate Group (a real estate brokerage and management firm) from April 1989 to October 1996. He was Campaign Manager for the re-election campaign of President Bush and Vice President Quayle from December 1991 to November 1992. He was Vice Chairman of Northwest Airlines from 1990 to December 1991, and was President of Northwest Airlines from 1989 to 1990. From 1988 to 1989 he was Senior Advisor to The Carlyle Group (investment bank), and from 1981 to 1988 he was President of Marriott Hotels and Resorts. Mr. Malek also serves as a director of Automatic Data Processing, Inc.; National Education Corporation; various Paine-Webber mutual funds; CB Commercial Real Estate Group; FPL Group; Northwest Airlines; Choice Hotels, Inc.; and Manor Care, Inc., all of which are publicly-held entities.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- Alan G. Spoon................ 46 Director 1996 Mr. Spoon has been Chief Operating Officer and Director of The Washington Post Company since 1991, and has also served as President since 1993. Mr. Spoon joined The Washington Post Company in 1982. From 1989 to 1991, he was President of Newsweek, Inc. During that time he also was responsible for Post-Newsweek television stations. From 1987 to 1989, he was The Washington Post Company's Chief Financial Officer. He currently serves as a director of The International Herald Tribune, and City Search, Inc., and is a member of the Advisory Board of Polaris Ventures, L.P., a venture capital fund, all of which are non-publicly held entities. He also presently serves as a director of Human Genome Sciences, Inc., a publicly-held company.
6 10 INFORMATION CONCERNING EXECUTIVE OFFICERS Information concerning Paul A. Brands, Chairman and Chief Executive Officer; Philip M. Giuntini, President; Patrick W. Gross, Chairman of the Executive Committee of the Board of Directors; and Frank A. Nicolai, Executive Vice President, Secretary, and Treasurer, is set forth above under the caption "Information Concerning Nominees for Director."
NAME AGE POSITION BACKGROUND ---- --- -------- ---------- Fred L. Forman................ 54 Executive Dr. Forman is currently in Europe on a Vice President two- to three-year special assignment to perform various management duties with the Company's telecommunications group and overall European management program. In addition, he presently coordinates the Company's Engagement Management Program and participates in several executive steering committees with key clients. He joined the Company in 1971.
PRINCIPAL STOCKHOLDERS The following table sets forth, as of March 20, 1998, the number and percentage of outstanding shares of Common Stock beneficially owned by (i) all persons known by the Company to own 5% or more of such shares, (ii) each director, (iii) each executive officer, and (iv) all executive officers and directors as a group. Unless otherwise noted below, each person or 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.
AMOUNT OF PERCENT OF BENEFICIAL CLASS OF NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING SHARES(2) - ------------------------------------ --------- ------------------ Daniel J. Altobello(3)...................... 18,844 Common-0.1% 6550 Rock Spring Drive Bethesda, MD 20817 Paul A. Brands(3)(4)........................ 511,991 Common-1.2% 4050 Legato Road Fairfax, VA 22033 James J. Forese(3).......................... 85,124 Common-0.2% 825 Duportail Road Wayne, PA 19087 Fred L. Forman(4)........................... 270,545 Common-0.6% 4050 Legato Road Fairfax, VA 22033 Philip M. Giuntini(3)(4)(5)................. 481,875 Common-1.1% 4050 Legato Road Fairfax, VA 22033
7 11 Patrick W. Gross(3)(4)(6)....................... 706,097 Common-1.7% 4050 Legato Road Fairfax, VA 22033 Dorothy Leonard(3).............................. 9,457 Common-0.0% The Harvard University Graduate School of Business Administration 522 Soldiers Field Road Boston, MA 02163 W. Walker Lewis(3).............................. 4,268 Common-0.0% 535 Madison Avenue New York, NY 10022 Frederic V. Malek(3)............................ 17,093 Common-0.1% 901 15th Street, N.W. Suite 300 Washington, D.C. 20005 Frank A. Nicolai(3)(4)(7)....................... 541,154 Common-1.3% 4050 Legato Road Fairfax, VA 22033 Charles O. Rossotti(8).......................... 1,338,728 Common-3.2% 4050 Legato Road Fairfax, VA 22033 Alan G. Spoon(3)(9)............................. 3,750 Common-0.0% 1150 15th Street, N.W. Washington, D.C. 20071 All executive officers and directors............ 3,988,926 Common-9.5% as a group (twelve persons)(10)
(1) The amount of beneficial ownership includes stock options granted to directors and executive officers which have vested and are or will become exercisable within 60 days of March 20, 1998. Accordingly, Mr. Altobello has 16,594 options vested and exercisable; Mr. Brands has 24,300 options vested and exercisable; Mr. Forese has 8,249 options vested and exercisable; Dr. Forman has 12,150 options vested and exercisable; Mr. Giuntini has 65,459 options vested and exercisable; Mr. Gross has 13,500 options vested and exercisable; Dr. Leonard has 1,833 options vested and exercisable; Mr. Lewis has 3,749 options vested and exercisable; Mr. Malek has no options vested and exercisable; Mr. Nicolai has 13,500 options vested and exercisable; Mr. Rossotti has no options vested and exercisable; and Mr. Spoon has 1,750 options vested and exercisable. In addition, Mr. Giuntini's beneficial ownership includes 41,159 vested and exercisable options granted to Donna E. Deeley, his spouse and a Vice President of the Company. All executive officers and directors as a group (twelve persons) have beneficial ownership of 161,083 options vested and exercisable within 60 days of March 20, 1998. (2) All amounts and percentages of Common Stock were calculated to include stock options vested and exercisable for those individual directors and executive officers who had such stock options. The number of shares of Common Stock was calculated as of March 20, 1998. (3) Indicates a director of the Company. (4) Indicates an executive officer of the Company. 8 12 (5) The amount includes 69,073 shares and 41,159 options owned by Mr. Giuntini's spouse, a Vice President of the Company, who has the sole power to vote and dispose of such shares. Mr. Giuntini disclaims beneficial ownership with respect to the shares owned by his spouse. (6) 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 those shares. (7) 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. (8) The amount includes 179,750 shares each owned by two trusts, totaling 359,500 shares, for the benefit of Mr. Rossotti's daughter and son, respectively, of which Mr. and Mrs. Rossotti are co-trustees. Mr. and Mrs. Rossotti share joint power to vote and dispose of those shares. The amount also includes 876,853 shares jointly owned by Mr. and Mrs. Rossotti, who share joint power to vote and dispose of such shares. (9) The amount includes 2,000 shares jointly owned by Mr. Spoon and his spouse, who share joint power to vote and dispose of such shares. (10) This group includes Charles O. Rossotti, who resigned as Chairman of the Board of Directors and Director effective November 7, 1997. 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, 1997 (the "1997 fiscal year"), and representations by reporting persons that no other reports were required for the 1997 fiscal year, all Section 16(a) reporting requirements were met, except as follows. Mr. Giuntini filed a Form 5 for the 1997 fiscal year late. Such Form 5 reflected two transactions that were not timely reported: a gift of shares of Common Stock made by his spouse to a charitable foundation in each of 1996 and 1997. Mr. Giuntini's spouse had the sole power to vote and dispose of such shares, and Mr. Giuntini disclaims beneficial ownership with respect to the shares. 9 13 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table summarizes the compensation paid or accrued by the Company during the three fiscal years ended December 31, 1997, to the Company's executive officers.
ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------- ---------------------- AWARDS PAYOUTS ------ ------- SHARES UNDERLYING OPTIONS (NO. LTIP ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OTHER OF SHARES)(3) PAYOUT(4) COMPENSATION(5) - --------------------------- ---- ------ ----- ----- --------- -------- ------------ Paul A. Brands 1997 $ 304,000 $ 0 $ 0 0 $ 0 $ 8,427 Chairman of the Board 1996 301,167 0 0 17,700 0 7,904 of Directors, Chief Executive 1995 282,917 287,000 0 8,100 598,500 7,904 Officer, and Director Charles O. Rossotti 1997 209,291 0 0 0 0 8,427 Formerly Chairman of the 1996 250,000 0 0 0 0 7,904 Board of Directors and 1995 250,000 250,000 0 0 0 7,904 Director Philip Giuntini 1997 304,000 0 0 0 0 8,427 President and Director 1996 301,167 0 0 17,700 0 7,904 1995 282,917 287,000 0 8,100 598,500 7,904 Patrick W. Gross 1997 292,000 0 0 0 0 8,427 Chairman of the Executive 1996 290,547 0 0 8,850 0 7,904 Committee of the Board of 1995 270,833 192,500 0 4,050 577,500 7,904 Directors and Director Frank A. Nicolai 1997 268,000 0 0 0 0 8,427 Executive Vice President, 1996 265,500 150,750 0 8,850 0 7,904 Secretary, Treasurer, 1995 249,167 177,100 0 4,050 354,200 7,904 and Director Fred L. Forman 1997 303,667 229,500 9,959(2) 0 0 8,427 Executive Vice 1996 289,975 219,000 0 8,850 0 7,904 President 1995 270,333 192,500 0 4,050 385,000 7,904
(1) All amounts were awarded based on the achievement of annual performance goals under single or multi-year incentive compensation plans. (2) This amount represents foreign taxes paid by the Company in connection with compensation paid to Mr. Forman for services performed for the Company abroad. (3) Each of these awards of Common Stock is associated with performance under individual incentive compensation plans and was made by the appropriate Board committee pursuant to a shareholder-approved stock option plan. (4) All amounts represent the final cash payment awarded for successful completion of multi-year performance indicators of individual incentive compensation plans. (5) These amounts represent the Company's contribution to special individual retirement accounts pursuant to the AMS Simplified Employee Pension/IRA Plan. 10 14 OPTION GRANTS IN FISCAL 1997 No stock option grants were made to the Company's executive officers during the Company's 1997 fiscal year. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES Shown below is information with respect to exercises by the Company's executive officers during the Company's 1997 fiscal year of options to purchase shares of Common Stock pursuant to the 1996 Amended Stock Option Plan F ("Plan F"), and earlier stock option plans. Also shown is information with respect to certain unexercised options to purchase shares of Common Stock held by the Company's executive officers as of the end of the Company's 1997 fiscal year.
NUMBER OF NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT ACQUIRED END OF FISCAL YEAR END OF FISCAL 1997(2) NAME ON VALUE --------------------------- ----------------------- ---- EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE -------- ----------- ----------- ------------- ----------- ------------- Paul A. Brands . . . . . . . . . . . 22,105 $ 258,074 37,125 1,500 $ 186,863 $ 0 Charles O. Rossotti . . . . . . . . . . 0 0 0 0 0 0 Philip M. Giuntini . . . . . . . . . . 5,008 57,244 52,866 1,500 356,516 0 Patrick W. Gross . . . . . . . . . . 4,725 85,159 13,500 17,288 37,594 178,238 Frank A. Nicolai . . . . . . . . . . . 0 0 13,500 750 38,869 0 Fred L. Forman . . . . . . . . . . . . 0 0 31,136 750 228,415 0
(1) Based on the market value of the Common Stock on the date of exercise (as measured by the NASDAQ closing bid price), minus the option's exercise price. (2) Based on the market value of the Common Stock on the last trading day of 1997 (as measured by the NASDAQ closing bid price of $19.50), minus the option's exercise price. 11 15 LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR Awards under the Company's long-term incentive compensation plans are based on the Company's attainment of pre-tax income targets. In view of the Company's poor financial performance in 1996, no incentive compensation payments would have been made under the multi-year incentive compensation plans in effect for executive officers for the 1996-1997 performance period. In order to be able to provide meaningful incentives for the executive officers, the Compensation Committee terminated those two-year plans in mid-1997, replacing them with similar two-year plans for the 1997-1998 performance period. The Company's pre-tax profit for 1997 also ultimately proved to be considerably lower than initially targeted, making incentive compensation payments similarly unlikely under the two-year plans put into effect in mid-1997. At its February 1998 meeting, therefore, the Compensation Committee terminated the plans for the 1997-1998 period, and approved new two-year plans for 1998-1999. Had the performance goals for the 1997-1998 period set forth in the plans been met, the executive officers would have been entitled to receive the incentive compensation indicated in the table below.
PERFORMANCE OR ESTIMATED NUMBER OTHER PERIOD UNTIL FUTURE PAYOUTS OF SHARES MATURATION OR ------------------------------------------------ NAME(2) (#) PAYMENT THRESHOLD($) TARGET ($) MAXIMUM($)(1)(2) ------- --- ------- ------------ ---------- ---------------- Paul A. Brands.............................. 4 1997-98 $ 0 $ 1,610,000 -- Charles O. Rossotti......................... -- -- -- -- -- Philip M. Giuntini.......................... 4 1997-98 0 1,610,000 -- Patrick W. Gross............................ 4 1997-98 0 930,000 -- Frank A. Nicolai............................ 4 1997-98 0 852,000 -- Fred L. Forman.(1).......................... 2 1997-98 0 486,000 --
(1) Mr. Forman's eligibility for additional incentive compensation based on individual annual goals is not included in this table as long-term incentive compensation. (2) If the Compensation Committee determines that the officer has exceeded the performance goals set forth in his incentive compensation plan, the Committee may increase his 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. Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate future filings, including this Proxy Statement, in whole or in part, the following report and the Performance Graph shall not be incorporated by reference into any such filings. COMPENSATION COMMITTEE REPORT OF EXECUTIVE COMPENSATION COMPOSITION AND RESPONSIBILITIES OF COMPENSATION COMMITTEE The Compensation Committee of the Board of Directors is responsible for developing and making recommendations to the Board of Directors with respect to the Company's compensation policies generally. It is composed entirely of outside directors who have never served as officers of the Company or its affiliates (the "Outside Directors"). The Compensation Committee approves the compensation plans for the Company's executive officers, including the Chief Executive Officer (the "CEO"), and on an annual basis determines the compensation to be paid to the executive officers. The Compensation Committee is responsible for the granting and administration of stock options and incentive compensation granted to the executive officers. The Compensation Committee has furnished the following report for fiscal 1997: 12 16 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 The Company's executive compensation program consists of three main components: (i) annual base salary, (ii) potential for an annual cash bonus and awards of stock options based on Company pre-tax income, the profit contribution of a particular business unit, individual performance, or some combination of these factors, and (iii) the opportunity to earn long-term cash and stock-based incentives which are intended to encourage the achievement of superior results over time and to align executive officer and shareholder interests. In addition to research and recommendations furnished by the Company's senior management, the Compensation Committee has relied, inter alia, on information furnished through executive compensation surveys by a recognized compensation consulting firm, and information known to various members of the Board of Directors. The Compensation Committee compares salaries and other elements of executive compensation with the compensation paid to executives in technology and consulting firms which are actual competitors of the Company. Few of these companies are in the Hambrecht & Quist Technology Stock Index, the peer index chosen by the Company for comparison in the "Shareholder Return Performance Graph" below, because their shares are not publicly traded. They include, for example, the consulting divisions of certain Big 6 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 Company's Simplified Employee Pension/IRA Plan, as are available generally to the Company's professional staff, except that the executive officers do not participate in the Company's Profit-Sharing Plan or Employee Stock Purchase Plan. The Company does not provide material perquisites to any of its executive officers. ANNUAL BASE SALARY. The Compensation Committee determines the annual base salary of each of the Company's executive officers, including the CEO. Changes in base salary are generally made effective on March 1. The same principles are applied in setting the salaries of all executive officers to ensure that salaries are competitively established. Salaries are determined by considering the officer's potential duties and responsibilities within the Company and his or her business unit, and the 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 incentive plans, particularly incentive compensation plans tied to multi-year performance periods. INCENTIVE COMPENSATION PLANS. Each executive officer of the Company generally participates in incentive compensation plans of one to three years in duration. These plans are similar to multi-year incentive plans in which other members of the Company's professional staff participate. Under such plans, the 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 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. 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 13 17 considered advances against the multi-year incentive compensation amounts. Such interim cash payments are significantly less than a ratable percentage of the projected incentive compensation payable on successful completion of a multi-year plan. For example, successful completion of the first year of a two-year plan typically would entitle the executive to payment of 25% of target cash incentive compensation. Stock options in connection with multi-year plans also are granted according to a schedule specified in the plan, typically including a small percentage of options granted at the time the plans are approved by the Compensation Committee. Fiscal 1997 was scheduled to be the second year of two-year compensation plans for Patrick W. Gross, Paul A. Brands, Philip M. Giuntini, Frank A. Nicolai, and Fred L. Forman. Charles O. Rossotti as always, had a one-year incentive compensation plan for 1997. All of these plans included the same pre-tax income target as a financial goal. In the cases of Messrs. Nicolai and Forman, the incentive targets also included individual goals based on their respective areas of responsibility, such as achieving operational goals within budget, improving the Company's administrative processes, and expanding the Company's Achieving Breakthrough Performance program. 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 thereof. Each plan also included higher award multiples for performance which exceeded the targets by a stated percentage. In view of the Company's poor performance for 1996, however, no incentive compensation payments would have been made under the 1996-1997 plans. To provide appropriate incentives for the Company's most senior officers, therefore, the Compensation Committee determined in mid-1997 to terminate the 1996-1997 plans and replace them with similar plans for 1997-1998. In February 1998, the Compensation Committee determined that the Company fell considerably short of its financial goals for 1997; no incentive compensation based on financial goals would be payable for 1997. Accordingly, the Compensation Committee again determined to terminate the 1997-1998 multi-year plans, and approved new two-year plans for 1998-1999 for the executives based on the Company's new pre-tax profit goals for that period. The Compensation Committee determined however that Mr. Forman had achieved his non-financial performance goals, and therefore earned 75% of his target cash payment based on such non-financial goals. This amount is shown above in the Summary Compensation Table under "Annual Compensation Bonus." The Compensation Committee in February 1998 also decided not to grant stock options to any executive officer for the 1997 performance period because of the Company's failure to achieve its pre-tax income target. POLICY ON DEDUCTIBILITY OF COMPENSATION Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the allowable deduction for compensation paid or accrued with respect to persons who as of the end of the year are employed as the chief executive officer and each of the four most highly compensated executive officers of a publicly-held corporation is limited to no more than $1 million per year for fiscal years beginning on or after January 1, 1994. This limitation does not apply to compensation payable to the Company's current executive officers consisting of stock options issuable under Plan F or earlier stock option plans, nor to compensation payable under certain performance-based compensation plans approved by shareholders. The Compensation Committee has taken certain actions to minimize the adverse effects of Section 162(m) on the after-tax income of the Company. In particular, as recommended by the Compensation Committee, the 1996 Incentive Compensation Plan for Executive Officers (the "IC Plan") was presented to and approved by the shareholders at the 1996 annual meeting of shareholders of the Company. Grants to executive officers of incentive compensation based on pre-tax income are generally expected to be covered by the IC Plan when such coverage is consistent with the Compensation Committee's goals. The IC Plan significantly limits the Compensation Committee's discretion regarding the structure and amount of incentive compensation paid to an employee covered by such Plan. Accordingly, not all incentive compensation payable to executive officers is paid pursuant to the IC Plan. The Compensation Committee projects that it is unlikely that deductions will be lost as a result of this practice. The Compensation Committee will continue to monitor whether compensation that is limited by Section 162(m) is likely to exceed the deduction limitations under Section 162(m), and the Compensation Committee is expected to take appropriate actions to reduce the likelihood of a loss of deductions. CHIEF EXECUTIVE OFFICER COMPENSATION The Chief Executive Officer's annual base salary is established by the Compensation Committee using the same criteria as discussed above for the executive officers. Paul A. Brands, who has served as Chief Executive Officer of the Company since September 1993, received an annual base salary of $304,000 for 1997, the same base 14 18 salary he received for 1996. The Compensation Committee did not base the decision to pay Mr. Brands the same base salary for 1997 on any specific corporate performance factors. Mr. Brands' incentive compensation payments are determined by the Compensation Committee based on targets for the Company's pre-tax income, collection of accounts receivable, and certain other financial and non-financial goals. Because the Company did not meet its pre-tax income targets for 1997, as determined by the Compensation Committee in February 1998, Mr. Brands did not receive an incentive compensation payment or stock option award for 1997. At its February 1998 meeting, the Compensation Committee also decided to increase Mr. Brands' base salary to $350,000 as of March 1, 1998. Frederic V. Malek (Chairman) Daniel J. Altobello James J. Forese Dorothy Leonard W. Walker Lewis Alan G. Spoon 15 19 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, 1992, 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, 1992, was $100 and that all dividends were reinvested, although the Company has never paid 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. [GRAPH]
================================================================================================================ 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ---------------------------------------------------------------------------------------------------------------- AMSY Common Stock $100 $ 89 $130 $202 $248 $197 - ---------------------------------------------------------------------------------------------------------------- S&P 500 Composite Index $100 $110 $112 $153 $189 $252 - ---------------------------------------------------------------------------------------------------------------- Hambrecht & Quist Technology/Software $100 $107 $135 $193 $235 $284 ================================================================================================================
16 20 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 four directors, all of whom are executive officers of the Company: Patrick W. Gross (Committee Chairman), Paul A. Brands, Philip M. Giuntini, 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 1997. The Stock Option/Award Committee is presently composed of four directors, all of whom are executive officers of the Company: Paul A. Brands (Committee Chairman), Patrick W. Gross, Philip M. Giuntini, and Frank A. Nicolai. The Stock Option/Award Committee administers the Company's employee stock option plans, except as noted below. These directors are eligible to receive options under the plans, but options, if any, awarded to them are granted and administered by the Compensation Committee. The Stock Option/Award Committee also administers the Company's Profit-Sharing Plan, a stock award plan. Directors and executive officers are not eligible to participate in the Profit-Sharing Plan. The Stock Option/Award Committee meets as required and met twice during 1997. The Compensation Committee is presently composed of six Outside Directors: Frederic V. Malek (Committee Chairman), Daniel J. Altobello, James J. Forese, Dorothy Leonard, W. Walker Lewis, 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 1997, the Compensation Committee met twice. The Audit Committee is presently composed of four Outside Directors: James J. Forese (Committee Chairman), Daniel J. Altobello, Dorothy Leonard, and Alan G. Spoon. This Committee has the responsibility for making recommendations to the Board of Directors as to the independent accountants of the Company; for reviewing with the independent accountants, upon completion of their audit, the scope of their examination, any recommendations they may have for improving internal accounting controls, management systems, or choice of accounting principles, and other matters; and for reviewing generally the accounting control procedures of the Company. In 1997, the Audit Committee met five times. The Board of Directors met five times during 1997. 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 are currently entitled to receive fees of $5,000 per Board meeting attended, plus travel expenses, and such fees and expenses were, in fact, paid for all meetings attended during fiscal 1997. In addition, Outside Directors were paid a retainer of $5,000 per year during fiscal 1997. Under the Company's Outside Directors 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 participate in the Deferred Compensation Plan and deferred receipt of his annual meeting fees for 1997. Outside Directors also receive automatic grants of stock options, which vest over five years, 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. The numbers of options reported below in this paragraph are the numbers of the original grants and do not give effect to the June 1992, October 1994, or January 1996 stock splits to the extent such 17 21 splits occurred after the date of grant. All options granted to Outside Directors vest at the rate of 1/60th a month for each month the Outside Director continues to serve as a director. Pursuant to a prior stock option plan, each Outside Director in May 1988 was granted 5,000 options to purchase shares of Common Stock. James J. Forese, who became a director in November 1989, was granted 5,000 options on November 10, 1989. Dorothy Leonard, who became a director in September 1991, was granted 5,000 options on September 27, 1991. Under 1992 Amended and Restated Stock Option Plan E, as amended ("Plan E"), each new Outside Director was automatically granted 5,000 options (such number subject to adjustments for splits) upon first becoming a director, and each Outside Director was automatically granted an additional 5,000 options (such number subject to adjustments for splits), vesting over five years, when any options previously granted have fully vested. Plan F provides for the grant of the same amount of options to Outside Directors. 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. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Frederic V. Malek, James J. Forese, Dorothy Leonard, Daniel J. Altobello, W. Walker Lewis, and Alan G. Spoon served as members of the Compensation Committee throughout fiscal 1997 and continue to serve as members. Mr. Malek is Chairman of the Compensation Committee. During 1997, there were no Compensation Committee interlocks, and there was no insider participation in the executive compensation decisions of the Company. CERTAIN TRANSACTIONS Shaw, Pittman, Potts & Trowbridge, general counsel to the Company, earned fees and incurred reimbursable expenses totaling approximately $4 million from AMS in connection with legal services performed for the Company during 1997. Barbara M. Rossotti, a member of the firm of Shaw, Pittman, Potts & Trowbridge, is the spouse of Charles O. Rossotti, who served as Chairman of the Board of Directors and Director of the Company until his resignation on November 7, 1997. OTHER MATTERS A representative from Price Waterhouse 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 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 such Meeting, the persons named in the enclosed Proxy will vote thereon at the Meeting, or any adjournment thereof, as they determine to be in the best interests of the Company. Under the rules of the Commission, the date by which proposals of shareholders of the Company intended to be presented at the 1999 annual meeting of shareholders must be received by the Company for inclusion in the Proxy Statement and form of Proxy is December 11, 1998. Notwithstanding the aforementioned deadline, under the Company's By-laws, a stockholder must follow certain other 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 must receive notice of any such proposal no earlier than February 7, 1999, and no later than March 9, 1999, in the case of proposals for the 1999 annual meeting of shareholders. 18 22 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 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 Company's By-laws shall be disregarded. A copy of the Company's 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. ANNUAL REPORT A copy of the 1997 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 "1997 Financial Report," contains all of the financial information (including the Company's audited financial statements), and certain general information, previously published in the Company's Annual Report. Appendix 1 is incorporated herein by reference. A copy of the Company's 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, 1998 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. 19 23 APPENDIX 1 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 1997 FINANCIAL REPORT CONTENTS - -------------------------------------------------------------------------------- Business of AMS 1 Financial Statements and Notes 3 Report of Independent Accountants 22 Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Assumptions Underlying Certain Forward-Looking Statements and Factors That May Affect Future Results 30 Five-Year Financial Summary 32 Five-Year Revenues by Target Market 33 Selected Quarterly Financial Data and Information on AMS Stock 34 Other Information 35
24 BUSINESS OF AMS OVERVIEW With 1997 revenues of $872 million, the business of American Management Systems, Incorporated and its wholly-owned subsidiaries ("AMS" or the "Company") is to partner with clients to achieve breakthrough performance through the intelligent use of information technology. AMS provides a full range of consulting services from strategic business analysis to the full implementation of solutions that provide genuine results, on time and within budget. AMS measures success based on the results and business benefits achieved by its clients. AMS is a trusted business partner for many of the largest and most respected organizations in the markets in which it specializes. Each year, approximately 85-90% of the Company's business comes from clients it worked with in previous years. Organizations in AMS's target markets -- telecommunications firms; financial services institutions; state and local governments and education organizations; federal government agencies; and other corporate clients -- have a crucial need to exploit the potential benefits of information and systems integration technology. The Company helps clients fulfill this need by continuing to build a professional staff which is composed of experts in the necessary technical and functional disciplines; managers who can lead large, complex systems integration projects; and business and computer analysts who can devise creative solutions to complex problems. Another significant component of AMS's business is the development of proprietary software products, either with its own funds or on a cost-shared basis with other organizations. These products are principally licensed as elements of custom tailored systems and, to a lesser extent, as stand-alone applications. The Company expended $50.6 million in 1997, $30.4 million in 1996, and $23.6 million in 1995 for research and development associated with proprietary software; of which $30.7 million in 1997, $26.0 million in 1996, and $19.4 million in 1995 was expensed in the accompanying financial statements. As a percentage of revenues, license and maintenance fee revenues were less than 10% during each of the last three years. In order to serve clients outside of the United States, AMS has expanded internationally by establishing eighteen subsidiaries or foreign branches. Exhibit 21 of this Form 10-K provides a complete listing of all active AMS subsidiaries (and branches), showing name, year organized (acquired), and place of incorporation. Revenues attributable to AMS's non-US clients were approximately $248.6 million in 1997, $278.3 million in 1996, and $178.2 million in 1995. Additional information on revenues, operating profits, and assets attributable to AMS's geographic areas of operation is provided in Note 12 of the consolidated financial statements appearing elsewhere in this financial report. Founded in 1970, AMS services clients worldwide. AMS's approximately 7,100 full-time employees serve clients from corporate headquarters in Fairfax, Virginia and from 55 offices worldwide. 1 25 TELECOMMUNICATIONS FIRMS AMS markets systems consulting and integration services for order processing, customer care, billing, accounts receivable, and collections, both for local exchange and interexchange carriers and for cellular telephone companies. Most of the Company's work involves developing and implementing customized capabilities using AMS's application software products as a foundation. FINANCIAL SERVICES INSTITUTIONS AMS provides information technology consulting and systems integration services to money center banks, major regional banks, insurance companies, and other large financial services firms. The Company specializes in corporate and international banking, consumer credit management, customer value and global risk management, bank management information systems, and retirement plan systems. STATE AND LOCAL GOVERNMENTS AND EDUCATION AMS markets systems consulting and integration services, and application software products, to state, county, and municipal governments for financial management, tax and revenue management, human resources, social services, public safety and transportation functions, and environmental systems. The Company also markets services and application software products to universities and colleges. FEDERAL GOVERNMENT AGENCIES The Company's clients include civilian and defense agencies and aerospace companies. Assignments require knowledge of agency programs and management practices as well as expertise in computer systems integration. AMS's work for defense agencies often involves specialized expertise in engineering and logistics. OTHER CORPORATE CLIENTS The Company also solves information systems problems for the largest firms in other industries, including health care organizations and firms in the gas and electric utilities industry. AMS has systems integration and operations projects with several large organizations and intends to pursue more. AMS provides technical training and technical consulting services in software technology for large scale business systems. 2 26 FINANCIAL STATEMENTS AND NOTES American Management Systems, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 (In millions except per share data) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- REVENUES $872.3 $812.2 $632.4 EXPENSES Client Project Expenses 502.3 525.9 348.6 Other Operating Expenses 266.2 210.4 192.3 Corporate Expenses 49.5 48.3 40.8 ------- ------- ------- 818.0 784.6 581.7 INCOME FROM OPERATIONS 54.3 27.6 50.7 OTHER (INCOME) EXPENSE Interest Expense 5.8 3.2 2.3 Other Income (2.9) (1.8) (1.4) ------- ------- ------- 2.9 1.4 0.9 INCOME BEFORE INCOME TAXES 51.4 26.2 49.8 INCOME TAXES 20.2 10.7 20.6 ------- ------- ------- NET INCOME $ 31.2 $ 15.5 $ 29.2 ======= ======= ======= WEIGHTED AVERAGE SHARES 41.4 40.7 39.7 ======= ======= ======= BASIC NET INCOME PER SHARE $ 0.75 $ 0.38 $ 0.73 ======= ======= ======= WEIGHTED AVERAGE SHARES AND EQUIVALENTS 42.3 41.9 40.7 ======= ======= ======= DILUTED NET INCOME PER SHARE $ 0.74 $ 0.37 $ 0.72 ======= ======= =======
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 3 27 American Management Systems, Inc. CONSOLIDATED BALANCE SHEETS
December 31 (In millions except per share data) 1997 1996 - ---------------------------------------------------------------------------------------------------------------------- ASSETS - ---------------------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and Cash Equivalents $ 49.6 $ 62.8 Accounts and Notes Receivable 240.9 247.7 Prepaid Expenses and Other Current Assets 8.4 13.3 ------ ------ 298.9 323.8 FIXED ASSETS Equipment 67.0 62.0 Furniture and Fixtures 22.4 18.4 Leasehold Improvements 13.9 10.7 ------ ------ 103.3 91.1 Accumulated Depreciation and Amortization (58.1) (43.1) ------ ------ 45.2 48.0 OTHER ASSETS Purchased and Developed Computer Software (Net of Accumulated Amortization of $63,400,000 and $50,500,000) 58.0 40.2 Intangibles (Net of Accumulated Amortization of $3,200,000 and $2,600,000) 6.0 6.3 Other Assets (Net of Accumulated Amortization of $815,000 and $15,700,000) 13.3 5.9 ------ ------ 77.3 52.4 ------ ------ TOTAL ASSETS $421.4 $424.2 ====== ======
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 4 28 American Management Systems, Inc. CONSOLIDATED BALANCE SHEETS
December 31 (In millions except per share data) 1997 1996 - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Notes Payable and Capitalized Lease Obligations $ 7.5 $ 53.5 Accounts Payable 10.5 19.6 Accrued Incentive Compensation 24.7 36.1 Other Accrued Compensation and Related Items 32.2 32.3 Deferred Revenues 39.8 20.6 Other Accrued Liabilities 3.5 2.7 Provision for Contract Losses - 18.5 Income Taxes Payable 8.8 7.8 ------ ------ 127.0 191.1 Deferred Income Taxes 3.0 7.7 ------ ------ 130.0 198.8 NONCURRENT LIABILITIES Notes Payable and Capitalized Lease Obligations 27.9 13.7 Other Accrued Liabilities 9.5 1.4 Deferred Income Taxes 15.3 7.2 ------ ------ 52.7 22.3 ------ ------ TOTAL LIABILITIES 182.7 221.1 STOCKHOLDERS' EQUITY Preferred Stock ($0.10 Par Value; 4,000,000 Shares Authorized, None Issued or Outstanding) Common Stock ($0.01 Par Value; 100,000,000 Shares Authorized, 50,115,057 and 49,598,673 Issued and 41,544,299 and 40,939,209 Outstanding) 0.5 0.5 Capital in Excess of Par Value 84.1 75.0 Retained Earnings 188.5 157.3 Currency Translation Adjustment (8.0) (1.1) Common Stock in Treasury, at Cost (8,570,758 and 8,659,464 Shares) (26.4) (28.6) ------ ------ 238.7 203.1 ------ ------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $421.4 $424.2 ====== ======
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 5 29 American Management Systems, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 (In millions) 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 31.2 $ 15.5 $ 29.2 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 17.9 16.1 13.6 Amortization 16.8 23.2 16.6 Deferred Income Taxes 3.2 (9.8) 6.0 Provision for Doubtful Accounts 10.6 15.2 1.6 Provision for Contract Losses (18.5) 18.5 - Changes in Assets and Liabilities: Increase in Trade Receivables (3.7) (56.8) (66.5) Decrease (Increase) in Prepaid Expenses and Other Current Assets 4.8 (4.3) (2.3) Increase in Other Assets (8.2) (7.3) (9.1) (Decrease) Increase in Accrued Incentive Compensation (9.1) 11.2 14.1 (Decrease) Increase in Accounts Payable and Other Accrued Compensation and Liabilities (0.1) 19.0 8.7 Increase (Decrease) in Deferred Revenues 19.0 (5.7) 0.6 Increase in Income Taxes Payable 1.0 5.5 0.5 ------- ------- ------- Net Cash Provided by Operating Activities 64.9 40.3 13.0 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Fixed Assets (15.9) (27.5) (22.5) Purchase of Computer Software (2.3) (5.6) (2.3) Investment in Software Products (31.6) (13.8) (13.7) Other Investments and Intangibles 0.4 0.5 0.4 Proceeds from Sale of Fixed Assets and Computer Software 0.9 0.7 0.5 ------- ------- ------- Net Cash Used in Investing Activities (48.5) (45.7) (37.6) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings 20.0 30.4 26.5 Payments on Borrowings (51.7) (6.7) (5.4) Proceeds from Common Stock Options Exercised 9.1 9.5 5.3 Payments to Acquire Treasury Stock (0.1) (0.5) (0.8) ------- ------- ------- Net Cash (Used) Provided by Financing Activities (22.7) 32.7 25.6 ------- ------- ------- (Decrease) Increase in Currency Translation Adjustment (6.9) (0.3) 0.6 ------- ------- ------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (13.2) 27.0 1.6 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 62.8 35.8 34.2 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 49.6 $ 62.8 $ 35.8 ======= ======= ======= NON-CASH OPERATING AND FINANCING ACTIVITIES: Treasury Stock Utilized to Satisfy Accrued Incentive Compensation Liability $ 2.3 $ 3.4 $ 2.9
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 6 30 American Management Systems, Inc. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In millions)
Common Stock Capital in Currency Total (Par Value Excess of Translation Retained Treasury Stockholders' $0.01) Par Value Adjustment Earnings Stock Equity - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 $0.5 $60.2 $(1.4) $112.6 $(33.6) $138.3 Common Stock Options Exercised - 3.3 3.3 Tax Benefit Related to Exercise of Common Stock Options 1.9 1.9 Currency Translation Adjustment 0.7 0.7 Common Stock Repurchased (0.8) (0.8) Restricted Stock Awarded 2.9 2.9 1995 Net Income 29.2 29.2 ---- ----- ----- ------ ----- ----- Balance, December 31, 1995 0.5 65.4 (0.7) 141.8 (31.5) 175.5 Common Stock Options Exercised - 5.1 5.1 Tax Benefit Related to Exercise of Common Stock Options 4.5 4.5 Currency Translation Adjustment (0.4) (0.4) Common Stock Repurchased (0.5) (0.5) Restricted Stock Awarded 3.4 3.4 1996 Net Income 15.5 15.5 ---- ----- ----- ------ ----- ----- Balance at December 31, 1996 0.5 75.0 (1.1) 157.3 (28.6) 203.1 Common Stock Options Exercised - 4.1 4.1 Tax Benefit Related to Exercise of Common Stock Options 5.0 5.0 Currency Translation Adjustment (6.9) (6.9) Common Stock Repurchased (0.1) (0.1) Restricted Stock Awarded 2.3 2.3 1997 Net Income 31.2 31.2 ---- ----- ----- ------ ----- ----- Balance at December 31, 1997 $0.5 $84.1 $(8.0) $188.5 $(26.4) $238.7 ==== ===== ===== ====== ====== ======
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 7 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES The business of American Management Systems, Incorporated and its wholly-owned subsidiaries ("AMS" or the "Company") is to partner with clients to achieve breakthrough performance through the intelligent use of information technology. AMS is an international business and information technology consulting firm that provides a full range of services: business re-engineering, change management, systems integration, and systems development and implementation. AMS is headquartered in Fairfax, Virginia, with offices in 55 cities worldwide. The Company's primary target markets include telecommunications firms, financial services institutions, state and local governments and education, federal government agencies and other corporate clients. A. Revenue Recognition Revenues on fixed-price contracts are generally recorded using the percentage of completion method based on the relationship of costs incurred to the estimated total costs of the project. Revenues on cost reimbursable contracts and time and material contracts are recorded as labor and other expenses are incurred. Revenues from licenses of "off-the-shelf" software products, where the Company has insignificant remaining obligations, are recorded at the time of delivery, less a proportionate amount deferred to cover the costs required to complete the performance of the contract which is later recognized on a percentage of completion basis. In contracts where the Company has significant obligations to customize the software, all revenues are recognized on a percentage of completion basis. Revenues from software maintenance contracts are recognized ratably over the maintenance period. On benefit-funded contracts (contracts whereby the amounts due the Company are earned based on actual benefits derived by the client), the Company defers recognition of revenues until that point at which management can predict, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the contract. From that point forward revenues are recognized on a percentage of completion basis. When adjustments in contract value or estimated costs are determined, any changes from prior estimates are reflected in earnings in the current period. Any anticipated losses on contracts in progress are charged to earnings when identified. The costs associated with cost-plus government contracts are subject to audit by the U.S. Government. In the opinion of management, no significant adjustments or disallowances of costs are anticipated beyond those provided for in the financial statements. B. Software Development Costs The Company develops proprietary software products using its own funds, or on a cost-shared basis with other organizations, and records such activities as research and development. These software products are then licensed to customers, either as stand-alone applications, or as elements of custom-built systems. The Company accounts for software development costs in accordance with Statement of Financial Accounting Standards No. 86 -- "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed". For projects funded by the Company, significant development costs incurred beyond the point of demonstrated technological feasibility are capitalized and, after the product is available for general release to customers, such costs are amortized on a straight-line basis 8 32 over a period of 3 to 5 years, or other such shorter period as might be required. For projects where the Company has a funding partner, the capital asset is reduced by the amount collected from the partner. The Company recorded $12.5 million of amortization in 1997, $9.3 million of amortization in 1996, and $9.5 million of amortization in 1995. Unamortized costs were $51.9 million and $32.7 million at December 31, 1997 and 1996, respectively. In 1997, the Company reduced the unamortized costs by $4 million representing collections from a funding partner. The Company evaluates the net realizable value of capitalized software using the estimated, undiscounted, net-cash flows of the underlying products. The Company expended $50.6 million in 1997, $30.4 million in 1996, and $23.6 million in 1995 for research and development associated with proprietary software; of which $30.7 million in 1997, $26.0 million in 1996, and $19.4 million in 1995 was expensed in the accompanying financial statements. The Company capitalizes costs incurred for the development or purchase of internal use software at the time when the evaluation and selection of performance requirements are completed and management authorizes funding of the project. Once the product is substantially complete, capitalized costs are amortized on a straight-line basis over the estimated useful life of the software. Purchased software licenses are to be accounted for as set forth in Note 1.C. C. Fixed Assets, Purchased Computer Software Licenses and Intangibles Fixed assets and purchased computer software licenses are recorded at cost. Furniture, fixtures, and equipment are depreciated over estimated useful lives ranging from 3 to 10 years. Leasehold improvements are amortized ratably over the lesser of the applicable lease term or the useful life of the improvement. For financial statement purposes, depreciation is computed using the straight-line method. Purchased software licenses are amortized over two to five years using the straight-line method. Intangibles are generally amortized over 5 to 15 years. D. Income Taxes Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates for the year in which the differences are expected to reverse. Deferred income taxes are provided for timing differences in recognizing certain income, expense, and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the methods of accounting for revenue, capitalized software development costs, restricted stock, and the timing of deductibility of certain reserves and accruals for income tax purposes. A valuation allowance is recorded if it is "more likely than not" that some portion or all of a deferred tax asset will not be realized. E. Earnings Per Share In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings per Share". The Company adopted SFAS No. 128 in the year ended December 31, 1997 as required and restated earnings per share ("EPS") data for all prior periods to conform with SFAS No. 128. 9 33 SFAS No. 128 replaces the presentation of Primary EPS with a presentation of Basic EPS. SFAS No. 128 also requires dual presentation of basic and diluted EPS on the face of the statement of operations and requires a reconciliation of the numerator and denominator used in the basic and fully diluted EPS computations. Basic EPS excludes dilution and is computed by dividing net income by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. F. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying amount approximates fair value because of the short maturity of these instruments. G. Currency Translation For operations outside the United States that prepare financial statements in currencies other than the U.S. dollar, the Company translates income statement amounts at the average monthly exchange rates throughout the year. The Company translates assets and liabilities at exchange rates prevailing as of the Balance Sheet date. The resulting translation adjustments are shown as a separate component of Stockholders' Equity. H. Principles of Consolidation The consolidated financial statements include the accounts of American Management Systems, Incorporated and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. I. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Future actual results could be different due to these estimates. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include: management's forecasts of contract costs and progress towards completion which are used to determine revenue recognition under the percentage-of-completion method, management's estimates of allowances for doubtful accounts, tax valuation allowances, and management's estimates of the net realizable value of purchased and developed computer software and intangible assets. J. Foreign Currency Hedging The Company enters into foreign exchange contracts as a hedge of intercompany balance sheet transactions. Market value gains and losses are recognized, and the resulting credit or debit offset foreign exchange gains or losses on those transactions. For 1997, the Company entered into two such short-term contracts with de minimis value. K. Reclassification Certain prior year information has been reclassified to conform with current year presentations. 10 34 L New Accounting Pronouncements In June 1997, the FASB issued SFAS No. 130 entitled "Reporting Comprehensive Income", which became effective January 1, 1998. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components. All items that are required to be recognized under accounting standards as components of comprehensive income must be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company's principal components of comprehensive income are net income and foreign currency translation adjustments. Given the uncertainty with foreign exchange rates, the Company can not estimate the impact of this pronouncement. This standard will become effective for the Company's 1998 quarterly reporting beginning in the first quarter of 1998. In June 1997, the FASB also issued SFAS No. 131 entitled "Disclosures about Segments of an Enterprise and Related Information" which will become effective for the Company's 1998 calendar year financial statements and will apply to quarterly reporting beginning in the first quarter of 1999. This Statement may change the way public companies, having segments, report information about their business in annual financial statements and may require them to report selected segment information in their quarterly reports issued to stockholders. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues, and its major customers. The Company is currently evaluating the standard to determine the impact on its reporting and disclosure requirements. In October 1997, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 97-2, "Software Revenue Recognition" (SoP 97-2), which provides guidance in recognizing revenue on contracts with multiple elements including software licenses and services, and superseded the previous authoritative literature (SoP 91-1). The SoP is effective for the Company for transactions entered into after December 31, 1997. In February 1998, the AICPA proposed deferring, for one year, the implementation date for certain provisions of SoP 97-2. The Company does not currently believe that the application of SoP 97-2 will have a material impact on its historical practice with respect to the timing of revenue recognition in its consolidated financial statements, subject to the proposed one year deferral of certain provisions. The Company has not determined the effect of implementing SoP 97-2 if the provisions are not deferred when the one year proposed deferral expires. In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SoP 98-1). The SoP is effective for the Company's 1999 fiscal year and requires capitalization of costs related to developing or obtaining internal-use software. Adoption of the SoP is not expected to materially affect results of operations, as the Company is currently accounting for internal-use software generally in accordance with the provisions of this SoP. NOTE 2 -- SIGNIFICANT CUSTOMERS Total revenues from the U.S. Government, comprising 93 clients in 1997, 90 clients in 1996, and 72 clients in 1995, were approximately $171.5 million in 1997, $113.0 million in 1996, and $97.1 million in 1995. No other customer accounted for 10% or more of total revenues in 1997, 1996, or 1995. 11 35 NOTE 3 -- ACCOUNTS AND NOTES RECEIVABLE
December 31 (In millions) 1997 1996 - ---------------------------------------------------------------------------------------------------- Trade Accounts Receivable Amounts Billed $193.1 $205.7 Amounts Not Billed 45.3 48.2 Contract Retention 5.4 11.7 ------ ------ Total 243.8 265.6 Other Receivables 2.1 1.0 Allowance for Doubtful Accounts (5.0) (18.9) ------ ------ Total $240.9 $247.7 ====== ======
The Company enters into large, long-term contracts and, as a result, periodically maintains individually significant receivable balances with certain major clients. At December 31, 1997, the eight largest individual receivable balances totaled approximately $72 million. No other receivable exceeded $5 million. The Company expects to receive all funds due from these clients. Management believes that credit risk, with respect to the Company's receivables, is low due to the credit worthiness of its clients and the diversification of its client base across different industries and geographies. In addition, the Company is further diversified in that it enters into a range of different types of contracts, such as fixed price, cost plus, time and material, and benefits funded contracts. The Company may also, from time to time, work as a subcontractor on particular contracts. The Company performs ongoing evaluations of contract performance as well as an evaluation of the client's financial condition. NOTE 4 -- NOTES PAYABLE AND CAPITALIZED LEASE OBLIGATIONS On December 24, 1996, the Company entered into a syndicated $100 million Multi-Currency Revolving Credit ($80 million) and Term Loan ($20 million) Agreement with Wachovia Bank, NationsBank and Commerzbank. This Agreement replaced the two revolving credit agreements (the NationsBank Agreement and the Wachovia Agreement), totaling $70 million that the Company had immediately preceding the execution of the new credit facility, although outstanding borrowings under the NationsBank Agreement continued in force until they matured in January 1997. On January 6, 1997, a Term Loan of $20 million was funded. The Term Loan bears an interest rate of 6.94%, with monthly interest payments on the unpaid principal balance and quarterly principal payments commencing in April 1999. The Agreement described above contains certain covenants with which the Company must comply. These include (i) maintaining a total debt to total capitalization ratio of not greater than 0.5 to 1.0, (ii) maintaining a fixed charge cover ratio of not less than 2.5 to 1.0, (iii) restrictions on using net worth to acquire other companies or transferring assets to a subsidiary, and (iv) restrictions on declaring or paying cash dividends. At December 31, 1997, the Company was in compliance with all covenants under the Agreement. Effective January 9, 1998, the C